UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
 
 

Investment Company Act File Number: 811-01710

T. Rowe Price New Era Fund, Inc.
(Exact name of registrant as specified in charter)
 
100 East Pratt Street, Baltimore, MD 21202
(Address of principal executive offices)
 
David Oestreicher
100 East Pratt Street, Baltimore, MD 21202
(Name and address of agent for service)
 

Registrant’s telephone number, including area code: (410) 345-2000
 
 
Date of fiscal year end: December 31
 
 
Date of reporting period: December 31, 2012





Item 1. Report to Shareholders

T. ROWE PRICE ANNUAL REPORT
New Era Fund
December 31, 2012


The views and opinions in this report were current as of December 31, 2012. They are not guarantees of performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and the managers reserve the right to change their views about individual stocks, sectors, and the markets at any time. As a result, the views expressed should not be relied upon as a forecast of the fund’s future investment intent. The report is certified under the Sarbanes-Oxley Act, which requires mutual funds and other public companies to affirm that, to the best of their knowledge, the information in their financial reports is fairly and accurately stated in all material respects.

REPORTS ON THE WEB

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Manager’s Letter

Fellow Shareholders

Natural resources stocks were solidly positive in the latter half of 2012, overcoming weakness in the opening six months and contributing to a modest gain for the year ended December 31, 2012. It was a bumpy ride, however. Steep second-quarter losses amid fears of economic malaise in Europe and China gave way to third-quarter optimism about a resilient U.S. recovery and a successful leadership transition in China. Against this volatile backdrop, the New Era Fund trailed the broad market benchmark S&P 500 Index for the year but comfortably outpaced its Lipper peer group index of similarly managed funds.

As shown in the Performance Comparison table, your fund returned 9.92% and 4.01% for the 6- and 12-month periods ended December 31, 2012, respectively. The forest products, global petroleum exploration and production, and chemical industries boosted the fund’s absolute performance for the full year, while coal, agriculture, and North American petroleum exploration and production companies weighed on returns. Stock selection had little net impact on annual results versus the Lipper index, as strength in oil and gas drilling and global oil and gas producers was largely offset by weaker results among our agriculture and North American oil and gas producers. Industry overweights and underweights accounted for the bulk of our relative outperformance. An overweight to forest products proved particularly beneficial amid signs of improvement in the housing market.


ECONOMIC AND MARKET ENVIRONMENT

The broader equity markets generated strong returns in 2012 even as the global economy remained unsettled four years after the global financial crisis of 2008. The eurozone recession and sovereign debt crisis, slower growth in China and other key emerging economies, and worries over fiscal policy in the U.S. periodically weighed on investor sentiment throughout the year. Stocks recovered in the fall, however, as U.S. corporate earnings proved unexpectedly resilient even though their pace of growth slowed. Equities also received a boost from the Federal Reserve’s accommodative monetary policy, which included further rounds of quantitative easing to drive down government interest rates and encourage investors to choose riskier assets, including stocks.

Although U.S. unemployment and underemployment remain high, the economy is growing slowly, with housing-related industries providing a much needed boost after weighing on growth for several years. In China, industries are restocking their inventories of commodity inputs, and fixed-asset investment shows signs of improvement, although at a slower growth rate than we have seen in the past. Europe is mired in recession but appears to have stabilized somewhat. As we enter 2013, the global economy looks stronger than it did last year, but growth rates are likely to be in the 3% to 4% range rather than the more robust 5% to 6% rates of old.

Commodities investments typically struggle to outperform the broader equity markets in times of tepid economic growth. This past year was definitely in keeping with the norm as natural resources stocks generated modest gains but significantly lagged the broader market. Strategies like ours tend to outperform when economic growth returns to more normalized levels. Unexpected supply disruptions—recall last year’s volatility in global oil markets due to turmoil in Sudan, Iran, Brazil, and Syria—or spikes in inflation can also benefit the sector. In the meantime, our portfolio is constructed to be defensive during tough periods and to fight above its weight class when the opportunities arise. At the end of the day, our goal is to outperform regardless of the prevailing environment.

PORTFOLIO REVIEW AND POSITIONING

Forest products stocks were the fund’s top absolute performers for the year, while a significant overweight and stock selection boosted results versus the Lipper index. Weyerhaeuser and Louisiana Pacific gained more than 60% amid signs of improvement in the U.S. housing market. While forest products are not a major strategic focus for the fund, our preference for broad diversification means that we have more exposure than many of our peers, which can benefit performance when these stocks are performing well. (Please refer to the portfolio of investments for a complete list of holdings and the amount each represents in the portfolio.)

Our global petroleum exploration and production stocks were also strong and helped relative results. Canada’s Nexen was among the fund’s top overall contributors due to its acquisition by China’s CNOOC Limited, which stunned many investors with an extremely attractive offer price. Exploration companies Ophir Energy and Cobalt International Energy also generated nice gains. Ophir discovered huge natural gas reserves on the east and west coasts of Africa, while Cobalt made the first large-scale discovery in the Angolan pre-salt (pre-salts are geological formations on the continental shelves of Africa and South America that often contain substantial fossil fuel assets). Cobalt’s discovery appears analogous to the vast South American pre-salt assets that Petrobras is currently developing. The company also benefited from a significant discovery in the Gulf of Mexico, where activity is recovering after a slowdown in the wake of the Macondo disaster.


