<PAGE>
Semiannual Report
NEW
HORIZONS
FUND
-------------
JUNE 30, 1998
-------------
[LOGO OF T. ROWE PRICE APPEARS HERE]
<PAGE>
Report Highlights
--------------------------------------------------------------------------
New Horizons Fund
. A strong stock market, powered by an excellent economic environment, once
again favored blue chips over small-cap stocks.
. For both the 6- and 12-month periods, the New Horizons Fund outperformed
its small-cap benchmarks but trailed the S&P 500.
. Our business services holdings contributed significantly to fund
performance, and we increased our stake in the sector.
. Investor preference for blue chips may continue for the near term, but we
are optimistic about small-cap stocks' relative performance for the
intermediate to longer term.
<PAGE>
Fellow Shareholders
The stock market soared again to record highs in the first half of 1998, driven
by strong domestic economic growth against a backdrop of continued low interest
rates and subdued inflation. Escalating economic problems in Asia were
worrisome, but so far, the fallout on the U.S. economy has been limited.
While the large-cap Dow Jones Industrial Average and Standard & Poor's 500 Stock
Index marched upward during the first half, ending the period near record
territory, small-capitalization stocks lagged significantly and, despite showing
gains for the full half year, actually declined somewhat in the second quarter.
For the six months ended June 30, 1998, the Russell 2000 Index of smaller-cap
stocks rose 4.93% compared with a gain of 17.71% for the large-cap S&P 500. The
New Horizons Fund fared comparatively well with a six-month gain of 7.90%,
outperforming the Russell 2000, the Russell 2000 Growth Index, and the average
small-company mutual fund. Results for the 12-month period are similar-the fund
outperformed the small-cap benchmarks but lagged the large-cap indices.
- ----------------------
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 6/30/98 6 Months 12 Months
- --------------------------------------------------------------------------------
New Horizons Fund 7.90% 17.10%
................................................................................
Russell 2000 Index 4.93 16.51
................................................................................
Russell 2000 Growth Index 5.46 13.19
................................................................................
Lipper Small Cap Fund Index 6.45 15.52
................................................................................
S&P 500 17.71 30.16
................................................................................
Market Environment
The U.S. economy continues to show surprising strength. We are now in our eighth
consecutive year of solid economic growth: GDP growth and corporate profits
remain remarkably robust, particularly given the length of the economic
expansion and the severe economic problems in Asia. Despite the healthy economy,
the interest rate on 30-year bonds declined from 5.93% at year-end 1997 to 5.65%
at midyear-close to an all-time low. This trend can be partly attributed to
turmoil in the Asian currency markets and economies, which sparked a flight to
the perceived quality of U.S. financial assets and caused the dollar to soar in
1
<PAGE>
value. Prospects for a sizable 1998 federal budget surplus, for the first time
since 1969, also contributed to the decline in rates.
The stalemate in Washington between the Democratic White House and the
Republican-controlled Congress brought both parties closer to the middle of the
political spectrum and stymied passage of any significant legislation that might
derail the strong economy. Consumer confidence was at an all-time high,
employment levels set monthly records, yet labor costs remained under control.
Mutual fund investors were bullish on the stock market, pouring a record amount
of money into equity funds in the first half of 1998.
Worsening economic problems in Asia were the only major cloud on the horizon for
the financial markets. An increasing number of U.S. companies reported earnings
shortfalls stemming from the crisis and from the negative effects of the strong
dollar. Fortunately, the U.S. economy, while increasingly global in its reach,
does not rely significantly on Asia as a major engine of its growth, and unless
the crisis escalates signifi-cantly, it should be able to grow through any
Asia-related weakness.
The continued sharp underperformance of small-cap stocks was disappointing.
Market leadership was once again focused on an increasingly narrow group of
large-cap, blue chip issues. Even within the large-cap S&P 500 there was a
surprising divergence of performance. The index's 25 largest companies had an
average gain of 21.6% in the first half while the remaining 475 companies rose
only 10.2% on average. Valuation levels for the market-leading blue chips are at
record levels and remind us of the valuations accorded the "Nifty Fifty" growth
stocks in the early 1970s. Small-cap stocks have now trailed their larger
cousins since 1994, and this year's underperformance has brought small-cap
relative valuations to their lowest levels since 1990.
- -----------------------
Small-Cap Stock Returns
- --------------------------------------------------------------------------------
Periods Ended 6/30/98 6 Months 12 Months
- --------------------------------------------------------------------------------
Russell 2000 Index 4.93% 16.51%
................................................................................
