Fellow Shareholders
Against a backdrop of declining stock prices, particularly in the small- and
mid-cap growth sectors of the market, your Fund fell 4.7% in the second
quarter and 10.0% in the first half of 1994. Investors have gravitated toward
cyclical stocks this year, and have punished the higher growth, service
sector stocks that form the heart of New America Growth Fund's investment
program. The decline in net asset value is disappointing as the Fund, a
strong performer over the long term, fared worse than the unmanaged indices
and the Lipper Growth Fund Average, as shown below.
Performance Comparison
Periods Ended 6/30/94
3 Months 6 Months
New America Growth Fund -4.7% -10.0 %
S&P 500 Index 0.4 -3.4
Nasdaq Composite<F1> -5.0 -9.1
Lipper Growth Fund Average -2.6 -6.0
<F1> Principal only
Market Environment
The stock market began the year on a positive note, but the uptrend was
short-lived. In February, the Federal Reserve, for the first time in five
years, initiated a series of interest rate increases in an effort to
restrain what appeared to be an overheating economy. Long-term interest
rates rose nearly two percentage points, driven by investor fears of
impending inflationary pressures as well as the unwinding of leveraged
speculative positions by hedge funds and others. Several measures of
commodity prices, often a harbinger of future trends in consumer prices,
rose ominously, further unsettling investors. The rise in rates triggered a
correction in the stock market, led by small-and mid-sized growth stocks.
The Nasdaq Composite Index finished the first half 12.2% below its high set
in March.
While the economy still appears to be growing steadily, driven by
business investment in capital equipment and consumer purchases of durable
goods such as automobiles and furniture, investors became obsessed with a
perceived currency crisis in the second quarter. Since the economic
recovery in the United States has preceded significant growth in most other
industrialized nations, the trade deficit has widened as U.S. consumers
stepped up their purchases of foreign goods. This coupled with Americans'
newfound appetite for foreign securities, which also necessitates the sale
of U.S. dollars, caused the dollar to fall against several major
currencies, notably the German mark and the Japanese yen. The weak dollar,
in turn, further pressured U.S. interest rates. Lost in the talk of a
"dollar crisis," however, is the fact that the American dollar actually
appreciated significantly in the first half of 1994 against the currencies
of our primary trading partners, Canada and Mexico.
The current stock market correction has been driven by higher interest
rates. In this environment, the stocks of many of the high-growth companies
your Fund emphasizes have been especially hard hit as price/earnings ratios
have contracted in spite of little evidence of a deterioration in either
corporate fundamentals or earnings growth. The best performing sectors in
the first half of 1994 were commodity cyclicals (such as steel and paper
makers) and industrial companies, groups that your Fund's service company
emphasis does not encompass. Among the hardest hit sectors were utilities,
retailers, and gaming companies.
Portfolio Review
The top two contributors to the Fund in the first half were Foundation
Health and United HealthCare, health maintenance organizations. Both
companies continued to generate strong earnings gains and, although Wall
Street still frets over pending health care
legislation, HMOs are increasingly viewed as part of the solution to the
nation's medical cost problem. Another top contributor for both the second
quarter and the first half was Smith International, an energy service
company, which made a very profitable acquisition.
On the negative side of the ledger, gaming and retailing stocks
dominated the list for both the quarter and the half. President Riverboat
Casinos and Autotote, along with the entire gaming sector, fell sharply
when progress in opening new gaming jurisdictions stalled. Several
retailers, including Phillips-Van Heusen and General Nutrition, were also
among the worst contributors as comparable store sales gains began to
moderate. The worst contributor in the first half was CUC International,
the Fund's top contributor in 1993, which is the nation's largest purveyor
of direct mail, discount shopping se rvices. While the company continues to
meet earnings expectations, and we feel its prospects are undiminished, its
valuation has contracted. We believe the stock's setback is temporary.
Portfolio Strategy
In the first six months of 1994, the major change in the portfolio was a
substantial reduction in the proportion of consumer stocks, as shown
below.