The fund’s chemical stocks produced double-digit gains for the year. A significant overweight allocation helped results versus our benchmark, but stock selection proved to be a modest drag on relative performance. Chemical producer LyondellBasell Industries was the fund’s top overall contributor, with inexpensive ethane feedstock in its U.S. operations providing a significant cost advantage over many of its international peers. Industrial gas distributor Praxair was another solid, if not spectacular, contributor. We established a position in global diversified chemical company Celanese during the period, providing a good example of our current approach to this industry. The company is a global leader in acetyls chemistry and has one of the most skilled management teams in the industry. We believe the company is positioned to capitalize on low feedstock prices to enhance its position as a low-cost producer and technological leader.

Elsewhere in the portfolio, oil refiners such as Marathon Petroleum and Phillips 66 similarly benefited from a cost advantage over many competitors as U.S. production growth resulted in cheaper pricing for light crude oil. The U.S. may not achieve oil independence in the next few years, but as long as supply is growing faster than pipelines can be built, refiners and chemical companies should enjoy oversupplied, less expensive feedstock costs. Finally, longtime holding Quanta Services , a power line engineering and construction firm, enjoyed a strong year as contracts picked up noticeably. As one of the largest installers of large-diameter oil and gas pipelines, Quanta has multiple avenues for growth. Billions of dollars are likely to be spent on much needed infrastructure projects as U.S. oil and gas supplies continue to climb.

As for disappointments, coal stocks, once again, ranked among the fund’s biggest detractors. Since we are not eager to see a repeat of this dubious distinction in future reports, we eliminated Arch Coal and reduced our position in Peabody Energy . Not only did these companies acquire too much financial leverage by executing ill-timed, top-of-the-market acquisitions, but a record-warm 2012 in the U.S. put thermal coal on its heels just as competing natural gas prices declined to new lows.

Agricultural stocks fared well in the first half of 2012 but struggled in the second half, punishing potash producers such as Potash Corporation of Saskatchewan and Sociedad Quimica y Minera de Chile , more commonly known as SQM. The fundamentals of underlying commodities like corn remain strong, but farmers have been slow to restock fertilizer inventories given the global macroeconomic uncertainty.

North American oil and gas exploration and production stocks were also disappointing due to weak natural gas pricing and company-specific challenges in some of our holdings. Late in the year, Newfield Exploration acknowledged declining production in its non-core Asian business, while Bill Barrett launched a search for a new CEO after years of outspending its cash flow and watching its share price fall. On a bright note, the weakness in natural gas and natural gas liquids pricing resulted in some attractive purchase opportunities.

We initiated a position in SM Energy , which suffered as investors struggled to assess the value of its Eagle Ford shale assets in a weak natural gas liquids environment. However, we have a great deal of confidence in the company’s management team and its assets and took advantage of depressed valuations to establish our position.

Finally, precious metal producers weighed on returns in 2012. Eastern Platinum fell sharply in the first half of the year due to declining platinum prices and unrest in South Africa, which has proven to be one of the toughest operating environments in the world due to water and electricity restrictions, as well as a restive labor market. Osikso Mining struggled with significant project management issues, leading us to eliminate our position, and IAMGold disappointed investors by missing its production estimates. With gold prices range-bound in 2012, gold producers such as these had nowhere to hide operational issues.

OUTLOOK

As we transition into the new year, the main impediments to global growth remain the same as they were through most of last year: concerns over growth in China and ongoing sovereign debt problems in Europe. Additionally, turmoil in the Middle East carries the potential to escalate into more widespread violence. Still, we are encouraged by positive trends in U.S. economic data. Also, as the U.S. takes the next steps to tackle the country’s budget deficit, we are reasonably optimistic that the policymakers in Washington will be able to devise a solution to reduce federal spending. Still, it is difficult to forecast the macroeconomic environment and economic policies. Therefore, we remain focused on assembling a portfolio that we believe can do reasonably well under a variety of conditions.

I expect 2013 to be a volatile year for headlines, but the broader market and our fund may not be buffeted quite as strongly as they have been in recent years. While I won’t argue that stocks are becoming immune to crisis shocks, I do think the backdrop of economic growth is the best it has been since the 2008 crash. Since economic growth is a key driver of commodities stocks, 2013 looks to be a stronger year than 2012, if still volatile.

I would not be surprised, however, to see commodities stocks suffer in the early months of 2013 before improving later in the year. Chinese inventory restocking has stoked industrial metals demand of late, but such restocking episodes are cyclical and will eventually end. The drumbeat of fiscal woes in the U.S. and the ongoing economic recession in Europe could again chill the fortunes of these stocks. Yet, just as we saw in the third quarter of last year, natural resources stocks can recover quickly once the storm subsides. Against a backdrop of modest economic growth, we will continue to focus on companies that rely on high-quality assets and skilled capital allocation to drive share price performance rather than rising commodity prices.

This fund’s strategy is designed to provide diverse exposure to natural resources sectors in a risk-conscious manner. Although inflation remains muted today, these stocks remain sensitive to inflation and could provide an effective hedge should the addiction to monetary expansion by our policymakers ever come back to haunt us with inflation.

Let me close by thanking you for your confidence in investing in this fund and reiterate my commitment to providing my fellow shareholders with superior returns and careful attention to risk.

Respectfully submitted,


Timothy E. Parker
Portfolio manager and chairman of the fund’s Investment Advisory Committee

January 22, 2013

The committee chairman has day-to-day responsibility for managing the portfolio and works with committee members in developing and executing the fund’s investment program.

