<PAGE>
Annual Report
New
Horizons
Fund
-----------------
December 31, 1997
-----------------
[LOGO OF T. ROWE PRICE APPEARS HERE]
<PAGE>
REPORT HIGHLIGHTS
- --------------------------------------------------------------------------------
New Horizons Fund
. The broad U.S. equity market rode a strong economy to excellent gains in
1997, but large-cap and dividend-paying issues significantly outperformed
smaller growth stocks.
. The fund's six-month gain of 8.53% was in keeping with the performance of
small-cap growth stocks generally but lagged the broad market.
. A modest 9.77% full-year return reflects a challenging environment and some
poor-performing holdings in the first half of the year.
. Business services and consumer stocks contributed to performance, but
technology stocks held back returns, as several important companies in the
sector reported disappointing earnings.
. Small-cap growth stocks now offer excellent earnings growth at historically
low prices and have a chance to outperform in the coming year.
<PAGE>
FELLOW SHAREHOLDERS
The stock market continued its extraordinary run in the second half of 1997,
despite a brief, sharp correction in the fourth quarter in response to economic
and currency turmoil in Asia. The major market indices (S&P 500 and Dow Jones
Industrials), led by blue chip issues, finished an unprecedented third
consecutive year of annual gains in excess of 20%. Small-cap stocks, which
lagged large-caps badly in the first half, rallied strongly in the third quarter
but declined in the fourth while large-caps managed a modest further gain. This
marked the fourth consecutive year in which small-cap stocks trailed the large-
cap indices.
- ----------------------
PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Periods Ended 12/31/97 6 Months 12 Months
- ------------------------------------------------------------------------------
<S> <C> <C>
New Horizons Fund 8.53% 9.77%
..............................................................................
Russell 2000 Index 11.04 22.36
..............................................................................
Russell 2000 Growth Index 7.34 12.95
..............................................................................
Lipper Small Cap Fund Index 8.50 15.05
..............................................................................
S&P 500 10.58 33.36
..............................................................................
</TABLE>
The Performance Comparison table below now includes the Russell 2000 Growth
Index, in addition to the Russell 2000 Index and the Lipper Small Cap Fund
Index. Of the three, the Russell 2000 Growth Index comes the closest to
measuring the universe of small-cap companies with exceptional earnings growth
that your fund invests in. The New Horizons Fund performed in line with small-
company growth stocks (as represented by the Russell 2000 Growth Index) and the
average small-company mutual fund (Lipper Small Cap Fund Index) in the second
half, but trailed the broader Russell 2000 and S&P 500. For the full year, the
fund lagged all these measures due largely to disappointing performance in the
technology sector and among a number of larger holdings. It is worth noting,
however, that New Horizons has outperformed the Russell 2000 Growth Index and
the Lipper Small Cap Fund Index by wide margins for the longer 3-, 5-, and 10-
year periods with the fund rising 99.70%, 144.39%, and 435.12%*, respectively.
* For the 3-, 5-, and 10-year periods, the Russell 2000 Growth Index gained
64.68%, 82.16%, and 254.58%. The Lipper Small Cap Fund Index gained 73.18%,
101.52%, and 318.01%.
1
<PAGE>
YEAR-END DISTRIBUTION
The fund's Directors declared a capital gain distribution of $0.58 per share,
consisting of a short-term gain of $0.01 and a long-term gain of $0.57. This
distribution was paid on December 30 to shareholders of record on December 26.
In January, we mailed your statement reflecting this distribution, and Form
1099-DIV, reporting this payment for tax purposes, was mailed later in the
month.
MARKET ENVIRONMENT
Domestic economic conditions remained nearly ideal in the second half of the
year. Economic growth was solid and broad-based, with 1997 becoming the seventh
consecutive year of growth for the economy, a near-record duration for economic
growth without a slowdown. Employment soared to record levels and yet there are
no signs of any pickup in inflation. Corporate profit growth remained
surprisingly robust. The federal budget deficit shrank to its lowest level since
1974 and a budget surplus is a possibility in fiscal 1998 for the first time
since 1969. Congress and the President agreed on a reduction in the tax rate on
long-term capital gains, the first such reduction since 1981.
Long-term bond yields fell sharply, ending the year below 6%. In January 1998,
the 30-year Treasury bond yield fell to 5.7%, the lowest level in its history.
The public continued to be bullish on the stock market as a record dollar amount
was invested in equity mutual funds. The only cloud on the horizon was the
economic and financial turmoil in Asia, which to date has had a very limited
spillover effect on the U.S.
Against this very favorable backdrop, it is not surprising that the stock market
soared to record levels. What did surprise us, however, was that small stocks
underperformed again. Typically, strong domestic economies benefit small stocks:
for example, they led the market out of the last recession, from 1991 through
1993. However, they have generally lagged since then. The main reason is that,
while small-company earnings gains have been consistently strong, in the 10% to
15% area, large companies have done even better. That has been the case despite
the amazing strength of the U.S. dollar, which theoretically should restrain
earnings of companies with significant overseas exposure (primarily large-cap
multinationals). In the 1990s, however, cost-cutting and accounting benefits
from divestitures has helped
2
<PAGE>
- -----------------------
SMALL-CAP STOCK RETURNS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Periods Ended 12/31/97 6 Months 12 Months
- ------------------------------------------------------------------------------
<S> <C> <C>
Russell 2000 Index 11.04% 22.36%
..............................................................................
Russell 2000 Growth Index 7.34 12.95
..............................................................................
Russell 2000 Value Index 14.79 31.78
..............................................................................
</TABLE>
larger companies maintain an edge in earnings growth. Even when small companies
have reported faster earnings growth, for example in mid-1997, large-cap
performance has rebounded. That happened late in the year when investors sought
the perceived safety and liquidity of large-caps in response to the uncertainty
and volatility of the markets in the aftermath of the Asian crisis.
Within the small-cap market itself, a divergence occurred between the
performance of the small-cap growth and small-cap value sectors. Small-cap
growth stocks--our focus--sharply underperformed small-cap value stocks in the
second half and for the full year. Earnings shortfalls in the small-cap
technology sector were the primary culprit. As the accompanying table shows, the
Russell 2000 Growth Index trailed the Russell 2000 Value Index by more than
seven percentage points in the second half and by almost 19 percentage points
for the full year.
PORTFOLIO REVIEW
In the last six months and for the full year, all sectors except technology
contributed to the fund's gain. Business services, the fund's largest sector,
continued to be a major contributor to performance, led by long-time holding
Paychex, which rose 32% in the second half and nearly 50% for the full year.
Paychex, a payroll processor for small businesses, is a prime example of the
type of company New Horizons seeks out. In addition to serving a large and
growing market, it has strong management, a winning business strategy, limited
direct competition, and strong financial returns and cash flow. These qualities
have resulted in compound annual earnings growth close to 30% since New Horizons
first invested in Paychex in 1987. New Horizons owns 2.75 million shares at an
average cost of $2 per share. The stock ended 1997 at $50 per share, and the
fund has a profit of over $130 million on our holding. With a market
capitalization in excess of $5 billion, Paychex is no longer firmly in the
small-cap area, although its earnings show no signs of slowing. At some point,
however, we will begin trimming our position in order to recycle the money into
smaller companies with similar growth prospects.
3
<PAGE>
Another strong contributor in the second half was Cendant, the product of a
December 1997 merger between CUC International and HFS--both long-time positions
and top-five holdings at the time of the merger. Cendant's stock rose 33% in the
second half and 45% for the full year. New Horizons shareholders have a profit
in excess of $150 million on our CUC/HFS investment. As a result of the merger,
the combined company now has a market capitalization of approximately $30
billion, but the earnings growth remains vibrant at close to 30% annually. We
will reluctantly begin to recycle part of this position as well in order to seek
out the winners for the fund over the next five to 10 years.
Unfortunately, most of our investments do not turn out as well as Paychex or CUC
and HFS. In fact, many promising small growth companies blow up in the process
of trying to grow rapidly into larger entities. Some fail because their market
stops growing, and others fall victim to increased competition. Most fail,
however, due to a flawed business strategy or lack of execution by management.
