ANNUAL REPORT
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New America Growth Fund
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December 31, 1996
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Report Highlights
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* 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.
<PAGE>
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.
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Performance Comparison
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Periods Ended 12/31/96 6 Months 12 Months
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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.
<PAGE>
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.
<PAGE>
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.
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Sector Diversification
12/31/95 6/30/96 12/31/96
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Financial Services 10% 15% 20%
Consumer Services 42 33 32
Business Services 46 49 44
Reserves 2 3 4
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Total 100% 100% 100%
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The major sector diversification of the portfolio has evolved substantially
over the course of 1996, as indicated in the table on page 3.
<PAGE>
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.
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Portfolio Characteristics
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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.
<PAGE>
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
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Sticking To Your Game Plan
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[Chart showing TIME REDUCES VOLATILITY OF MARKET RETURNS]
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.
<PAGE>
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
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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%
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<PAGE>
Portfolio Highlights
================================================================================
CONTRIBUTIONS TO THE CHANGE IN NET ASSET VALUE PER SHARE
6 Months Ended 12/31/96
================================================================================
Ten Best Contributors
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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
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Total 211(cent)
Ten Worst Contributors
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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
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Total -199(cent)
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<PAGE>
12 Months Ended 12/31/96
================================================================================
Ten Best Contributors
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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
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Total 362(cent)
Ten Worst Contributors
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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
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Total -234(cent)
* Position added
** Position eliminated
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<PAGE>
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Performance Comparison
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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]
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Average Annual Compound Total Return
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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.
================================================================================
<PAGE>
<TABLE>
For a share outstanding throughout each period
====================================================================================================================================
Financial Highlights
<CAPTION>
<S> <C> <C> <C> <C> <C>
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
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
================================================================================
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.
<PAGE>
================================================================================
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.
<PAGE>
================================================================================
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
================================================================================
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
<PAGE>
================================================================================
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.
<PAGE>
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
<PAGE>
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