RISKS OF STOCK INVESTING

The fund’s share price can fall because of weakness in the stock markets, a particular industry, or specific holdings. Stock markets can decline for many reasons, including adverse political or economic developments, changes in investor psychology, or heavy institutional selling. The prospects for an industry or company may deteriorate because of a variety of factors, including disappointing earnings or changes in the competitive environment. In addition, the investment manager’s assessment of companies held in a fund may prove incorrect, resulting in losses or poor performance even in rising markets. Funds that invest only in specific industries will experience greater volatility than funds investing in a broad range of industries. The rate of earnings growth of natural resources companies may be irregular since these companies are strongly affected by natural forces, global economic cycles, and international politics. For example, stock prices of energy companies can fall sharply when oil prices fall.

GLOSSARY

Lipper indexes: Fund benchmarks that consist of a small number (10 to 30) of the largest mutual funds in a particular category as tracked by Lipper Inc.

S&P 500 Index: An unmanaged index that tracks the stocks of 500 primarily large-cap U.S. companies.




Performance and Expenses

Growth of $10,000

This chart shows the value of a hypothetical $10,000 investment in the fund over the past 10 fiscal year periods or since inception (for funds lacking 10-year records). The result is compared with benchmarks, which may include a broad-based market index and a peer group average or index. Market indexes do not include expenses, which are deducted from fund returns as well as mutual fund averages and indexes.





 

Fund Expense Example

As a mutual fund shareholder, you may incur two types of costs: (1) transaction costs, such as redemption fees or sales loads, and (2) ongoing costs, including management fees, distribution and service (12b-1) fees, and other fund expenses. The following example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the most recent six-month period and held for the entire period.

Actual Expenses
The first line of the following table (Actual) provides information about actual account values and expenses based on the fund’s actual returns. You may use the information on this line, together with your account balance, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number on the first line under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes
The information on the second line of the table (Hypothetical) is based on hypothetical account values and expenses derived from the fund’s actual expense ratio and an assumed 5% per year rate of return before expenses (not the fund’s actual return). You may compare the ongoing costs of investing in the fund with other funds by contrasting this 5% hypothetical example and the 5% hypothetical examples that appear in the shareholder reports of the other funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.

Note: T. Rowe Price charges an annual account service fee of $20, generally for accounts with less than $10,000. The fee is waived for any investor whose T. Rowe Price mutual fund accounts total $50,000 or more; accounts electing to receive electronic delivery of account statements, transaction confirmations, prospectuses, and shareholder reports; or accounts of an investor who is a T. Rowe Price Preferred Services, Personal Services, or Enhanced Personal Services client (enrollment in these programs generally requires T. Rowe Price assets of at least $100,000). This fee is not included in the accompanying table. If you are subject to the fee, keep it in mind when you are estimating the ongoing expenses of investing in the fund and when comparing the expenses of this fund with other funds.

You should also be aware that the expenses shown in the table highlight only your ongoing costs and do not reflect any transaction costs, such as redemption fees or sales loads. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. To the extent a fund charges transaction costs, however, the total cost of owning that fund is higher.




The accompanying notes are an integral part of these financial statements.











The accompanying notes are an integral part of these financial statements.


The accompanying notes are an integral part of these financial statements.


The accompanying notes are an integral part of these financial statements.


The accompanying notes are an integral part of these financial statements.

Notes to Financial Statements

T. Rowe Price New Era Fund, Inc. (the fund), is registered under the Investment Company Act of 1940 (the 1940 Act) as a diversified, open-end management investment company. The fund commenced operations on January 20, 1969. The fund seeks to provide long-term capital growth primarily through the common stocks of companies that own or develop natural resources and other basic commodities, and also through the stocks of selected nonresource growth companies.

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

Basis of Preparation The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP), which require the use of estimates made by management. Management believes that estimates and valuations are appropriate; however, actual results may differ from those estimates, and the valuations reflected in the accompanying financial statements may differ from the value ultimately realized upon sale or maturity.

Investment Transactions, Investment Income, and Distributions Income and expenses are recorded on the accrual basis. Premiums and discounts on debt securities are amortized for financial reporting purposes. Dividends received from mutual fund investments are reflected as dividend income; capital gain distributions are reflected as realized gain/loss. Dividend income and capital gain distributions are recorded on the ex-dividend date. Income tax-related interest and penalties, if incurred, would be recorded as income tax expense. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Distributions to shareholders are recorded on the ex-dividend date. Income distributions are declared and paid annually. Capital gain distributions, if any, are generally declared and paid by the fund annually.

Currency Translation Assets, including investments, and liabilities denominated in foreign currencies are translated into U.S. dollar values each day at the prevailing exchange rate, using the mean of the bid and asked prices of such currencies against U.S. dollars as quoted by a major bank. Purchases and sales of securities, income, and expenses are translated into U.S. dollars at the prevailing exchange rate on the date of the transaction. The effect of changes in foreign currency exchange rates on realized and unrealized security gains and losses is reflected as a component of security gains and losses.

Rebates and Credits Subject to best execution, the fund may direct certain security trades to brokers who have agreed to rebate a portion of the related brokerage commission to the fund in cash. Commission rebates are reflected as realized gain on securities in the accompanying financial statements and totaled $160,000 for the year ended December 31, 2012. Additionally, the fund earns credits on temporarily uninvested cash balances held at the custodian, which reduce the fund’s custody charges. Custody expense in the accompanying financial statements is presented before reduction for credits.

New Accounting Pronouncements In December 2011, the FASB issued amended guidance to enhance disclosure for offsetting assets and liabilities. The guidance is effective for fiscal years and interim periods beginning on or after January 1, 2013. Adoption will have no effect on the fund’s net assets or results of operations.

NOTE 2 - VALUATION

The fund’s financial instruments are reported at fair value as defined by GAAP. The fund determines the values of its assets and liabilities and computes its net asset value per share at the close of the New York Stock Exchange (NYSE), normally 4 p.m. ET, each day that the NYSE is open for business.