In 1997, we had a number of large losers for all of the above reasons. Boston
Chicken's stock price collapsed when sales failed to grow as fast as expected, a
problem compounded by a seemingly clever yet, in retrospect, flawed financial
structure. PETsMART and Corporate Express tried to grow much faster than their
underlying markets and had to pull in their horns and rethink their growth
strategies. Electronics for Imaging plunged in late 1997 due to a botched
product transition and severe weakness in its Asian customer base. And, lastly,
Mercury Finance self-destructed after the discovery of management fraud and
accounting misstatements.
Our job is to identify the most attractive emerging growth sectors in the
economy and to find companies with the management, strategy, and finances to
grow at above-average rates for long periods. Investing is an art, not a
science, and as noted above not all our stock picks work out. If we are
unwilling to accept any losers, we will probably not take the risk necessary to
invest in many of the major successes of the future. We try to minimize our
mistakes and usually cut our losses when a company fails to meet our growth
expectations. We maintain a large, diversified portfolio in terms of economic
sectors and individual stocks in order to dampen the volatility inherent in
small-cap investing. Like baseball, if we have a high enough batting average
picking winners over time, fund results will be more than satisfactory and will
compensate for the risks taken.
4
<PAGE>
We try to minimize portfolio turnover because we like to hold onto our winners
for a long time and because transacting large quantities of small-company stocks
can be very expensive. The portfolio turnover rate was 45% in 1997,
approximately half the turnover rate of the average small-company fund.
- ----------------------
SECTOR DIVERSIFICATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
12/31/96 6/30/97 12/31/97
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Financial 6% 6% 6%
...............................................................................
Health Care 18 18 18
...............................................................................
Consumer 16 16 17
...............................................................................
Technology 23 17 20
...............................................................................
Business Services 25 27 29
...............................................................................
Energy 5 5 4
...............................................................................
Industrial 5 4 2
...............................................................................
Reserves 2 7 4
- -------------------------------------------------------------------------------
Total 100% 100% 100%
</TABLE>
We tend to change our sector weightings gradually over time. During 1997, we
continued to increase our business services weightings, now by far the largest
sector of the portfolio (29% of fund assets), as noted in the accompanying
table. Technology weightings fluctuated but ended the year at 20% of the
portfolio, below year-end 1996 levels. Industrial holdings were pared sharply
from 5% to 2% of the fund as a result of buyouts of fund holdings as well as
reductions or eliminations in several portfolio companies that failed to meet
our expectations. Other sector shifts were minor.
OUTLOOK
We were surprised by the magnitude of the overall market's advance in 1997 but
quite disappointed by the underperformance of small-cap stocks in general, and
small growth stocks and the New Horizons Fund in particular. Entering 1998,
economic fundamentals remain strong domestically. Record low inflation prospects
and long-term interest rates present a favorable backdrop for the equity
markets. The wild card, of course, is whether the U.S. can stay immune to the
increasing problems in most Asian countries. If so, our markets can have another
satisfactory year. Price declines in the first half of January are unsettling as
the January stock market usually sets the course for the full year.
5
<PAGE>
As to small-cap stocks, they generally have limited overseas exposure (except
for certain technology companies) and therefore should be less affected
fundamentally by any fallout from the Asian crisis. Large companies get a far
greater proportion of their earnings from overseas sources. The small-cap growth
segment has underperformed dramatically over the past year and valuations have
become more attractive. If overall economic growth slows, investors should begin
to favor small-company growth issues with their stronger growth prospects. The
fundamentals of our stock holdings remain strong with expected future earnings
growth of approximately 25% annually according to our analysts' estimates. The
New Horizons Fund's relative price-to-earnings ratio (P/E) at year-end was 1.16
times the S&P 500 P/E based on 12-months' forward estimated earnings, firmly in
the lower end of its historical 1.0 to 2.0 range. We are optimistic that the
fund will generate improved relative performance over the next several years.
Respectfully submitted,
/s/ John H. Laporte
John H. Laporte
President and Chairman of the Investment Advisory Committee
January 24, 1998
6
<PAGE>
T. ROWE PRICE NEW HORIZONS FUND
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
- ---------------------------
NEW HORIZONS FUND P/E RATIO
- --------------------------------------------------------------------------------
<S> <C>
12/62 19.2
12/69 28.6
12/76 10.4
12/83 17.3
12/90 13.6
12/97 23.6
</TABLE>
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
- -------------------------------------------------
NEW HORIZONS FUND P/E RELATIVE TO THE S&P 500 P/E
- --------------------------------------------------------------------------------
<S> <C>
12/62 1.12
12/69 1.57
12/76 1.07
12/83 1.86
12/90 1.01
12/97 1.16
</TABLE>
Note: The fund's P/E ratio is an average, unweighted number based on 12-month
forward earnings per share as estimated by the fund's investment manager at each
quarter-end.
7
<PAGE>
T. ROWE PRICE NEW HORIZONS FUND
- --------------------------------------------------------------------------------
- --------------------
PORTFOLIO HIGHLIGHTS
- --------------------------------------------------------------------------------
CONTRIBUTIONS TO THE CHANGE IN NET ASSET VALUE PER SHARE
6 Months Ended December 31, 1997
<TABLE>
<CAPTION>
Ten Best Contributors Ten Worst Contributors
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cendant 24(cents) Electronics for Imaging * -12(cents)
.......................................................... ...............................................................
Paychex 16 Altera 8
.......................................................... ...............................................................
PLATINUM technology 14 Xilinx 7
.......................................................... ...............................................................
Cooper Cameron 8 SITEL 5
.......................................................... ...............................................................
Maxim Integrated Products 7 OEA 5
.......................................................... ...............................................................
COR Therapeutics 6 Lam Research 5
.......................................................... ...............................................................
SunGard Data Systems 6 BISYS Group 5
.......................................................... ...............................................................
Apollo Group 6 Zonagen * 4
.......................................................... ...............................................................
Mutual Risk Management 6 Remedy 3
.......................................................... ...............................................................
BMC Software 5 Lone Star Steakhouse & Saloon 3
- ---------------------------------------------------------- ---------------------------------------------------------------
Total 98(cents) Total -57(cents)
</TABLE>
<TABLE>
<CAPTION>
12 Months Ended December 31, 1997
Ten Best Contributors Ten Worst Contributors
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cendant 26(cents) Boston Chicken ** -17(cents)
.......................................................... ...............................................................
Paychex 22 Electronics for Imaging * 12
.......................................................... ...............................................................
Maxim Integrated Products 16 3Com ** 9
.......................................................... ...............................................................
General Nutrition 15 PETsMART ** 9
.......................................................... ...............................................................
BMC Software 15 Corporate Express 8
.......................................................... ...............................................................
Cooper Cameron 14 OEA 8
.......................................................... ...............................................................
PLATINUM technology 14 Mercury Finance ** 8
.......................................................... ...............................................................
America Online 10 Shiva ** 8
.......................................................... ...............................................................
SunGard Data Systems 10 Employee Solutions 7
.......................................................... ...............................................................
Mutual Risk Management 9 FORE Systems ** 7
- ---------------------------------------------------------- ---------------------------------------------------------------
Total 151(cents) Total -93(cents)
</TABLE>
* Position added
** Position eliminated
8
<PAGE>
T. ROWE PRICE NEW HORIZONS FUND
- --------------------------------------------------------------------------------
- --------------------
PORTFOLIO HIGHLIGHTS
- --------------------------------------------------------------------------------
TWENTY-FIVE LARGEST HOLDINGS
<TABLE>
<CAPTION>
Percent of
Net Assets
12/31/97
- --------------------------------------------------------------------------------
<S> <C>
Cendant 3.7%
................................................................................
Paychex 2.7
................................................................................
Maxim Integrated Products 1.3
................................................................................
Quorum Health Group 1.1
................................................................................
Cooper Cameron 1.1
- --------------------------------------------------------------------------------
Mutual Risk Management 1.0
................................................................................