Russell 2000 Growth Index 5.46 13.19
................................................................................
Russell 2000 Value Index 4.44 19.88
................................................................................
Small-cap growth stocks, your fund's area of focus, performed somewhat better
than small-cap value issues for the six-month period, reversing a trend of
superior value stock performance in the last half of 1996 and through 1997. For
the past 12 months, however, small-cap growth still lagged by a wide margin.
This year's change may foretell an economic slowdown, as investors usually favor
growth stocks in periods of decelerating economic activity.
2
<PAGE>
Portfolio Review
For the first six months of 1998, fund performance was aided most by our heavy
emphasis on stocks in the business services area. We have steadily increased our
weighting in business services companies over the past five years. As you can
see from the portfolio listing later in this report, business services is a
broad area, including industries such as computer services, telecommunication
services, distributors, media and advertising, transportation, environmental
services, and a myriad of smaller industry niches. Top holding Paychex continued
to lead the fund while other computer services companies, such as Affiliated
Computer Services, were also strong. Media and advertising companies also showed
particular strength led by Outdoor Systems and ADVO. Technology stocks were
mixed with strength in the software area being largely offset by weakness in
semiconductor stocks. Energy stocks slipped as excess worldwide capacity led to
a sharp decline in the price of oil this year.
Our worst performer in the first half was Cendant, the fund's largest holding at
year-end 1997. Cendant was formed in December 1997 by the merger of two
long-time fund holdings, CUC International and HFS. Both predecessor companies
were large contributors to fund results in recent years. In April, however, the
company disclosed potential accounting irregularities at its former CUC
International unit. The stock plunged 45% the day of the announcement. We had
trimmed our Cendant holding slightly before the downturn and reduced our
ownership by over 30% in the aftermath of the disclosure. The stock, however,
remains a top holding. In July, the company announced that the overstatement of
last year's earnings was greater than initially thought, and the stock fell
further. The company remains profitable, generating substantial free cash flow,
and the selling is overdone in our opinion.
- ----------------------
Sector Diversification
- --------------------------------------------------------------------------------
12/31/97 6/30/98
- --------------------------------------------------------------------------------
Financial 6% 4%
................................................................................
Health Care 18 16
................................................................................
Consumer 17 16
................................................................................
Technology 20 20
................................................................................
Business Services 29 36
................................................................................
Energy 4 3
................................................................................
Industrial 2 3
................................................................................
Reserves 4 2
................................................................................
Total 100% 100%
As noted, we boosted our business services holdings substantially this year,
3
<PAGE>
from 29% to 36% of the fund, while modestly reducing our weightings in most
other sectors. Our business services holdings are largely domestic, immune from
problems in Asia, and benefit from the strong U.S. economy. Many businesses
within the sector are marked by strong internal growth; in addition, most
operate in fragmented industries and are taking advantage of opportunities to
grow through strategic acquisitions.
Outlook
Domestic economic conditions, including solid broad-based economic growth and
low inflation and interest rates, remain favorable. Reported corporate earnings
gains are still strong even though growth of those gains is slowing and the Asia
crisis is starting to hurt more companies. Stock market valuation levels remain
high by any historical measure but can be justified as long as interest rates
and inflation remain low. Valuation levels for large-cap blue chips, however,
appear excessive relative to expected future earnings growth.
We are frustrated by the continued underperformance of small-cap stocks. The New
Horizons Fund's relative price/earnings ratio (P/E) fell to 1.04 times the S&P
500 P/E as of June 30, 1998, based on 12- month forward estimated earnings. This
puts the relative P/E near the bottom of its historical 1.0 to 2.0 range and at
its lowest level since 1990, right before the fund and small-cap stocks began a
several-year period of superior performance. While we see little relative
performance risk in small-caps from these levels, and we expect small-cap
earnings to grow faster than large-caps', investor preference for blue chips may
continue for the near term given their recent stock market leadership and
perceived safety. For the intermediate to longer term, we remain optimistic
about small-cap stocks' relative performance given their extremely favorable
relative valuations.