Valuation Methods Equity securities listed or regularly traded on a securities exchange or in the over-the-counter (OTC) market are valued at the last quoted sale price or, for certain markets, the official closing price at the time the valuations are made, except for OTC Bulletin Board securities, which are valued at the mean of the latest bid and asked prices. A security that is listed or traded on more than one exchange is valued at the quotation on the exchange determined to be the primary market for such security. Listed securities not traded on a particular day are valued at the mean of the latest bid and asked prices for domestic securities and the last quoted sale price for international securities.

Debt securities are generally traded in the OTC market. Securities with remaining maturities of one year or more at the time of acquisition are valued at prices furnished by dealers who make markets in such securities or by an independent pricing service, which considers the yield or price of bonds of comparable quality, coupon, maturity, and type, as well as prices quoted by dealers who make markets in such securities. Securities with remaining maturities of less than one year at the time of acquisition generally use amortized cost in local currency to approximate fair value. However, if amortized cost is deemed not to reflect fair value or the fund holds a significant amount of such securities with remaining maturities of more than 60 days, the securities are valued at prices furnished by dealers who make markets in such securities or by an independent pricing service.

Investments in mutual funds are valued at the mutual fund’s closing net asset value per share on the day of valuation.

Other investments, including restricted securities and private placements, and those financial instruments 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 the T. Rowe Price Valuation Committee, established by the fund’s Board of Directors (the Board). Subject to oversight by the Board, the Valuation Committee develops pricing-related policies and procedures and approves all fair-value determinations. The Valuation Committee regularly makes good faith judgments, using a wide variety of sources and information, to establish and adjust valuations of certain securities as events occur and circumstances warrant. For instance, in determining the fair value of private-equity instruments, the Valuation Committee considers a variety of factors, including the company’s business prospects, its financial performance, strategic events impacting the company, relevant valuations of similar companies, new rounds of financing, and any negotiated transactions of significant size between other investors in the company. Because any fair-value determination involves a significant amount of judgment, there is a degree of subjectivity inherent in such pricing decisions.

For valuation purposes, the last quoted prices of non-U.S. equity securities may be adjusted under the circumstances described below. If the fund determines that developments between the close of a foreign market and the close of the NYSE will, in its judgment, materially affect the value of some or all of its portfolio securities, the fund will adjust the previous closing prices to reflect what it believes to be the fair value of the securities as of the close of the NYSE. In deciding whether it is necessary to adjust closing prices to reflect fair value, the fund reviews a variety of factors, including developments in foreign markets, the performance of U.S. securities markets, and the performance of instruments trading in U.S. markets that represent foreign securities and baskets of foreign securities. A fund may also fair value securities in other situations, such as when a particular foreign market is closed but the fund is open. The fund uses outside pricing services to provide it with closing prices and information to evaluate and/or adjust those prices. The fund cannot predict how often it will use closing prices and how often it will determine it necessary to adjust those prices to reflect fair value. As a means of evaluating its security valuation process, the fund routinely compares closing prices, the next day’s opening prices in the same markets, and adjusted prices. Additionally, trading in the underlying securities of the fund may take place in various foreign markets on certain days when the fund is not open for business and does not calculate a net asset value. As a result, net asset values may be significantly affected on days when shareholders cannot make transactions.

Valuation Inputs Various inputs are used to determine the value of the fund’s financial instruments. These inputs are summarized in the three broad levels listed below:

Level 1 – quoted prices in active markets for identical financial instruments

Level 2 – observable inputs other than Level 1 quoted prices (including, but not limited to, quoted prices for similar financial instruments, interest rates, prepayment speeds, and credit risk)

Level 3 – unobservable inputs

Observable inputs are those based on market data obtained from sources independent of the fund, and unobservable inputs reflect the fund’s own assumptions based on the best information available. The input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level. For example, non-U.S. equity securities actively traded in foreign markets generally are reflected in Level 2 despite the availability of closing prices because the fund evaluates and determines whether those closing prices reflect fair value at the close of the NYSE or require adjustment, as described above. The following table summarizes the fund’s financial instruments, based on the inputs used to determine their values on December 31, 2012:

Following is a reconciliation of the fund’s Level 3 holdings for the year ended December 31, 2012. Gain (loss) reflects both realized and change in unrealized gain (loss) on Level 3 holdings during the period, if any, and is included on the accompanying Statement of Operations. The change in unrealized gain (loss) on Level 3 instruments held at December 31, 2012, totaled $(2,056,000) for the year ended December 31, 2012.

NOTE 3 - OTHER INVESTMENT TRANSACTIONS

Consistent with its investment objective, the fund engages in the following practices to manage exposure to certain risks and/or to enhance performance. The investment objective, policies, program, and risk factors of the-fund are described more fully in the fund’s prospectus and Statement of Additional Information.

Restricted Securities The fund may invest in securities that are subject to legal or contractual restrictions on resale. Prompt sale of such securities at an acceptable price may be difficult and may involve substantial delays and additional costs.