PLATINUM technology 1.0
................................................................................
General Nutrition 1.0
................................................................................
Analog Devices 1.0
................................................................................
Synopsys 1.0
- --------------------------------------------------------------------------------
SunGard Data Systems 1.0
................................................................................
Apollo Group 0.9
................................................................................
Orthodontic Centers Of America 0.9
................................................................................
Outback Steakhouse 0.9
................................................................................
JP Foodservice 0.9
- --------------------------------------------------------------------------------
Sylvan Learning Systems 0.8
................................................................................
COREStaff 0.8
................................................................................
Concentra Managed Care 0.8
................................................................................
Renal Care Group 0.8
................................................................................
Omnicare 0.8
- --------------------------------------------------------------------------------
Network Associates 0.8
................................................................................
BMC Software 0.8
................................................................................
PennCorp Financial Group 0.8
................................................................................
USA Waste Services 0.8
................................................................................
Catalina Marketing 0.8
- --------------------------------------------------------------------------------
Total 27.5%
</TABLE>
9
<PAGE>
T. ROWE PRICE NEW HORIZONS FUND
- --------------------------------------------------------------------------------
- ----------------------
PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
This chart shows the value of a hypothetical $10,000 investment in the fund over
the past 10 fiscal year periods or since inception (for funds lacking 10-year
records). The result is compared with a broad-based average or index. The index
return does not reflect expenses, which have been deducted from the fund's
return.
NEW HORIZONS FUND
- --------------------------------------------------------------------------------
LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Lipper Russell New
Small Cap 2000 Horizon
Date Fund Index Index Fund
- ----- ---------- ------- ------
<S> <C> <C> <C>
12/87 10,000 10,000 10,000
12/88 11,938 12,502 11,401
12/89 14,894 14,535 14,386
12/90 13,299 11,704 13,001
12/91 20,286 15,589 18,374
12/92 22,778 20,240 21,897
12/93 26,665 24,061 26,716
12/94 26,734 23,622 26,796
12/95 35,751 30,343 41,653
12/96 41,409 35,347 48,747
12/97 48,885 43,252 53,512
</TABLE>
- ------------------------------------
AVERAGE ANNUAL COMPOUND TOTAL RETURN
- --------------------------------------------------------------------------------
This table shows how the fund would have performed each year if its actual (or
cumulative) returns for the periods shown had been earned at a constant rate.
Periods Ended 12/31/97 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------
New Horizons Fund 9.77% 25.93% 19.57% 18.26%
..........................................................................
Investment return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
10
<PAGE>
T. ROWE PRICE NEW HORIZONS FUND
- --------------------------------------------------------------------------------
- --------------------
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year
Ended
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
NET ASSET VALUE
<S> <C> <C> <C> <C> <C>
Beginning of period $ 21.77 $ 20.50 $ 14.76 $ 16.16 $ 15.53
..........................................................
Investment activities
net investment income (0.12) (0.08) (0.04) (0.07) (0.07)
Net realized and
unrealized gain (loss) 2.23 3.54 8.19 0.10 3.40
..........................................................
Total from
investment activities 2.11 3.46 8.15 0.03 3.33
..........................................................
Distributions
net realized gain (0.58) (2.19) (2.41) (1.43) (2.70)
..........................................................
NET ASSET VALUE
End of period $ 23.30 $ 21.77 $ 20.50 $ 14.76 $ 16.16
----------------------------------------------------------
Ratios/Supplemental Data
Total return 9.77% 17.03% 55.44% 0.30% 22.01%
.......................................................................................
Ratio of expenses to
average net assets 0.88% 0.90% 0.90% 0.93% 0.93%
.......................................................................................
Ratio of net investment
income to average
net assets (0.57)% (0.41)% (0.23)% (0.50)% (0.50)%
.......................................................................................
Portfolio turnover rate 45.2% 41.4% 55.9% 44.3% 49.4%
.......................................................................................
Average commission
rate paid $ 0.0368 $ 0.0416 - - -
.......................................................................................
Net assets, end of period
(in millions) $ 5,104 $ 4,363 $ 2,855 $ 1,648 $ 1,628
.......................................................................................
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
T. ROWE PRICE NEW HORIZONS FUND
- --------------------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
- ------------------------
PORTFOLIO OF INVESTMENTS Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
EQUITY INVESTMENTS
AND CONVERTIBLES ** 96.5%
FINANCIAL 5.6%
Insurance 4.0%
CMAC Investment 600,000 $ 36,225
...............................................................................
ESG Re * 350,000 8,181
...............................................................................
Medical Assurance * 466,082 13,109
...............................................................................
Mutual Risk Management 1,720,000 51,492
...............................................................................
PennCorp Financial Group 1,100,000 39,256
...............................................................................
Presidential Life 977,200 19,972
...............................................................................
PXRE 296,700 9,847
...............................................................................
UICI * 754,500 26,455
...............................................................................
204,537
...........
Financial Services 1.6%
Aames Financial 1,000,000 12,937
...............................................................................
Affiliated Managers Group * 200,000 5,800
...............................................................................
Delta Financial * 400,000 5,350
...............................................................................
First Alliance * 80,000 1,480
...............................................................................
First Investors Financial * + 400,000 2,700
...............................................................................
ITG * 200,000 5,650
...............................................................................
Lasalle Partners * 447,500 15,942
...............................................................................
Legg Mason 300,000 16,781
...............................................................................
Money Store 549,500 11,540
...............................................................................
Ocwen Financial * 200,000 5,088
...............................................................................
World Acceptance * 206,700 1,117
...............................................................................
84,385
...........
Total Financial 288,922
...........
HEALTH CARE 17.8%
Pharmaceuticals 1.1%
Agouron Pharmaceuticals * 200,000 5,856
...............................................................................
Alkermes * 404,900 7,997
...............................................................................
Flamel Technologies ADR * 140,000 271
...............................................................................
Genta, Units (Each unit consists of 1 share
Cvt. Pfd. (Series A) and 1 Warrant) * ++ 50,000 125
...............................................................................
</TABLE>
12
<PAGE>
T. ROWE PRICE NEW HORIZONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Genta, Warrants, 9/24/98 * ++ 50,000 $ 0
................................................................................
Immulogic Pharmaceuticals * 1,000,000 1,891
................................................................................
Incyte Pharmaceuticals * 400,000 17,850
................................................................................
Inhale Therapeutic Systems * 300,000 7,763
................................................................................
Inhale Therapeutic Systems * ++ 243,750 5,676
................................................................................
Magainin Pharmaceuticals * 516,800 4,182
................................................................................
Magainin Pharmaceuticals * ++ 518,921 3,766
................................................................................
Magainin Pharmaceuticals, Warrants, 8/6/01 * ++ 337,299 0
................................................................................
Perrigo * 190,000 2,553
................................................................................
57,930
...............
Biotechnology 5.8%
Aurora Biosciences * 175,200 2,234
................................................................................
Biogen * 650,000 23,684
................................................................................
Bioreliance * 172,800 3,974
................................................................................
BioTransplant * 62,500 348
................................................................................
Cambridge Neuroscience * 250,000 504
................................................................................
Cell Genesys * 275,000 2,329
................................................................................
Cell Therapeutics * 500,000 8,437
................................................................................
Cephalon * 250,000 2,852
................................................................................
COR Therapeutics * + 1,265,200 28,546
................................................................................
Corvas International * + 900,000 3,600
................................................................................
Creative Biomolecules * 150,000 1,125
................................................................................
CytoTherapeutics * 500,000 1,984
................................................................................
Epix Medical * + 525,000 6,727
................................................................................
GeneMedicine * 300,000 1,556
................................................................................
Genta * 12,931 11
................................................................................
Gilead Sciences * 568,800 21,828
................................................................................
Gliatech * 220,000 2,296
................................................................................
Guilford Pharmaceuticals * 600,000 12,187
................................................................................
Human Genome Sciences * 360,000 14,355
................................................................................
IBAH, (Series A), Cv. Pfd. * ++ 214,190 1,980
................................................................................