Sector Diversification
12/31/93 6/30/94
Financial Services 15% 18%
Consumer Services 49 39
Business Services 32 37
Reserves 4 6
Total 100% 100%
While to some extent the reduction in the Fund's consumer exposure
resulted from the poor performance of the sector, we also sold several
large holdings such as King World Productions, TJX Companies, and McCaw
Cellular Communications, which is in the process of being acquired by AT&T.
Recent additions to the portfolio include two financial services companies,
Franklin Resources, an investment management company, and MGIC Investment,
a private mortgage insurer, as well as a business services company, SunGard
Data Systems, a supplier of analytical support systems and computer
disaster recovery services.
As always, we emphasize companies that dominate their businesses, have
outstanding managements, and develop well-conceived strategies that should
enable them to maintain their above-average earnings growth for the next
three to five years. We remain biased toward smaller and mid-sized growth
companies and prefer those we can hold for a number of years. The
portfolio's current earnings growth, profitability, and valuation
characteristics are shown below.
Financial Comparison
New America
Growth Fund S&P 500
Earnings Growth Rate
Estimated Next Five Years 20.1% 7.0%
Profitability - Return on Equity
Latest 12 Months 18.2% 13.2%
Dividend Yield on Stocks 0.6% 2.9%
P/E Ratio (Based on next 12
months' estimated earnings) 15.4x 14.4x
Outlook
The financial markets have been weak even as the economic environment and
corporate earnings outlook are stronger than at any time in recent years.
Most of the speculative excesses that began to appear in 1993 _ such as an
overheated initial public offering market and a stampede to invest in
emerging markets overseas _ have dissipated. While the stock market is not
cheap by historical standards, valuations appear more reasonable as stocks
have declined and corporate earnings are rising. The growth stock universe,
in particular, looks more attractive. While investors are currently
enamored of cyclical stocks, these companies are unlikely to sustain their
rates of growth.
The market's performance in the second half of 1994 will depend in
large measure on the direction of interest rates. We do not believe that
long-term rates will rise significantly from current levels, but it will be
difficult for the stock market to gain ground if they do.
While 1994 has been difficult for the Fund thus far, we are confident
that our philosophy of investing in companies with above-average,
consistent earnings growth will provide our shareholders with favorable
returns over the next several years.
Respectfully submitted,
(signature)
John H. Laporte
President and Chairman
of the Investment Advisory Committee
(signature)
Brian W.H. Berghuis
Executive Vice President
July 10, 1994
Twenty-Five Largest Holdings
June 30, 1994
Percent of
Company Net Assets
CUC International 3.7%
Foundation Health 3.2
United HealthCare 3.0
BLOCKBUSTER Entertainment 2.6
First Financial Management 2.3
State Street Boston 2.2
Alco Standard 2.1
SunGard Data Systems 2.1
Sbarro 2.0
Wal-Mart 2.0
Franklin Resources 2.0
FIserv 1.8
Catalina Marketing 1.7
Autotote 1.7
Columbia/HCA Healthcare 1.7
Phillips-Van Heusen 1.7
MGIC Investment 1.6
Paychex 1.6
Toys R Us 1.6
Brinker 1.6
ADVO 1.6
Schlumberger 1.5
Countrywide Credit 1.4
Jones Apparel Group 1.4
Vodafone 1.4
Total 49.5%
Contributions to the Net Asset Value Per Share
Three Months Ended June 30, 1994
Ten Best Contributors
United HealthCare 5 cents
Freddie Mac 5
Pittston Services 5
Smith International 5
Alco Standard 5
Sanifill 4
State Street Boston 4
Schlumberger 4