Bank Loans The fund may invest in bank loans, which represent an interest in amounts owed by a borrower to a syndication of lenders. Bank loans may involve multiple loans with the same borrower under a single credit agreement (each loan, a tranche), and each tranche may have different terms and associated risks. A bank or other financial institution typically acts as the agent and administers a bank loan in accordance with the associated credit agreement. Bank loans are generally noninvestment grade and often involve borrowers whose financial condition is troubled or uncertain and companies that are highly leveraged. The fund may buy and sell bank loans in the form of either loan assignments or loan participations. A loan assignment transfers all legal, beneficial, and economic rights to the buyer. Although loan assignments continue to be administered by the agent, the buyer acquires direct rights against the borrower. In many cases, a loan assignment requires the consent of both the borrower and the agent. In contrast, a loan participation generally entitles the buyer to receive the cash flows from principal, interest, and any fee payments that the seller is entitled to receive from the borrower; however, the seller continues to hold legal title to the loan. As a result, with loan participations, the buyer generally has no right to enforce compliance with the terms of the credit agreement against the borrower, and the buyer is subject to the credit risk of both the borrower and the seller. Bank loans often have extended settlement periods, during which the fund is subject to nonperformance risk by the counterparty. A portion of the fund’s bank loans may require additional principal to be funded at the borrowers’ discretion at a later date (unfunded commitments), and bank loans usually may be repaid at any time at the option of the borrower. The fund reflects both the funded portion of the bank loan as well as any unfunded commitment on the loan in the Portfolio of Investments. At December 31, 2012, the fund’s total unfunded commitments were $68,000.

Securities Lending The fund lends its securities to approved brokers to earn additional income. It receives as collateral cash and U.S. government securities valued at 102% to 105% of the value of the securities on loan. Collateral is maintained over the life of the loan in an amount not less than the value of loaned securities as determined at the close of fund business each day; any additional collateral required due to changes in security values is delivered to the fund the next business day. Cash collateral is invested by the fund’s lending agent(s) in accordance with investment guidelines approved by management. Although risk is mitigated by the collateral, the fund could experience a delay in recovering its securities and a possible loss of income or value if the borrower fails to return the securities or if collateral investments decline in value. Securities lending revenue recognized by the fund consists of earnings on invested collateral and borrowing fees, net of any rebates to the borrower and compensation to the lending agent. In accordance with GAAP, investments made with cash collateral are reflected in the accompanying financial statements, but collateral received in the form of securities is not. At December 31, 2012, there were no securities on loan.

Other Purchases and sales of portfolio securities other than short-term securities aggregated $1,648,964,000 and $1,950,511,000, respectively, for the year ended December 31, 2012.

NOTE 4 - FEDERAL INCOME TAXES

No provision for federal income taxes is required since the fund intends to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code and distribute to shareholders all of its taxable income and gains. Distributions determined in accordance with federal income tax regulations may differ in amount or character from net investment income and realized gains for financial reporting purposes. Financial reporting records are adjusted for permanent book/tax differences to reflect tax character but are not adjusted for temporary differences.

The fund files U.S. federal, state, and local tax returns as required. The fund’s tax returns are subject to examination by the relevant tax authorities until expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return but which can be extended to six years in certain circumstances. Tax returns for open years have incorporated no uncertain tax positions that require a provision for income taxes.

Reclassifications to paid-in capital relate primarily to a tax practice that treats a portion of the proceeds from each redemption of capital shares as a distribution of taxable net investment income and/or realized capital gain. Reclassifications between income and gain relate primarily to per-share rounding of distributions. For the year ended December 31, 2012, the following reclassifications were recorded to reflect tax character (there was no impact on results of operations or net assets):


Distributions during the years ended December 31, 2012 and December 31, 2011, were characterized for tax purposes as follows:


At December 31, 2012, the tax-basis cost of investments and components of net assets were as follows:


The difference between book-basis and tax-basis net unrealized appreciation (depreciation) is attributable to the deferral of losses from wash sales and the realization of gains/losses on passive foreign investment companies for tax purposes. The fund intends to retain realized gains to the extent of available capital loss carryforwards. Net realized capital losses may be carried forward indefinitely to offset future realized capital gains. All or a portion of the capital loss carryforwards may be from losses realized between November 1 and the fund’s fiscal year-end, which are deferred for tax purposes until the subsequent year but recognized for financial reporting purposes in the year realized. In accordance with federal tax laws applicable to investment companies, specified net losses realized between November 1 and December 31, are not recognized for tax purposes until the subsequent year (late-year ordinary loss deferrals); however, such losses are recognized for financial reporting purposes in the year realized.

NOTE 5 - RELATED PARTY TRANSACTIONS

The fund is managed by T. Rowe Price Associates, Inc. (Price Associates), a wholly owned subsidiary of T. Rowe Price Group, Inc. (Price Group). The investment management agreement between the fund and Price Associates provides for an annual investment management fee, which is computed daily and paid monthly. The fee consists of an individual fund fee, equal to 0.25% of the fund’s average daily net assets, and a group fee. The group fee rate is calculated based on the combined net assets of certain mutual funds sponsored by Price Associates (the group) applied to a graduated fee schedule, with rates ranging from 0.48% for the first $1 billion of assets to 0.28% for assets in excess of $300 billion. The fund’s group fee is determined by applying the group fee rate to the fund’s average daily net assets. At December 31, 2012, the effective annual group fee rate was 0.30%.

In addition, the fund has entered into service agreements with Price Associates and two wholly owned subsidiaries of Price Associates (collectively, Price). Price Associates computes the daily share price and provides certain other administrative services to the fund. T. Rowe Price Services, Inc., provides shareholder and administrative services in its capacity as the fund’s transfer and dividend disbursing agent. T. Rowe Price Retirement Plan Services, Inc., provides subaccounting and recordkeeping services for certain retirement accounts invested in the fund. For the year ended December 31, 2012, expenses incurred pursuant to these service agreements were $99,000 for Price Associates; $1,928,000 for T. Rowe Price Services, Inc.; and $300,000 for T. Rowe Price Retirement Plan Services, Inc. The total amount payable at period-end pursuant to these service agreements is reflected as Due to Affiliates in the accompanying financial statements.