IBAH, Warrants, 8/11/00 * ++ 642,570 705
................................................................................
IDEXX Laboratories * 1,000,000 16,031
................................................................................
ILEX Oncology * 300,000 2,288
................................................................................
Imclone Systems * 650,000 5,159
................................................................................
Intercardia * 300,000 5,466
................................................................................
</TABLE>
13
<PAGE>
T. ROWE PRICE NEW HORIZONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Isis Pharmaceuticals (Class B) * 500,000 $ 6,219
...............................................................................
Ligand Pharmaceuticals * 370,000 4,787
...............................................................................
MedImmune * 300,000 12,900
...............................................................................
Millennium Pharmaceuticals * 942,500 18,084
...............................................................................
Nabi * 1,000,000 3,469
...............................................................................
NaPro BioTherapeutics * 331,400 818
...............................................................................
Neurocrine Biosciences * 287,800 2,302
...............................................................................
Neurogen * 100,000 1,375
...............................................................................
NPS Pharmaceuticals * + 900,000 6,891
...............................................................................
OSI Pharmaceuticals * 687,500 4,598
...............................................................................
PathoGenesis * 600,000 22,312
...............................................................................
Pharmacopeia * 240,600 3,865
...............................................................................
SangStat Medical * 100,000 4,056
...............................................................................
Shaman Pharmaceuticals * + 1,000,000 4,844
...............................................................................
Synaptic Pharmaceutical * 480,000 5,100
...............................................................................
Targeted Genetics * 445,000 1,154
...............................................................................
Targeted Genetics, Warrants, 1/31/98 * 135,000 1
...............................................................................
Triangle Pharmaceuticals * 100,000 1,494
...............................................................................
Trimeris * 350,000 4,539
...............................................................................
Xenova Group (GBP) * 517,500 1,275
...............................................................................
Xenova Group ADR * + 1,170,000 2,559
...............................................................................
Zonagen * + 600,000 10,931
...............................................................................
293,779
...........
Medical Equipment 0.4%
Dentsply International 750,000 23,180
...............................................................................
23,180
...........
Medical Instruments and Devices 2.3%
Arrow International 360,000 13,455
...............................................................................
Cardima * + 500,000 2,187
...............................................................................
CardioGenesis * 330,000 2,104
...............................................................................
CardioVascular Dynamics * 150,080 821
...............................................................................
Conceptus * 60,000 308
...............................................................................
Diagnostic Products 25,900 719
...............................................................................
Haemonetics * 300,000 4,200
...............................................................................
Incontrol * 470,000 2,849
...............................................................................
Innovasive Devices * 100,000 912
...............................................................................
Mentor 65,000 2,389
...............................................................................
</TABLE>
14
<PAGE>
T. ROWE PRICE NEW HORIZONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Metra Biosystems * 179,700 $ 679
................................................................................
R.P. Scherer * 400,000 24,400
................................................................................
ResMed * 287,500 8,086
................................................................................
ReSound * ++ 773,023 3,783
................................................................................
Stryker 600,000 22,350
................................................................................
Sybron International * 500,000 23,469
................................................................................
Utah Medical Products * 400,000 2,725
................................................................................
115,436
...............
Health Care Services 8.2%
Access Health Marketing * 108,000 3,159
................................................................................
American Oncology Resources * 739,100 11,872
................................................................................
American Physician Partners * 600,000 6,394
................................................................................
Ameripath * 600,000 10,237
................................................................................
APACHE Medical Systems * 160,000 215
................................................................................
Carematrix * 400,000 11,500
................................................................................
Cerner * 200,000 4,262
................................................................................
Collaborative Clinical Research * 275,000 1,418
................................................................................
Concentra Managed Care * 1,200,000 40,425
................................................................................
Harborside Healthcare * 342,200 6,758
................................................................................
HCIA * 250,000 3,031
................................................................................
Health Management * 144,700 864
................................................................................
HealthSouth * 600,000 16,650
................................................................................
IDX Systems * 777,800 28,827
................................................................................
LanVision Systems * 222,000 1,027
................................................................................
Medical Alliance * 185,200 758
................................................................................
Medical Manager * 390,000 7,093
................................................................................
NCS HealthCare * 915,000 24,133
................................................................................
NeoPath * 550,000 7,184
................................................................................
Omnicare 1,277,131 39,591
................................................................................
Pharmerica * 658,300 6,892
................................................................................
Quorum Health Group * 2,100,000 55,125
................................................................................
Raytel Medical * + 470,000 5,434
................................................................................
Renal Care Group * + 1,250,000 40,156
................................................................................
Renal Treatment Center * 810,400 29,276
................................................................................
Stericycle * 425,000 6,189
................................................................................
Summit Medical Systems * 100,000 150
................................................................................
Sunrise Assisted Living * 250,000 10,719
................................................................................
</TABLE>
15
<PAGE>
T. ROWE PRICE NEW HORIZONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- ------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Superior Consultant Holdings * 100,000 $ 2,988
..............................................................................
Synetic * 112,700 4,163
..............................................................................
Synetic, Cvt. Sub. Deb., 5.00%, 2/15/07 $12,000,000 10,200
..............................................................................
T Cell Sciences * 200,000 488
..............................................................................
Total Renal Care * 530,166 14,580
..............................................................................
United Dental Care * + 564,500 6,139
..............................................................................
UroMed, Cvt. Sub. Notes, (144a), 6.00%, 10/15/03 $ 3,000,000 1,641
..............................................................................
419,538
...........
Total Health Care 909,863
...........
CONSUMER 17.1%
Soft Goods Retailers 1.4%
Fabri-Centers of America (Class B) * 570,000 11,792
..............................................................................
Gadzooks * + 700,000 14,787
..............................................................................
Gymboree * 750,000 20,578
..............................................................................
Jos. A. Bank Clothiers * 200,000 1,088
..............................................................................
Loehmanns * 193,500 1,131
..............................................................................
Urban Outfitters * + 1,087,100 19,975
..............................................................................
69,351
...........
Hard Goods Retailers 3.1%
Caseys General Stores 500,000 12,781
..............................................................................
Discount Auto Parts * + 1,100,000 21,038
..............................................................................
Dominicks Supermarkets * 600,000 21,900
..............................................................................
General Nutrition * 1,500,000 50,906
..............................................................................
Guitar Center * 168,000 3,906
..............................................................................
Micro Warehouse * 250,000 3,492
..............................................................................
Republic Industries * 1,235,000 28,791
..............................................................................
TSC * + 792,500 11,343
..............................................................................
West Marine * 250,000 5,625
..............................................................................
159,782
...........
Consumer Durables 0.0%
GT Bicycles * 53,800 316
..............................................................................
316
...........
Consumer Nondurables 1.9%
American Italian Pasta (Class A) * 138,000 3,450
..............................................................................
Beringer Wine Estates Holdings * 128,700 4,891
..............................................................................
</TABLE>
16
<PAGE>
T. ROWE PRICE NEW HORIZONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- ------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Jones Apparel Group * 500,000 $ 21,500
..............................................................................
Linens `n Things * 200,000 8,725
..............................................................................
Nautica Enterprises * 900,000 21,150
..............................................................................
QuikSilver * 350,000 10,084
..............................................................................
Rayovac * 300,000 5,775
..............................................................................
St. John Knits 350,000 14,000
..............................................................................
Tommy Hilfiger * 187,700 6,593
..............................................................................
96,168
...........
Restaurants 1.7%
Einstein/Noah Bagel * 750,000 4,196
..............................................................................
Lone Star Steakhouse & Saloon * 660,000 11,591
..............................................................................
Outback Steakhouse * 1,550,000 44,853
..............................................................................
Schlotzsky's * 170,000 2,486
..............................................................................
Silver Diner * + ++ 750,000 812
..............................................................................
Sonic * + 702,500 19,846
..............................................................................
83,784
Entertainment 0.8%
Carmike Cinemas (Class A) * 500,000 14,344
..............................................................................
Cinar Films (Class B) * 106,850 4,127
..............................................................................