Hollywood Park 3
Viking Office Products 3
Total 43 cents
TEN WORST CONTRIBUTORS
President Riverboat Casinos - 17 cents
CUC International 16
Phillips-Van Heusen 15
General Nutrition Companies 13
Autotote 10
Paychex 9
Sotheby's 9
SEI 9
ADVO 8
Consolidated Stores 7
Total - 113 cents
<F1> Position added
<F2> Position eliminated
Six Months Ended June 30, 1994
Ten Best Contributors
Foundation Health 18 cents
United HealthCare 14
Smith International 7
Columbia/HCA Healthcare 6
Freddie Mac 6
Sanifill 4
FIserv 3
Hollywood Park 3
BISYS Group 3
BJ Services <F1> 3
Total 67 cents
Ten Worst Contributors
CUC International - 32 cents
President Riverboat Casinos 27
Phillips-Van Heusen 19
General Nutrition Companies 19
Turner Broadcasting Systems 18
Autotote 17
Viacom<F2> 16
BLOCKBUSTER Entertainment 13
Consolidated Stores 13
SEI 13
Total - 187 cents
Statement of Net Assets (Value in thousands)
T. Rowe Price New America Growth Fund / June 30, 1994 (Unaudited)
Common Stocks _ 94.0%
FINANCIAL SERVICES _ 17.6%
Value
BANK & TRUST _ 3.5%
220,000 shs. BANC ONE $ 7,535
350,000 State Street Boston 13,519
21,054
INSURANCE _ 3.0%
37,500 MBIA 2,152
375,000 MGIC Investment 9,938
103,289 <F1> Mutual Assurance 2,117
81,000 Transatlantic Holdings 4,232
18,439
INVESTMENT SERVICES _ 6.0%
160,000 Alex. Brown 3,960
200,000 Charles Schwab 4,950
367,000 Duff & Phelps 7,294
325,000 Franklin Resources 12,066
100,000 Morgan Stanley Group 5,687
150,000 Raymond James Financial 2,175
36,132
OTHER FINANCIAL SERVICES _ 5.1%
600,000 Countrywide Credit 8,625
75,000 Fannie Mae. 6,262
120,000 Freddie Mac 7,260
333,333 Mercury Finance 5,500
150,000 North American Mortgage 3,600
31,247
Total Financial Services 106,872
CONSUMER SERVICES _ 38.6%
RETAILING/GENERAL MERCHANDISERS _ 2.0%
500,000 Wal-Mart 12,125
RETAILING/SPECIALTY RETAILERS _ 12.9%
254,000 <F1> Cole National 3,429
347,000 <F1> Consolidated Stores 4,251
150,000 <F1> Fred Meyer 5,456
400,000 <F1> General Nutrition Companies 6,900
161,000 <F1> Hanover Direct 725
300,000 <F1> Jones Apparel Group 8,475
175,000 <F1> Kohl's 8,225
185,000 <F1> Little Switzerland 1,156
195,000 <F1> Nautica Enterprises 4,705
100,000 <F1> Nine West 2,600
372,011 <F1> Office Depot 7,440
400,000 Phillips-Van Heusen 10,050
200,000 <F1> Software Etc. 1,400
127,500 shs. Talbots $ 3,825
300,000 <F1> Toys R Us 9,825
78,462
ENTERTAINMENT & LEISURE _ 9.3%
650,000 <F1> Autotote (Class A) 10,237
600,000 BLOCKBUSTER Entertainment 15,525
148,500 <F1> Hollywood Park 3,490
348,700 <F1> International Family Entertainment (Class B) 5,754
105,000 <F1> Marvel Entertainment 1,916
150,000 <F1> Mirage Resorts 2,812
423,750 <F1> President Riverboat Casinos 3,072
150,000 <F1> Promus Companies 4,444
130,000 <F1> Savoy Pictures 1,723
446,386 Turner Broadcasting Systems (Class B) 7,756
56,729
MEDIA/COMMUNICATION SERVICES _ 3.9%
241,000 <F1> ALC Communications 7,411
240,000 <F1> CellStar 2,670
300,000 <F1> Mobile Telecommunication Technologies 5,400
110,000 Vodafone, ADR 8,332
23,813
RESTAURANTS/FOOD DISTRIBUTION _ 5.4%
462,500 <F1> Brinker 9,712
119,790 <F1> Consolidated Products 1,228
86,600 Morrison Restaurants 1,970
300,000 <F1> Outback Steakhouse 7,238
333,500 Sbarro 12,423
32,571
PERSONAL SERVICES _ 5.1%
841,531 <F1> CUC International 22,511
200,000 <F1> Home Shopping Network 2,350
483,500 Sotheby's 5,983
30,844
Total Consumer Services 234,544
BUSINESS SERVICES _ 37.1%
HEALTH CARE SERVICES _ 10.7%
269,500 Columbia/HCA Healthcare 10,106
500,000 <F1> Foundation Health 19,437
121,600 <F1> Genesis Health Ventures 3,086
100,043 <F1> HEALTHSOUTH Rehabilitation 2,614
385,000 <F1> NovaCare 6,160
216,450 Owens & Minor 3,220
95,000 <F1> Physician Corporation 2,137
400,000 United HealthCare 18,350