The fund may invest in the T. Rowe Price Reserve Investment Fund and the T. Rowe Price Government Reserve Investment Fund (collectively, the T. Rowe Price Reserve Investment Funds), open-end management investment companies managed by Price Associates and considered affiliates of the fund. The T. Rowe Price Reserve Investment Funds are offered as cash management options to mutual funds, trusts, and other accounts managed by Price Associates and/or its affiliates and are not available for direct purchase by members of the public. The T. Rowe Price Reserve Investment Funds pay no investment management fees.

As of December 31, 2012, T. Rowe Price Group, Inc., and/or its wholly owned subsidiaries owned 573,241 shares of the fund, representing 1% of the fund’s net assets.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of T. Rowe Price New Era Fund, Inc.

In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, 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 Era Fund, Inc. (the “Fund”) at December 31, 2012, and the results of its operations, the changes in its net assets and the financial highlights for each of the periods indicated therein, in conformity with accounting principles generally accepted in the United States of America. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards 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, 2012 by correspondence with the custodian and brokers, and confirmation of the underlying funds by correspondence with the transfer agent, provide a reasonable basis for our opinion.


PricewaterhouseCoopers LLP
Baltimore, Maryland
February 15, 2013

Tax Information (Unaudited) for the Tax Year Ended 12/31/12

We are providing this information as required by the Internal Revenue Code. The amounts shown may differ from those elsewhere in this report because of differences between tax and financial reporting requirements.

The fund’s distributions to shareholders included:

  • $33,480,000 from short-term capital gains,
     
  • $114,853,000 from long-term capital gains, subject to the 15% rate gains category.

For taxable non-corporate shareholders, $83,379,000 of the fund’s income represents qualified dividend income subject to the 15% rate category.

For corporate shareholders, $38,763,000 of the fund’s income qualifies for the dividends-received deduction.

Information on Proxy Voting Policies, Procedures, and Records

A description of the policies and procedures used by T. Rowe Price funds and portfolios to determine how to vote proxies relating to portfolio securities is available in each fund’s Statement of Additional Information, which you may request by calling 1-800-225-5132 or by accessing the SEC’s website, sec.gov. The description of our proxy voting policies and procedures is also available on our website, troweprice.com. To access it, click on the words “Our Company” at the top of our corporate homepage. Then, when the next page appears, click on the words “Proxy Voting Policies” on the left side of the page.

Each fund’s most recent annual proxy voting record is available on our website and through the SEC’s website. To access it through our website, follow the directions above, then click on the words “Proxy Voting Records” on the right side of the Proxy Voting Policies page.

How to Obtain Quarterly Portfolio Holdings

The fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available electronically on the SEC’s website (sec.gov); hard copies may be reviewed and copied at the SEC’s Public Reference Room, 100 F St. N.E., Washington, DC 20549. For more information on the Public Reference Room, call 1-800-SEC-0330.

About the Fund’s Directors and Officers

Your fund is overseen by a Board of Directors (Board) that meets regularly to review a wide variety of matters affecting the fund, including performance, investment programs, compliance matters, advisory fees and expenses, service providers, and other business affairs. The Board elects the fund’s officers, who are listed in the final table. At least 75% of the Board’s members are independent of T. Rowe Price Associates, Inc. (T. Rowe Price), and its affiliates; “inside” or “interested” directors are employees or officers of T. Rowe Price. The business address of each director and officer is 100 East Pratt Street, Baltimore, Maryland 21202. The Statement of Additional Information includes additional information about the fund directors and is available without charge by calling a T. Rowe Price representative at 1-800-638-5660.

Independent Directors      
 
Name
(Year of Birth)
Year Elected*
[Number of T. Rowe Price Principal Occupation(s) and Directorships of Public Companies and
Portfolios Overseen] Other Investment Companies During the Past Five Years
 
William R. Brody, M.D., Ph.D. President and Trustee, Salk Institute for Biological Studies (2009
(1944) to present); Director, Novartis, Inc. (2009 to present); Director, IBM
2009 (2007 to present); President and Trustee, Johns Hopkins University
[142] (1996 to 2009); Chairman of Executive Committee and Trustee,
Johns Hopkins Health System (1996 to 2009)
 
Anthony W. Deering Chairman, Exeter Capital, LLC, a private investment firm (2004
(1945) to present); Director, Under Armour (2008 to present); Director,
2001 Vornado Real Estate Investment Trust (2004 to present); Director
[142] and Member of the Advisory Board, Deutsche Bank North America
(2004 to present); Director, Mercantile Bankshares (2002 to 2007)
 
Donald W. Dick, Jr. Principal, EuroCapital Partners, LLC, an acquisition and management
(1943) advisory firm (1995 to present)
1994
[142]
 
Robert J. Gerrard, Jr. Chairman of Compensation Committee and Director, Syniverse
(1952) Holdings, Inc. (2008 to 2011); Executive Vice President and General
2012 Counsel, Scripps Networks, LLC (1997 to 2009); Advisory Board
[90] Member, Pipeline Crisis/Winning Strategies (1997 to present)
 
Karen N. Horn Senior Managing Director, Brock Capital Group, an advisory and
(1943) investment banking firm (2004 to present); Director, Eli Lilly and
2003 Company (1987 to present); Director, Simon Property Group (2004
[142] to present); Director, Norfolk Southern (2008 to present); Director,
Fannie Mae (2006 to 2008)
 
Theo C. Rodgers President, A&R Development Corporation (1977 to present)
(1941)
2005
[142]
 