Dover Downs Entertainment + 150,000 3,441
..............................................................................
International Speedway (Class A) 34,800 826
..............................................................................
Penske Motorsports * 350,000 8,728
..............................................................................
Speedway Motorsports * 350,000 8,684
..............................................................................
Spice Entertainment * + 650,000 2,580
..............................................................................
42,730
...........
Consumer Services 8.2%
Ambassadors International * + 433,000 8,308
..............................................................................
Apollo Group (Class A) * 1,000,000 47,375
..............................................................................
Avis Rent A Car * 550,000 17,566
..............................................................................
Cendant * 5,500,000 189,063
..............................................................................
Devry * 150,000 4,781
..............................................................................
Diamond Home Services * 390,800 2,833
..............................................................................
Equity Corp International * + 1,413,500 32,687
..............................................................................
Extended Stay America * 2,000,000 24,875
..............................................................................
Learning Tree International * 375,000 10,898
..............................................................................
Signature Resorts * 531,600 11,662
..............................................................................
</TABLE>
17
<PAGE>
T. ROWE PRICE NEW HORIZONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- ------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Strayer Education 674,250 $ 22,756
..............................................................................
Sylvan Learning Systems * 1,100,000 43,175
..............................................................................
TRM Copy Centers * + 425,000 3,878
..............................................................................
419,857
...........
Total Consumer 871,988
...........
TECHNOLOGY 19.9%
Computer Software 6.5%
Advent Software * 250,000 7,328
..............................................................................
BMC Software * 600,000 39,337
..............................................................................
CBT ADR * 250,000 20,547
..............................................................................
Electronic Arts * 350,000 13,245
..............................................................................
Great Plains Software * 270,000 7,391
..............................................................................
i2 Technologies * 150,000 7,917
..............................................................................
Integrated Systems * 500,000 6,938
..............................................................................
Legato Systems * 150,000 6,581
..............................................................................
Manugistics Group * 100,000 4,444
..............................................................................
MetaCreations * 250,000 2,766
..............................................................................
Network Associates * 750,000 39,586
..............................................................................
PLATINUM technology * 1,800,000 50,962
..............................................................................
Remedy * 300,000 6,319
..............................................................................
Security Dynamics Technologies * 750,000 26,859
..............................................................................
Summit Design * 600,000 6,188
..............................................................................
Synopsys * 1,375,000 49,070
..............................................................................
Vantive * 200,000 5,025
..............................................................................
VERITAS Software * 400,000 20,350
..............................................................................
Visio * 300,000 11,569
..............................................................................
332,422
...........
Semiconductors and Components 8.5%
Altera * 850,000 28,183
..............................................................................
ANADIGICS * 300,000 9,150
..............................................................................
Analog Devices * 1,800,000 49,837
..............................................................................
Applied Micro Circuits * 350,000 4,353
..............................................................................
Berg Electronics * 1,000,000 22,750
..............................................................................
Brooks Automation * 275,000 5,019
..............................................................................
Burr Brown * 600,000 19,312
..............................................................................
</TABLE>
18
<PAGE>
T. ROWE PRICE NEW HORIZONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- -------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Cognex * 550,000 $15,022
...............................................................................
KLA Instruments * 500,000 19,297
...............................................................................
Lam Research * 750,000 21,984
...............................................................................
Lattice Semiconductor * 550,000 26,125
...............................................................................
Linear Technology 650,000 37,416
...............................................................................
Maxim Integrated Products * 1,850,000 63,940
...............................................................................
Methode Electronics (Class A) 300,000 4,894
...............................................................................
Micrel * 450,000 12,741
...............................................................................
Microchip Technology * 650,000 19,541
...............................................................................
Molex 97,656 3,131
...............................................................................
Novellus Systems * 250,000 8,086
...............................................................................
PMC-Sierra * 250,000 7,797
...............................................................................
Pri Automation * 150,000 4,341
...............................................................................
Qlogic * 300,000 8,906
...............................................................................
SIPEX * 250,000 7,578
...............................................................................
Xilinx * 1,000,000 35,000
...............................................................................
434,403
...........
Networking and Telecom Equipment 1.7%
Advanced Fibre Communications * 500,000 14,625
...............................................................................
CIENA * 150,000 9,187
...............................................................................
Digital Microwave * 255,000 3,713
...............................................................................
Electromagnetic Sciences * 262,500 5,316
...............................................................................
Glenayre Technologies * 400,000 3,975
...............................................................................
Level One * 350,000 9,866
...............................................................................
Orckit Communications * 150,000 2,775
...............................................................................
PairGain Technologies * 800,000 15,525
...............................................................................
Teledata Communications * 500,000 9,125
...............................................................................
VideoServer * 500,000 8,031
...............................................................................
Xylan * 200,000 3,038
...............................................................................
85,176
...........
Computer Hardware/Peripherals 1.7%
Adaptec * 700,000 26,031
...............................................................................
Box Hill Systems * 400,000 4,175
...............................................................................
Electronics for Imaging * 1,250,000 20,742
...............................................................................
Sequent Computer Systems * 1,225,000 24,577
...............................................................................
Splash Technology Holdings * 400,000 9,100
...............................................................................
84,625
...........
</TABLE>
19
<PAGE>
T. ROWE PRICE NEW HORIZONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- -------------------------------------------------------------------------------
In thousands
E-Commerce 1.5%
<S> <C> <C>
Amazon * 81,100 $ 4,889
...............................................................................
America Online * 200,000 17,837
...............................................................................
Checkfree * 250,000 6,797
...............................................................................
E*TRADE * 570,000 13,128
...............................................................................
Harbinger * 350,000 9,844
...............................................................................
Sterling Commerce * 700,000 26,906
...............................................................................
79,401
.............
Total Technology 1,016,027
.............
BUSINESS SERVICES 29.4%
Telecom Services 2.9%
Arch Communications * 410,447 2,129
...............................................................................
Brightpoint * 500,000 6,937
...............................................................................
Cellular Communications International * 500,000 23,375
...............................................................................
Commnet Cellular * 100,000 3,569
...............................................................................
Intermedia Communications * 250,000 15,172
...............................................................................
MetroCal * 675,000 3,354
...............................................................................
Metromedia International * 1,265,700 12,024
...............................................................................
MetroNet Communications * 501,000 8,501
...............................................................................
Millicom International Cellular * 200,000 7,475
...............................................................................
NTL * 266,666 7,417
...............................................................................
Paging Network * 2,500,000 26,953
...............................................................................
Powertel * 500,000 8,422
...............................................................................
SmarTalk TeleServices * 750,000 17,133
...............................................................................
Vanguard Cellular (Class A) * 645,000 8,244
...............................................................................
150,705
...........
Computer Services 6.4%
Acxiom * 500,000 9,563
...............................................................................
Affiliated Computer Services (Class A) * 750,000 19,734
...............................................................................
American Management Systems * 325,000 6,317
...............................................................................
BISYS Group * 1,135,000 37,881
...............................................................................
Concord EFS * 126,500 3,155
...............................................................................
ENVOY * 200,000 5,863
...............................................................................
FIserv * 200,000 9,850
...............................................................................
National Data 971,500 35,095
...............................................................................
</TABLE>
20
<PAGE>
T. ROWE PRICE NEW HORIZONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- -------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Paychex 2,750,000 $ 139,734
...............................................................................
Registry * 200,000 9,250
...............................................................................
SunGard Data Systems * 1,574,500 48,809
...............................................................................
325,251
.............
Distribution 5.7%
BT Office Products International * 300,300 2,327
...............................................................................
Corporate Express * 2,534,000 32,704
...............................................................................
Henry Schein * 1,000,000 35,125
...............................................................................
InaCom * + 850,000 23,853
...............................................................................
JP Foodservice * + 1,200,000 44,325
...............................................................................
MSC * 600,000 25,425
...............................................................................
Patterson Dental * 400,000 18,200
...............................................................................
Richfood Holdings 1,000,000 28,250
...............................................................................
Strategic Distribution * + 1,761,000 8,035
...............................................................................