65,110
DISTRIBUTION SERVICES _ 3.9%
225,000 shs. Alco Standard $ 12,853
100,000 Cardinal Health 4,900
150,000 Danka Business Systems 5,981
23,734
COMPUTER SERVICES _ 8.2%
246,000 <F1> BISYS Group 5,043
250,000 First Financial Management 13,875
546,500 <F1> FIserv 11,203
375,000 SEI 6,844
351,000 <F1> SunGard Data Systems 12,724
49,689
ENVIRONMENTAL SERVICES _ 1.1%
260,000 <F1> Sanifill 6,565
ENERGY SERVICES _ 4.2%
250,000 <F1> BJ Services 5,156
145,400 Camco International 2,962
240,000 <F1> Enterra 5,040
150,000 Schlumberger 8,869
241,100 <F1> Smith International 3,677
25,704
OTHER BUSINESS SERVICES _ 9.0%
625,000 ADVO 9,531
21,900 <F1> Career Horizons 416
250,000 <F1> Catalina Marketing 10,500
309,700 <F1> Hospitality Franchise 7,588
337,500 Paychex 9,872
215,000 <F1> Payco American 2,043
250,000 Pittston Services 6,687
313,000 <F1> Viking Office Products 7,825
54,462
Total Business Services 225,264
Miscellaneous Stocks - 0.7% 4,041
Total Common Stocks (Cost _ $465,589) 570,721
Convertible Bonds _ 0.2%
$ 270,000 Consolidated Products, Sub. Deb., 10.00%,
11/30/02 850
Total Convertible Bonds (Cost _ $270) 850
Short-Term Investments _ 7.4%
COMMERCIAL PAPER _ 7.4%
5,000,000 ANZ Delaware, 4.50%, 8/18/94 4,944
5,000,000 Asset Securitization Cooperative,
4(2), 4.42%, 9/9/94 4,948
5,000,000 BMW US Capital, 4.48%, 8/23/94 4,944
5,000,000 Countrywide Funding, 4.27%, 7/8/94 4,986
5,000,000 Dover, 4(2), 4.28%, 7/19/94 4,983
$ 369,000 Harvard University, 4.30%, 7/1/94 369
5,000,000 Preferred Receivables Funding,4.50%,9/1/94 4,943
5,000,000 Unilever Capital, 4(2), 4.53%, 7/5/94 4,966
10,000,000 Western Australian Treasury, 4.43 - 4.50%,
7/13 - 8/18/94 9,906
Total Short-Term Investments (Cost _ $44,989) 44,989
Total Investments in Securities _ 101.6% (Cost _ $510,848) 616,560
Other Assets Less Liabilities _ (1.6)% (9,524)
Net Assets Consisting of:
Accumulated net investment income -
net of distributions $ (1,133)
Accumulated realized gains/ losses -
net of distributions 10,315
Net unrealized appreciation of investments 105,712
Paid-in-capital applicable to 24,044,613 no par
value shares of beneficial interest outstanding;
unlimited number of shares authorized 492,142
Net Assets - 100.0% $ 607,036
Net Asset Value Per Share $ 25.25
<F1> Non-income producing
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
T. Rowe Price New America Growth Fund / Six Months Ended June 30, 1994
(Unaudited)
Amounts in Thousands
INVESTMENT INCOME
Income
Dividends $1,834
Interest 698
Total income $ 2,532
Expenses
Investment management fees 2,136
Shareholder servicing fees & expenses 1,280
Prospectus & shareholder reports 85
Custodian and accounting fees & expenses 78
Registration fees & expenses 42
Legal & auditing fees 17
Proxy & annual meeting 10
Trustees' fees & expenses 9
Miscellaneous expenses 8
Total expenses 3,665
Net investment income (1,133)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain 8,813
Change in net unrealized appreciation or
depreciation (73,392)
Net loss on investments (64,579)
DECREASE IN NET ASSETS FROM OPERATIONS $(65,712)
Statement of Changes in Net Assets
T. Rowe Price New America Growth Fund (Unaudited)
Six Months Ended Year Ended
June 30, 1994 Dec. 31, 1993
Amounts in Thousands
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income $(1,133) $(2,063)
Net realized gain on investments 8,813 27,571
Change in net unrealized appreciation or
depreciation of investments (73,392) 61,725
Increase (decrease) in net assets
from operations (65,712) 87,233
Distributions to shareholders
Net realized gain on investments _ (23,859)
Capital share transactions
Sold 5,118 and 8,619 shares 138,828 223,466
Distributions reinvested of 0 and 839