Respectfully submitted,
/s/ John H. Laporte
John H. Laporte
President and Chairman of the Investment Advisory Committee
July 24, 1998
4
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
[PLOT POINTS APPEAR HERE]
- ---------------------------
NEW HORIZONS FUND P/E RATIO
- --------------------------------------------------------------------------------
Jun-63 19.7
Jun-64 20.6
Jun-65 17.5
Jun-66 21.4
Jun-67 32.4
Jun-68 37.1
Jun-69 31.4
Jun-70 17.7
Jun-71 28
Jun-72 33.5
Jun-73 17.9
Jun-74 12.5
Jun-75 15.3
Jun-76 10.7
Jun-77 8.7
Jun-78 9.5
Jun-79 9
Jun-80 10.4
Jun-81 14.9
Jun-82 10.8
Jun-83 21.5
Jun-84 13.9
Jun-85 15
Jun-86 17.5
Jun-87 17.9
Jun-88 14.7
Jun-89 13.8
Jun-90 15
Jun-91 17.1
Jun-92 16.8
Jun-93 19.7
Jun-94 18.2
Jun-95 20.4
Jun-96 26.2
3/31/97 21.4
6/30/97 23.1
27.2
23.6
3/31/98 24.7
6/30/98 24.4
[PLOT POINTS APPEAR HERE]
- -------------------------------------------------
NEW HORIZONS FUND P/E RELATIVE TO THE S&P 500 P/E
- --------------------------------------------------------------------------------
Jun-63 1.14
Jun-64 1.14
Jun-65 1.08
Jun-66 1.4
Jun-67 1.91
Jun-68 2.14
Jun-69 1.86
Jun-70 1.27
Jun-71 1.63
Jun-72 2.11
Jun-73 1.46
Jun-74 1.19
Jun-75 1.29
Jun-76 1.03
Jun-77 1.02
Jun-78 1.22
Jun-79 1.18
Jun-80 1.28
Jun-81 1.94
Jun-82 1.54
Jun-83 2.17
Jun-84 1.62
Jun-85 1.35
Jun-86 1.15
Jun-87 1.13
Jun-88 1.2
Jun-89 1.12
Jun-90 1.05
Jun-91 1.17
Jun-92 1.06
Jun-93 1.2
Jun-94 1.26
Jun-95 1.34
Jun-96 1.58
3/31/97 1.23
6/30/97 1.17
Sep-97 1.33
Dec-97 1.16
3/31/98 1.09
6/30/98 1.04
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.
5
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
- --------------------
PORTFOLIO HIGHLIGHTS
- --------------------------------------------------------------------------------
CONTRIBUTIONS TO THE CHANGE IN NET ASSET VALUE PER SHARE
6 Months Ended 6/30/98
Ten Best Contributors
----------------------------------------------------------------------------
Paychex 12(cent)
....................................................
Outdoor Systems 10
....................................................
BMC Software 10
....................................................
Outback Steakhouse 7
....................................................
Renal Care Group 7
....................................................
Lason 7
....................................................
Cellular Communications International 7
....................................................
United Rental 6
....................................................
Synopsys 6
....................................................
Metamor Worldwide 6
----------------------------------------------------
Total 78(cent)
Ten Worst Contributors
----------------------------------------------------
Cendant -33(cent)
....................................................
Republic Industries 13
....................................................
Security Dynamics Technologies 8
....................................................
PennCorp Financial Group 8
....................................................
Lattice Semiconductor 6
....................................................
Smith International 6
....................................................
Adaptec ** 6
....................................................
Alternative Resources 5
....................................................
Viasoft * 5
....................................................
Lam Research 5
----------------------------------------------------
Total -95(cent)
12 Months Ended 6/30/98
Ten Best Contributors
-----------------------------------------------------
Paychex 28(cents)
.....................................................
Outdoor Systems 15
.....................................................
BMC Software 15
.....................................................
PLATINUM technology 13
.....................................................
SunGard Data Systems 11
.....................................................
Outback Steakhouse 11
.....................................................
Cellular Communications International 10
.....................................................
Mutual Risk Management 10
.....................................................
Renal Care Group 9
.....................................................
Sylvan Learning Systems 8
-----------------------------------------------------
Total 130(cent)
Ten Worst Contributors
-----------------------------------------------------
Republic Industries -15(cent)
.....................................................
Electronics for Imaging * 10
.....................................................
Altera 10
.....................................................
Lam Research 9
.....................................................
PennCorp Financial Group 9
.....................................................
Security Dynamics Technologies 9
.....................................................
Cendant 9
.....................................................
Lattice Semiconductor 8
.....................................................
OEA ** 8
.....................................................
Xilinx 7
-----------------------------------------------------
Total -94(cent)
* Position added
** Position eliminated
6
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
- --------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
6/30/98
---------------------------------------------------------------------
Paychex 2.6%
.....................................................................