Tech Data * 650,000 25,350
...............................................................................
United Stationers * 335,000 16,101
...............................................................................
Watsco (Class A) 1,216,200 30,025
...............................................................................
289,720
.............
Transportation 0.6%
Coach USA * + 1,000,000 33,500
...............................................................................
33,500
.............
Media and Advertising 4.6%
ADVO * 1,155,000 22,523
...............................................................................
Catalina Marketing * 845,000 39,081
...............................................................................
Clear Channel Communications * 200,000 15,888
...............................................................................
CMP Media * 601,100 10,369
...............................................................................
Getty Communications ADR * 700,000 10,456
...............................................................................
Jacor Communications * 588,200 31,285
...............................................................................
Lamar Advertising * 206,000 8,214
...............................................................................
Metro Networks * 405,800 13,544
...............................................................................
Outdoor Systems * 878,250 33,703
...............................................................................
Pegasus Communications * 283,000 5,819
...............................................................................
Scandinavian Broadcasting Systems * 300,000 7,275
...............................................................................
The Peterson Companies (Class A) * 200,000 4,600
...............................................................................
Universal Outdoor Holdings * 500,000 26,062
...............................................................................
Young Broadcasting (Class A) * 100,000 3,919
...............................................................................
232,738
.............
</TABLE>
21
<PAGE>
T. ROWE PRICE NEW HORIZONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- ------------------------------------------------------------------------------
In thousands
Environmental 1.2%
<S> <C> <C>
American Disposal Services * 75,000 $ 2,742
..............................................................................
Superior Services * 677,000 19,760
..............................................................................
USA Waste Services * 1,000,000 39,250
..............................................................................
Waste Industries * 100,000 1,831
..............................................................................
63,583
...........
Engineering and Construction 0.5%
Insituform Technologies (Class A) * 347,125 2,690
..............................................................................
Tetra Tech * 750,000 15,187
..............................................................................
Toll Brothers * 250,000 6,688
..............................................................................
24,565
...........
Miscellaneous Business Services 7.5%
AccuStaff * 1,333,304 30,666
..............................................................................
Alternative Resources * + 850,000 19,656
..............................................................................
Comfort Systems USA * 300,000 5,925
..............................................................................
Copart * + 743,000 13,142
..............................................................................
COREStaff * + 1,600,000 42,600
..............................................................................
Data Processing Resources * 175,000 4,495
..............................................................................
Donnelley Enterprise Solutions * + 350,000 2,778
..............................................................................
Employee Solutions * 536,800 2,349
..............................................................................
G & K Services 400,000 16,800
..............................................................................
IntelliQuest Information Group * + 750,000 9,844
..............................................................................
Lason * 510,000 13,483
..............................................................................
MemberWorks * 350,000 7,394
..............................................................................
META Group * + 511,600 11,415
..............................................................................
NFO Worldwide * + 1,326,000 27,763
..............................................................................
Orthodontic Centers of America * + 2,730,000 45,386
..............................................................................
Outsource International * + 500,000 5,938
..............................................................................
Paxar * 450,000 6,666
..............................................................................
ProBusiness Services * 125,000 2,836
..............................................................................
Romac International * 436,000 10,655
..............................................................................
SITEL * 1,000,000 9,125
..............................................................................
Snyder Communications * 702,000 25,623
..............................................................................
Source Services * + 900,000 19,294
..............................................................................
Staffing Resources * ++ 200,000 1,020
..............................................................................
Startek * 100,000 1,138
..............................................................................
</TABLE>
22
<PAGE>
T. ROWE PRICE NEW HORIZONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- -------------------------------------------------------------------------------
In thousands
<S> <C> <C>
The Vincam Group * 55,500 $ 1,502
...............................................................................
Tier Technologies * 467,600 4,997
...............................................................................
Trammell Crow * 400,000 10,300
...............................................................................
Trident International * 135,000 1,738
...............................................................................
Viking Office Products * 400,000 8,787
...............................................................................
West TeleServices * 500,000 6,016
...............................................................................
Whittman-Hart * 300,400 10,401
...............................................................................
WorldCorp * + 890,000 1,001
...............................................................................
380,733
.............
Total Business Services 1,500,795
.............
ENERGY 4.3%
Exploration and Production 0.8%
Barrett Resources * 450,000 13,612
...............................................................................
Basin Exploration * 250,000 4,438
...............................................................................
Berkley Petroleum (CAD) * 500,000 5,248
...............................................................................
Devon Energy 300,387 11,565
...............................................................................
Noble Affiliates 200,000 7,050
...............................................................................
41,913
.............
Energy Services 3.5%
BJ Services * 400,000 28,775
...............................................................................
Camco International 450,000 28,659
...............................................................................
Cooper Cameron * 900,000 54,900
...............................................................................
Smith International * 500,000 30,688
...............................................................................
Weatherford Enterra * 775,000 33,906
...............................................................................
176,928
.............
Total Energy 218,841
.............
INDUSTRIAL 2.1%
Paper and Forest Products 0.2%
Lydall * 500,000 9,750
...............................................................................
9,750
.............
Auto Related 0.6%
Aftermarket Technology * 500,000 9,156
...............................................................................
</TABLE>
23
<PAGE>
T. ROWE PRICE NEW HORIZONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- -------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Global Motorsport Group * 197,900 $ 2,313
..............................................................................
OEA 573,600 16,599
..............................................................................
28,068
............
Machinery 1.3%
Danaher 400,000 25,250
..............................................................................
DT Industries 150,000 5,119
..............................................................................
Group Maintenance America * 400,000 6,725
..............................................................................
Innovative Valve Technologies * 153,500 3,089
..............................................................................
Teleflex 600,000 22,650
..............................................................................
United Rentals * 254,000 4,905
..............................................................................
67,738
............
Total Industrial 105,556
............
MISCELLANEOUS COMMON STOCKS 0.3%
Delta Pine & Land 266,666 8,133
..............................................................................
Other Miscellaneous Common Stocks 7,601
..............................................................................
Total Miscellaneous Common Stocks 15,734
............
Total Equity Investments and Convertibles
(Cost $3,451,394) 4,927,726
............
Short-Term Investments 2.2%
Money Market Fund 2.0%
Reserve Investment Fund, 5.84% # $102,050,909 102,051
..............................................................................
102,051
............
Structured Investment Vehicle 0.2%
Short Term Card Account Trust, VR
(144a), 6.00%, 1/15/98 10,000,000 10,000
..............................................................................
10,000
............
Total Short-Term Investments (Cost $112,051) 112,051
............
</TABLE>
24
<PAGE>
T. ROWE PRICE NEW HORIZONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
- --------------------------------------------------------------------------------
In thousands
<S> <C>
Total Investments in Securities
98.7% of Net Assets (Cost $3,563,445) $ 5,039,777
Other Assets Less Liabilities 63,962
............
NET ASSETS $ 5,103,739
------------
</TABLE>
+ Affiliated company
* Non-income producing
++ Securities contain some restrictions as to public resale--total of such
securities at year-end amounts to 0.35% of net assets.
# Seven-day yield
** Common stocks, rights, and warrants--cost $3,432,795, value $4,913,780,
96.3% of net assets
Preferred stocks--cost $3,588, value $2,105, 0.0% of net assets
Bonds and notes--cost $15,011, value $11,841, 0.2% of net assets
ADR American Depository Receipt
VR Variable rate
144a Security was purchased pursuant to Rule 144a under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers--total of such securities at year-end amounts to
0.23% of net assets.
CAD Canadian dollar
GBP British sterling
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
T. ROWE PRICE NEW HORIZONS FUND
- --------------------------------------------------------------------------------
December 31, 1997
- -----------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
In thousands
<TABLE>
<CAPTION>
Assets
<S> <C>
Investments in securities, at value
Affiliated companies (cost $513,450) $ 567,939
Other companies (cost $3,049,995) 4,471,838
...........
Total investments in securities 5,039,777
Other assets 93,072
...........
Total assets 5,132,849
...........