shares _ 23,019
Redeemed 3,156 and 6,689 shares (85,198) (170,970)
Increase in net assets from
capital share transactions 53,630 75,515
Total increase (decrease) (12,082) 138,889
NET ASSETS
Beginning of period 619,118 480,229
End of period $607,036 $619,118
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price New America Growth Fund / June 30, 1994 (Unaudited)
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.
A) Valuation - Equity securities listed or regularly traded on a securities
exchange (including Nasdaq) are valued at the last quoted sales price on
the day the valuations are made. A security which is listed or traded on
more than one exchange is valued at the quotation on the exchange
determined to be the primary market for such security. Other equity
securities and those listed securities that are not traded on a particular
day are valued at a price within the limits of the latest bid and asked
prices deemed by the Board of Trustees, or by persons delegated by the
Board, best to reflect fair value.
Debt securities are generally traded in the over-the-counter market
and are valued at a price deemed best to reflect fair value as quoted by
dealers who make markets in these securities or by an independent pricing
service. Short-term debt securities are valued at their cost which, when
combined with accrued interest, approximates fair value.
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.
B) Other - Income and expenses are recorded on the accrual basis.
Investment transactions are accounted for on the trade date. Realized gains
and losses are reported on an identified cost basis. Dividend income and
distributions to shareholders are recorded by the Fund on the ex-dividend
date. Income and capital gain distributions are determined in accordance
with federal income tax regulations which may differ from generally
accepted accounting principles.
Note 2 - Portfolio Transactions
Purchases and sales of portfolio securities, other than short-term and U.S.
Government securities, aggregated $144,693,000 and $103,804,000,
respectively, for the six months ended June 30, 1994.
Note 3 - Federal Income Taxes
No provision for federal income taxes is required since the Fund intends to
continue to qualify as a regulated investment company and distribute all of
its taxable income.
At June 30, 1994, the aggregate cost of investments for federal income
tax and financial reporting purposes was $510,848,000 and net unrealized
appreciation aggregated $105,712,000, of which $128,316,000 related to
appreciated investments and $22,604,000 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, computed daily and paid monthly, consisting 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 0.31% for
assets in excess of $34 billion. The effective annual Group Fee rate at
June 30, 1994 and for the six months then ended was 0.34%. The Fund pays a
pro rata portion of the Group Fee based on the ratio of the Fund's net
assets to those of the Group.
T. Rowe Price Services, Inc. (TRPS) and Retirement Plan Services, Inc.
(RPS) are wholly owned subsidiaries of the Manager. TRPS provides transfer
and dividend disbursing agent functions and shareholder services for all
accounts. RPS provides subaccounting and recordkeeping services for certain
retirement accounts invested in the Fund. The Manager, under a separate
agreement, calculates the daily share price and maintains the financial
records of the Fund. For the six months ended June 30, 1994 the Fund i-
ncurred fees totalling approximately $1,136,000 for these services provided
by related parties. At June 30, 1994, these investment management and
service fees payable were $600,000.