Cecilia E. Rouse, Ph.D. Professor and Researcher, Princeton University (1992 to present);
(1963) Director, MDRC (2011 to present); Member, National Academy of
2012 Education (2010 to present); Research Associate, National Bureau
[90] of Economic Research’s Labor Studies Program (1998 to 2009
and 2011 to present); Member, President’s Council of Economic
Advisors (2009 to 2011); Member, The MacArthur Foundation
Network on the Transition to Adulthood and Public Policy (2000 to
2008); Member, National Advisory Committee for the Robert Wood
Johnson Foundation’s Scholars in Health Policy Research Program
(2008); Director and Member, National Economic Association
(2006 to 2008); Member, Association of Public Policy Analysis and
Management Policy Council (2006 to 2008); Member, Hamilton
Project’s Advisory Board at The Brookings Institute (2006 to 2008);
Chair of Committee on the Status of Minority Groups in the Economic
Profession, American Economic Association (2006 to 2008)
 
John G. Schreiber Owner/President, Centaur Capital Partners, Inc., a real estate
(1946) investment company (1991 to present); Cofounder and Partner,
2001 Blackstone Real Estate Advisors, L.P. (1992 to present); Director,
[142] General Growth Properties, Inc. (2010 to present)
 
Mark R. Tercek President and Chief Executive Officer, The Nature Conservancy (2008
(1957) to present); Managing Director, The Goldman Sachs Group, Inc.
2009 (1984 to 2008)
[142]
 
*Each independent director serves until retirement, resignation, or election of a successor.

Inside Directors      
 
Name
(Year of Birth)
Year Elected*
[Number of T. Rowe Price Principal Occupation(s) and Directorships of Public Companies and
Portfolios Overseen] Other Investment Companies During the Past Five Years
 
Edward C. Bernard Director and Vice President, T. Rowe Price; Vice Chairman of the
(1956) Board, Director, and Vice President, T. Rowe Price Group, Inc.;
2006 Chairman of the Board, Director, and President, T. Rowe Price
[142] Investment Services, Inc.; Chairman of the Board and Director,
T. Rowe Price Retirement Plan Services, Inc., T. Rowe Price Savings
Bank, and T. Rowe Price Services, Inc.; Chairman of the Board, Chief
Executive Officer, and Director, T. Rowe Price International; Chief
Executive Officer, Chairman of the Board, Director, and President,
T. Rowe Price Trust Company; Chairman of the Board, all funds
 
Brian C. Rogers, CFA, CIC Chief Investment Officer, Director, and Vice President, T. Rowe Price;
(1955) Chairman of the Board, Chief Investment Officer, Director, and Vice
2006 President, T. Rowe Price Group, Inc.; Vice President, T. Rowe Price
[75] Trust Company
 
*Each inside director serves until retirement, resignation, or election of a successor.

Officers      
 
Name (Year of Birth)
Position Held With New Era Fund Principal Occupation(s)
 
Syed H. Ali (1970) Vice President, Price Singapore and T. Rowe
Vice President Price Group, Inc.; formerly Research Analyst,
Credit Suisse Securities (to 2010)
 
Ryan N. Burgess, CFA (1974) Vice President, T. Rowe Price and T. Rowe Price
Vice President Group, Inc.
 
Richard de los Reyes (1975) Vice President, T. Rowe Price and T. Rowe Price
Vice President Group, Inc.
 
Shawn T. Driscoll (1975) Vice President, T. Rowe Price Group, Inc.
Vice President
 
Roger L. Fiery III, CPA (1959) Vice President, Price Hong Kong, Price
Vice President Singapore, T. Rowe Price, T. Rowe Price Group,
Inc., T. Rowe Price International, and T. Rowe
Price Trust Company
 
Mark S. Finn, CFA, CPA (1963) Vice President, T. Rowe Price, T. Rowe Price
Vice President Group, Inc., and T. Rowe Price Trust Company
 
John R. Gilner (1961) Chief Compliance Officer and Vice President,
Chief Compliance Officer T. Rowe Price; Vice President, T. Rowe Price
Group, Inc., and T. Rowe Price Investment
Services, Inc.
 
Gregory S. Golczewski (1966) Vice President, T. Rowe Price and T. Rowe Price
Vice President Trust Company
 
Gregory K. Hinkle, CPA (1958) Vice President, T. Rowe Price, T. Rowe Price
Treasurer Group, Inc., and T. Rowe Price Trust Company
 
Shinwoo Kim (1977) Vice President, T. Rowe Price; formerly summer
Vice President Equity Research Analyst, MFS Investment
Management (to 2008)
 
Jeremy D. Kokemor, CFA (1982) Vice President, T. Rowe Price; formerly summer
Vice President intern, T. Rowe Price (to 2009)
 
Steven D. Krichbaum (1977) Vice President, T. Rowe Price and T. Rowe Price
Vice President Group, Inc.
 
Benjamin D. Landy (1980) Vice President, T. Rowe Price and T. Rowe Price
Vice President Group, Inc.; formerly student, University of
Chicago, Booth School of Business (to 2009)
 
Patricia B. Lippert (1953) Assistant Vice President, T. Rowe Price and
Secretary T. Rowe Price Investment Services, Inc.
 
Ryan Martyn (1979) Vice President, T. Rowe Price International;
Vice President formerly Investment Analyst, VGI Partners
(to 2009)
 
Susanta Mazumdar (1968) Vice President, Price Singapore and T. Rowe
Vice President Price Group, Inc.
 
Heather K. McPherson, CPA (1967) Vice President, T. Rowe Price and T. Rowe Price
Vice President Group, Inc.
 