Liabilities
Total liabilities 29,110
...........
NET ASSETS $5,103,739
-----------
Net Assets Consist of:
Accumulated net realized gain/loss - net of distributions $ 118,853
Net unrealized gain (loss) 1,476,332
Paid-in-capital applicable to 219,074,107 shares of
$1.00 par value capital stock outstanding;
300,000,000 shares authorized 3,508,554
...........
NET ASSETS $5,103,739
-----------
NET ASSET VALUE PER SHARE $ 23.30
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
T. ROWE PRICE NEW HORIZONS FUND
- --------------------------------------------------------------------------------
- -----------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
In thousands
<TABLE>
<CAPTION>
Year
Ended
12/31/97
<S> <C>
Investment Income
Income
Interest $ 9,056
Dividend 5,756
.........
Total income 14,812
.........
Expenses
Investment management 31,439
Shareholder servicing 8,737
Prospectus and shareholder reports 518
Custody and accounting 187
Registration 177
Legal and audit 25
Directors 25
Miscellaneous 39
.........
Total expenses 41,147
.........
Net investment income (26,335)
.........
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities 260,205
Change in net unrealized gain or loss on securities
(including $55,233 from affiliated companies) 209,666
.........
Net realized and unrealized gain (loss) 469,871
.........
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $443,536
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
T. ROWE PRICE NEW HORIZONS FUND
- --------------------------------------------------------------------------------
- ----------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
In thousands
<TABLE>
<CAPTION>
Year
Ended
12/31/97 12/31/96
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations
Net investment income $ (26,335) $ (15,739)
Net realized gain (loss) 260,205 343,501
Change in net unrealized gain or loss 209,666 213,970
.........................
Increase (decrease) in net assets from
operations 443,536 541,732
.........................
Distributions to shareholders
Net realized gain (124,120) (399,616)
.........................
Capital share transactions*
Shares sold 1,465,785 1,865,221
Distributions reinvested 118,842 378,036
Shares redeemed (1,163,722) (876,500)
.........................
Increase (decrease) in net assets from
capital
share transactions 420,905 1,366,757
.........................
Net Assets
Increase (decrease) during period 740,321 1,508,873
Beginning of period 4,363,418 2,854,545
.........................
End of period $ 5,103,739 $4,363,418
-------------------------
*Share information
Shares sold 66,264 83,019
Distributions reinvested 5,259 17,615
Shares redeemed (52,887) (39,435)
.........................
Increase (decrease) in shares outstanding 18,636 61,199
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
T. ROWE PRICE NEW HORIZONS FUND
- --------------------------------------------------------------------------------
DECEMBER 31, 1997
- -----------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price New Horizons Fund, Inc. (the fund) is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company and commenced operations on June 3, 1960.
The accompanying financial statements are prepared in accordance with generally
accepted accounting principles for the investment company industry; these
principles may require the use of estimates by fund management.
Valuation Equity securities listed or regularly traded on a securities exchange
are valued at the last quoted sales price on the day the valuations are made. A
security which is listed or traded on more than one exchange is valued at the
quotation on the exchange determined to be the primary market for such security.
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 Directors, or by persons
delegated by the Board, best to reflect fair value.
Debt securities are generally traded in the over-the-counter market and are
valued at a price deemed best to reflect fair value as quoted by dealers who
make markets in these securities or by an independent pricing service. Short-
term debt securities are valued at amortized cost which, when combined with
accrued interest, approximates fair value.
Investments in mutual funds are valued at the closing net asset value per share
of the mutual fund on the day of valuation.
For purposes of determining the fund's net asset value per share, the U.S.
dollar value of all assets and liabilities initially expressed in foreign
currencies is determined by using the mean of the bid and offer prices of such
currencies against U.S. dollars quoted by a major bank.
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 Directors.
Affiliated Companies As defined by the Investment Company Act of 1940, an
affiliated company is one in which the fund owns at least 5% of the outstanding
voting securities.
29
<PAGE>
T. ROWE PRICE NEW HORIZONS FUND
- --------------------------------------------------------------------------------
Currency Translation Assets and liabilities are translated into U.S. dollars at
the prevailing exchange rate at the end of the reporting period. Purchases and
sales of securities and income and expenses are translated into U.S. dollars at
the prevailing exchange rate on the dates of such transactions. The effect of
changes in foreign exchange rates on realized and unrealized security gains and
losses is reflected as a component of such gains and losses.
Premiums and Discounts Premiums and discounts on debt securities are amortized
for both financial reporting and tax purposes.
Other Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses are
reported on the identified cost basis. Dividend income and distributions to
shareholders are recorded by the fund on the ex-dividend date. Income and
capital gain distributions are determined in accordance with federal income tax
regulations and may differ from those determined in accordance with generally
accepted accounting principles.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term securities,
aggregated $2,200,407,000 and $2,036,599,000, respectively, for the year ended
December 31, 1997.
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, 1997. The results
of operations and net assets were not affected by the increases/(decreases) to
these accounts.
30
<PAGE>
T. ROWE PRICE NEW HORIZONS FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Undistributed net investment income $26,335,000
Paid-in-capital (26,335,000)
At December 31, 1997, the aggregate cost of investments for federal income tax
and financial reporting purposes was $3,563,445,000, and net unrealized gain
aggregated $1,476,332,000, of which $1,829,862,000 related to appreciated
investments and $353,530,000 to depreciated investments.
NOTE 4 - RELATED PARTY TRANSACTIONS
The investment management agreement between the fund and T. Rowe Price
Associates, Inc. (the manager) provides for an annual investment management
fee, of which $2,844,000 was payable at December 31, 1997. 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 0.30% for assets in excess of $80
billion. The effective annual group fee was 0.32% at December 31, 1997, and
0.33% for the year then ended. 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 $6,448,000
for the year ended December 31, 1997, of which $606,000 was payable at period-
end.
Additionally, the fund is one of several T. Rowe Price-sponsored mutual funds
(underlying funds) in which the T. Rowe Price Spectrum Funds (Spectrum) may
invest. Spectrum does not invest in the underlying funds for the purpose of
exercising management or control. Expenses associated with the operation of
Spectrum are borne by each underlying fund to the extent of estimated savings
to it and in proportion to the average daily value of its shares owned by
31
<PAGE>
T. ROWE PRICE NEW HORIZONS FUND
- --------------------------------------------------------------------------------
Spectrum, pursuant to special servicing agreements between and among Spectrum,
the underlying funds, T. Rowe Price, and, in the case of T. Rowe Price Spectrum
International, Rowe Price-Fleming International. Spectrum Growth Fund held
approximately 8.8% of the outstanding shares of the New Horizons Fund at
December 31, 1997. For the year then ended, the fund was allocated $955,000 of
Spectrum expenses, $101,000 of which was payable at period-end.
The fund may invest in the Reserve Investment Fund and Government Reserve
Investment Fund (collectively, the Reserve Funds), open-end management
investment companies managed by T. Rowe Price Associates, Inc. The Reserve
Funds are offered as cash management options only to mutual funds and other
accounts managed by T. Rowe Price and its affiliates and are not available to
the public. The Reserve Funds pay no investment management fees. Distributions
from the Reserve Funds to the fund for the year ended December 31, 1997,
totaled $2,304,000 and are reflected as interest income in the accompanying
Statement of Operations.
- -----------------------------------------------------------
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED 12/31/97
- --------------------------------------------------------------------------------
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:
. $1,026,000 from short-term capital gains, and
. $123,093,000 from long-term capital gains; of which $101,343,000 was
subject to the 20% rate gains category.
For corporate shareholders, 100% of the fund's distributed income and short-term
capital gains qualified for the dividends-received deduction.
- --------------------------------------------------------------------------------
32
<PAGE>
T. ROWE PRICE NEW HORIZONS FUND
- --------------------------------------------------------------------------------
- ---------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
T. Rowe Price New Horizons Fund, Inc.
We have audited the accompanying statement of assets and liabilities of T. Rowe
Price New Horizons Fund, Inc., including the portfolio of investments, as of
December 31, 1997, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of T.