<TABLE>
<CAPTION>
Financial Highlights
T. Rowe Price New America Growth Fund (Unaudited)
For a share outstanding throughout each period
Six Months
ended Year ended December 31,
June 30, 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $28.04 $24.86 $22.79 $14.66 $16.90 $12.38
Investment Activities
Net investment income (0.05) (0.08) (0.04) (0.02) 0.13<F2> _
Net realized and unrealized gain (loss) (2.74) 4.39 2.29 9.02 (2.20) 4.75
Total from Investment Activities (2.79) 4.31 2.25 9.00 (2.07) 4.75
Distributions
Net investment income _ _ _ _ (0.17) _
Net realized gain _ (1.13) (0.18) (0.87) _ (0.23)
Total Distributions _ (1.13) (0.18) (0.87) (0.17) (0.23)
NET ASSET VALUE, END OF PERIOD $25.25 $28.04 $24.86 $22.79 $14.66 $16.90
RATIOS/SUPPLEMENTAL DATA
Total Return (10.0)% 17.4% 9.9% 61.9% (12.2)% 38.4%
Ratio of Expenses to Average Net Assets 1.19%<F1> 1.23% 1.25% 1.25% 1.25%<F2> 1.50%
Ratio of Net Investment Income
to Average Net Assets (0.37)%<F1> (0.39)% (0.44)% (0.12)% 0.81% (0.02)%
Portfolio Turnover Rate 35.3%<F1> 43.7% 26.4% 42.3% 41.7% 39.6%
Net Assets, End of Period (in thousands) $607,036 $619,118 $480,229 $231,729 $95,697 $134,065
<FN>
<F1> Annualized.
<F2> Excludes expenses in excess of a 1.25% voluntary expense limitation in effect through December 31, 1993.
</FN>
</TABLE>
Shareholder Services
To help shareholders monitor their current investments and make decisions
that accurately reflect their financial goals, T. Rowe Price offers a wide
variety of information and services _ at no extra cost.
Knowledgeable Service Representatives
By Phone _ Shareholder Service Representatives are available from 8:00
a.m. to 10:00 p.m., Monday - Friday, and weekends from 9:00 a.m. to 5:00
p.m E.T. Call 1-800-225-5132 to speak directly with a representative who
will be able to assist you with your accounts.
In Person _ Visit one of our investor center locations to meet with a
representative who can help you with your accounts. While there, you can
drop off applications or obtain prospec- tuses and other literature.
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PC*Access(R) provides the same information as Tele*Access, but on a
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Account Services
Checking _ Write checks for $500 or more on any money market and
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Automatic Investing _ Build your account over time by investing
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Additionally, Automatic Exchange enables you to set up systematic
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into a stock fund. A low, $50 minimum makes it easy to get started.
Automatic Withdrawal _ If you need money from your fund account on a
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Dividend and Capital Gains Payment Options _ Reinvest all or some of
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Investment Information
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accounts. The summary page gives your earnings by tax category, provides
total portfolio value, and lists your investments by type _ stock, bond,
and money market. Detail pages itemize account transactions by fund.
Quarterly Shareholder Reports _ Portfolio managers review the
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The T. Rowe Price Report _ A quarterly newsletter with relevant
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Insights _ A library of information that includes reports on mutual
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Detailed Investment Guides _ Our widely acclaimed Asset Mix
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T. Rowe Price No-Load Mutual Funds
Stability
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Summit Cash Reserves
U.S. Treasury Money
California Tax-Free Money
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Summit Municipal Money Market
Tax-Exempt Money
Conservative Income
Adjustable Rate U.S. Government
Short-Term Bond
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Summit Limited-Term Bond
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Tax-Free Short-Intermediate
Income
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GNMA
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Spectrum Income
Summit GNMA
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Maryland Tax-Free Bond
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Tax-Free Income
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other expenses. Read it carefully before you invest or send money.