David Oestreicher (1967) Director, Vice President, and Secretary, T. Rowe
Vice President Price Investment Services, Inc., T. Rowe
Price Retirement Plan Services, Inc., T. Rowe
Price Services, Inc., and T. Rowe Price Trust
Company; Vice President and Secretary,
T. Rowe Price, T. Rowe Price Group, Inc., and
T. Rowe Price International; Vice President,
Price Hong Kong and Price Singapore
 
Timothy E. Parker, CFA (1974) Vice President, T. Rowe Price and T. Rowe Price
President Group, Inc.
 
Craig J. Pennington, CFA (1971) Vice President, T. Rowe Price Group, Inc., and
Vice President T. Rowe Price International; formerly Global
Energy Analyst, Insight Investment (to 2010);
Senior Trader, Brevan Howard (to 2008)
 
Deborah D. Seidel (1962) Vice President, T. Rowe Price, T. Rowe Price
Vice President Group, Inc., T. Rowe Price Investment Services,
Inc., and T. Rowe Price Services, Inc.
 
Craig A. Thiese (1975) Vice President, T. Rowe Price and T. Rowe Price
Vice President Group, Inc.
 
David J. Wallack (1960) Vice President, T. Rowe Price, T. Rowe Price
Vice President Group, Inc., and T. Rowe Price Trust Company
 
Julie L. Waples (1970) Vice President, T. Rowe Price
Vice President
 
John M. Williams (1982) Vice President, T. Rowe Price; formerly summer
Vice President Analyst, The Capital Group Companies, Inc.
(to 2009)
 
Nalin K. Yogasundram (1975) Vice President, T. Rowe Price and T. Rowe Price
Vice President Group, Inc.
 
Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe Price International for at least 5 years.

Item 2. Code of Ethics.

The registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR, applicable to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of this code of ethics is filed as an exhibit to this Form N-CSR. No substantive amendments were approved or waivers were granted to this code of ethics during the period covered by this report.

Item 3. Audit Committee Financial Expert.

The registrant’s Board of Directors/Trustees has determined that Mr. Anthony W. Deering qualifies as an audit committee financial expert, as defined in Item 3 of Form N-CSR. Mr. Deering is considered independent for purposes of Item 3 of Form N-CSR.

Item 4. Principal Accountant Fees and Services.

(a) – (d) Aggregate fees billed for the last two fiscal years for professional services rendered to, or on behalf of, the registrant by the registrant’s principal accountant were as follows:

Audit fees include amounts related to the audit of the registrant’s annual financial statements and services normally provided by the accountant in connection with statutory and regulatory filings. Audit-related fees include amounts reasonably related to the performance of the audit of the registrant’s financial statements and specifically include the issuance of a report on internal controls and, if applicable, agreed-upon procedures related to fund acquisitions. Tax fees include amounts related to services for tax compliance, tax planning, and tax advice. The nature of these services specifically includes the review of distribution calculations and the preparation of Federal, state, and excise tax returns. All other fees include the registrant’s pro-rata share of amounts for agreed-upon procedures in conjunction with service contract approvals by the registrant’s Board of Directors/Trustees.

(e)(1) The registrant’s audit committee has adopted a policy whereby audit and non-audit services performed by the registrant’s principal accountant for the registrant, its investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant require pre-approval in advance at regularly scheduled audit committee meetings. If such a service is required between regularly scheduled audit committee meetings, pre-approval may be authorized by one audit committee member with ratification at the next scheduled audit committee meeting. Waiver of pre-approval for audit or non-audit services requiring fees of a de minimis amount is not permitted.

     (2) No services included in (b) – (d) above were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

(f) Less than 50 percent of the hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent fiscal year were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees.

(g) The aggregate fees billed for the most recent fiscal year and the preceding fiscal year by the registrant’s principal accountant for non-audit services rendered to the registrant, its investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant were $1,802,000 and $1,764,000, respectively.

(h) All non-audit services rendered in (g) above were pre-approved by the registrant’s audit committee. Accordingly, these services were considered by the registrant’s audit committee in maintaining the principal accountant’s independence.

Item 5. Audit Committee of Listed Registrants.

Not applicable.

Item 6. Investments.

(a) Not applicable. The complete schedule of investments is included in Item 1 of this Form N-CSR.

(b) Not applicable.

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

Not applicable.

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

Not applicable.

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

Not applicable.

Item 10. Submission of Matters to a Vote of Security Holders.

Not applicable.

Item 11. Controls and Procedures.

(a) The registrant’s principal executive officer and principal financial officer have evaluated the registrant’s disclosure controls and procedures within 90 days of this filing and have concluded that the registrant’s disclosure controls and procedures were effective, as of that date, in ensuring that information required to be disclosed by the registrant in this Form N-CSR was recorded, processed, summarized, and reported timely.

(b) The registrant’s principal executive officer and principal financial officer are aware of no change in the registrant’s internal control over financial reporting that occurred during the registrant’s second fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 12. Exhibits.

(a)(1) The registrant’s code of ethics pursuant to Item 2 of Form N-CSR is attached.

     (2) Separate certifications by the registrant's principal executive officer and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(a) under the Investment Company Act of 1940, are attached.

     (3) Written solicitation to repurchase securities issued by closed-end companies: not applicable.

(b) A certification by the registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940, is attached.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

T. Rowe Price New Era Fund, Inc.
 

  By       /s/ Edward C. Bernard
Edward C. Bernard
Principal Executive Officer      
 
Date       February 15, 2013
 

     Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 

  By       /s/ Edward C. Bernard
Edward C. Bernard
Principal Executive Officer      
 
Date       February 15, 2013
 
 
By /s/ Gregory K. Hinkle
Gregory K. Hinkle
Principal Financial Officer      
 
Date       February 15, 2013
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