Rowe Price New Horizons Fund, Inc. as of December 31, 1997, the results of
its operations, the changes in its net assets and financial highlights for
each of the respective periods stated in the first paragraph, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
January 21, 1998
33
<PAGE>
T. ROWE PRICE SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
INVESTMENT SERVICES AND INFORMATION
KNOWLEDGEABLE SERVICE REPRESENTATIVES
By Phone Shareholder service representatives are available from 8 a.m. to 10
p.m. ET Monday through Friday and from 8:30 a.m. to 5 p.m. ET on weekends.
Call 1-800-225-5132 to speak directly with a representative who will be able
to assist you with your accounts.
In Person Visit one of our investor center locations to meet with a
representative who will be able to assist you with your accounts. You can
also drop off applications or obtain prospectuses and other literature at
these centers.
AUTOMATED 24-HOUR SERVICES
Tele*Access(R) Call 1-800-638-2587 to obtain information such as account
balance, date and amount of your last transaction, latest dividend payment, fund
prices, and yields. Additionally, you have the ability to request prospectuses,
statements, and account and tax forms; to reorder checks; and to initiate
purchase, redemption, and exchange orders for identically registered accounts.
T. Rowe Price OnLine Through a personal computer via dial-up modem, you can
replicate all the services available on Tele*Access plus conduct transactions
in your Discount Brokerage and Variable Annuity accounts.
ACCOUNT SERVICES
Checking Write checks for $500 or more on any money market and most bond
fund accounts (except the High Yield and Emerging Markets Bond Funds).
Automatic Investing Build your account over time by investing directly from your
bank account or paycheck with Automatic Asset Builder. Additionally, Automatic
Exchange enables you to set up systematic investments from one fund account into
another, such as from a money fund into a stock fund. A $50 minimum makes it
easy to get started.
34
<PAGE>
T. ROWE PRICE SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Automatic Withdrawal If you need money from your fund account
on a regular basis, you can establish scheduled, automatic redemptions.
Dividend and Capital Gains Payment Options Reinvest all or some of your
distributions, or take them in cash. We give you maximum flexibility and
convenience.
DISCOUNT BROKERAGE*
Investments Available You can trade stocks, bonds, options, precious
metals, and other securities at a savings over regular commission rates.
To Open an Account Call a shareholder service representative for more
information.
INVESTMENT INFORMATION
Combined Statement A comprehensive overview of your T. Rowe Price accounts is
provided. The summary page gives you earnings by tax category, provides total
portfolio value, and lists your investments by type--stock, bond, and money
market. Detail pages itemize account transactions by fund.
Shareholder Reports Portfolio managers review the performance of the funds in
plain language and discuss T. Rowe Price's economic outlook.
T. Rowe Price Report This is a quarterly newsletter with relevant articles on
market trends, personal financial planning, and T. Rowe Price's economic
perspective.
Performance Update This quarterly report reviews recent market developments and
provides comprehensive performance information for every T. Rowe Price fund.
Insights This library of information includes reports on mutual fund tax issues,
investment strategies, and financial markets.
Detailed Investment Guides Our widely acclaimed Asset Mix Worksheet, College
Planning Kit, Diversifying Overseas: A Guide to International Investing,
Retirees Financial Guide, and Retirement Planning Kit (also available on disk
for PC use) can help you determine and reach your investment goals.
*A division of T. Rowe Price Investment Services, Inc. Member NASD/SIPC.
35
<PAGE>
T. ROWE PRICE MUTUAL FUNDS
- --------------------------------------------------------------------------------
STOCK FUNDS
..........................
Domestic
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Diversified Small-Cap Growth
Dividend Growth
Equity Income
Equity Index 500*
Extended Equity Market Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Media & Telecommunications**
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons***
Real Estate
Science & Technology
Small-Cap Stock
Small-Cap Value***
Spectrum Growth
Total Equity Market Index
Value
International/Global
Emerging Markets Stock
European Stock
Global Stock
International Discovery
International Stock
Japan
Latin America
New Asia
Spectrum International
BOND FUNDS
..........................
Domestic Taxable
Corporate Income
GNMA
High Yield
New Income
Short-Term Bond
Short-Term U.S. Government
Spectrum Income
Summit GNMA
Summit Limited-Term Bond
U.S. Treasury Intermediate
U.S. Treasury Long-Term
Domestic Tax-Free
California Tax-Free Bond
Florida Insured
Intermediate Tax-Free
Georgia Tax-Free Bond
Maryland Short-Term
Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Summit Municipal Intermediate
Tax-Free High Yield
Tax-Free Income
Tax-Free Insured
Intermediate Bond
Tax-Free Short-Intermediate
Virginia Short-Term
Tax-Free Bond
Virginia Tax-Free Bond
International/Global
Emerging Markets Bond
Global Government Bond
International Bond
MONEY MARKET FUNDS +
..........................
Taxable
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
Tax-Free
California Tax-Free Money
New York Tax-Free Money
Summit Municipal
Money Market
Tax-Exempt Money
BLENDED ASSET FUNDS
..........................
Balanced
Personal Strategy Balanced
Personal Strategy Growth
Personal Strategy Income
Tax-Efficient Balanced
T. ROWE PRICE NO-LOAD
VARIABLE ANNUITY
..........................
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
Mid-Cap Growth Portfolio
New America Growth Portfolio
Personal Strategy Balanced Portfolio
Prime Reserve Portfolio
* Formerly the Equity Index Fund.
** Formerly the closed-end New Age Media Fund. Converted to open-end status on
7/28/97.
*** Closed to new investors.
+ Neither the funds nor their share prices are guaranteed by the U.S.
government.
Please call for a prospectus. Read it carefully before you invest or send money.
The T. Rowe Price No-Load Variable Annuity [#V6021] is issued by Security
Benefit Life Insurance Company. In New York, it [#FSB201(11-96)] is issued by
First Security Benefit Life Insurance Company of New York, White Plains, NY.
T. Rowe Price refers to the underlying portfolios' investment managers and the
distributors, T. Rowe Price Investment Services, Inc.; T. Rowe Price Insurance
Agency, Inc.; and T. Rowe Price Insurance Agency of Texas, Inc. The Security
Benefit Group of Companies and the T. Rowe Price companies are not affiliated.
The variable annuity may not be available in all states. The contract has
limitations. Call a representative for costs and complete details of the
coverage.
36
<PAGE>
T. ROWE PRICE DISCOUNT BROKERAGE
- --------------------------------------------------------------------------------
DISCOUNT BROKERAGE
A DIVISION OF T. ROWE PRICE INVESTMENT SERVICES, INC., MEMBER NASD/SIPC
This low-cost service gives you the opportunity to easily consolidate all your
investments with one company. Through T. Rowe Price Discount Brokerage, you can
buy and sell individual securities--stocks, bonds, options, and others--at
considerable commission savings over full-service brokers.* We also provide a
wide range of services, including:
Automated Telephone and Computer Services You can enter trades, access
quotes, and review account information 24 hours a day, seven days a week. Any
trades executed through these programs save you an additional 10% on
commissions.**
Investor Information A variety of informative reports, such as our Brokerage
Insights series, S&P Market Month newsletter, and select stock reports, can
help you better evaluate economic trends and investment opportunities.
Dividend Reinvestment Service Virtually all stocks held in customer accounts
are eligible for this service, free of charge.
*Based on a February 1997 telephone survey that compared our commission rates
on stock transactions of various sizes with those of other full-service and
discount brokerages. Commission rates will vary based on size and nature of
trades. Services vary by firm. For additional information concerning our
commission rates and services, call 1-800-638-5660.
**Discount applies to our current commission schedule; subject to our $35
minimum commission.
37
<PAGE>
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
410-625-6500 Baltimore area
To open a Discount Brokerage
account or obtain information,
call: 1-800-638-5660 toll free
Internet address:
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 Horizons Fund(R).
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
[LOGO OF T. ROWE PRICE APPEARS HERE]
T. Rowe Price Investment Services, Inc., Distributor.