Cendant 1.4
.....................................................................
Synopsys 1.2
.....................................................................
Outback Steakhouse 1.1
.....................................................................
SunGard Data Systems 1.1
---------------------------------------------------------------------
Total Renal Care Holdings 1.1
.....................................................................
Orthodontic Centers of America 1.0
.....................................................................
Metamor Worldwide 1.0
.....................................................................
Quorum Health Group 1.0
.....................................................................
Outdoor Systems 1.0
---------------------------------------------------------------------
Renal Care Group 1.0
.....................................................................
Sylvan Learning Systems 1.0
.....................................................................
Maxim Integrated Products 1.0
.....................................................................
Omnicare 1.0
.....................................................................
BMC Software 1.0
---------------------------------------------------------------------
Apollo Group 0.9
.....................................................................
BISYS Group 0.9
.....................................................................
Henry Schein 0.8
.....................................................................
Coach USA 0.8
.....................................................................
Romac International 0.8
---------------------------------------------------------------------
Catalina Marketing 0.8
.....................................................................
National Data 0.8
.....................................................................
Analog Devices 0.8
.....................................................................
Watsco 0.8
.....................................................................
U.S. Foodservice 0.8
---------------------------------------------------------------------
Total 25.7%
7
<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]
As of 6/30/98
Lipper
Date Russell 2000 Small Cap New Horizons
Index Fund Index Fund
6/88 10,000 10,000 10,000
6/89 11,281 11,402 11,025
6/90 11,615 13,052 12,879
6/91 11,769 13,560 13,295
6/92 13,480 15,469 14,422
6/93 16,986 19,704 18,760
6/94 17,723 20,203 19,933
6/95 21,287 25,704 27,489
6/96 26,372 33,468 38,881
6/97 30,678 36,647 40,775
6/98 35,742 43,128 47,747
- ------------------------------------
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 6/30/98 1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------
New Horizons Fund 17.10% 20.21% 20.54% 16.92%
..........................................................................
Income return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original
purchase.
8
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
Unaudited
- --------------------
Financial Highlights For a share outstanding throughout each period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
6 Months Year
Ended Ended
6/30/98 12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $23.30 $21.77 $20.50 $14.76 $16.16 $15.53
................................................................................
Investment activities
Net investment income (0.08) (0.12) (0.08) (0.04) (0.07) (0.07)
Net realized and
unrealized gain (loss) 1.92 2.23 3.54 8.19 0.10 3.40
................................................................................
Total from
investment activities 1.84 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 $25.14 $23.30 $21.77 $20.50 $14.76 $16.16
--------------------------------------------------------------------------------
Ratios/Supplemental Data
Total return. 7.90% 9.77% 17.03% 55.44% 0.30% 22.01%
...............................................................................................................................
Ratio of expenses to
average net assets 0.89%+ 0.88% 0.90% 0.90% 0.93% 0.93%
...............................................................................................................................
Ratio of net investment
income to average
net assets (0.69)%+ (0.57)% (0.41)% (0.23)% (0.50)% (0.50)%
...............................................................................................................................
Portfolio turnover rate 20.5% 45.2% 41.4% 55.9% 44.3% 49.4%
...............................................................................................................................
Net assets, end of period
(in millions) $5,445 $5,104 $4,363 $2,855 $1,648 $1,628
...............................................................................................................................
</TABLE>
. Total return reflects the rate that an investor would have earned on an
investment in the fund during each period, assuming reinvestment of all
distributions.
+ Annualized.
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
Unaudited June 30, 1998
Portfolio of Investments Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Equity Investments and
Convertibles ** 98.5%
FINANCIAL 4.1%
Insurance 2.4%
CMAC Investment 600,000 $ 36,900
.............................................................................
ESG Re 300,000 6,619
.............................................................................
Medical Assurance * 205,158 5,693
.............................................................................
Mutual Risk Management 1,100,000 40,081
.............................................................................
PennCorp Financial Group 992,000 20,336
.............................................................................
Presidential Life 977,200 20,949
.............................................................................
130,578
.............
Financial Services 1.7%
Aames Financial 1,000,000 13,750
.............................................................................
Affiliated Managers Group * 200,000 7,425
.............................................................................
Delta Financial * 400,000 7,350
.............................................................................
Financial Federal * 500,000 13,406
.............................................................................
First Investors Financial * 140,000 892
.............................................................................
Friedman, Billings, Ramsey Group * 51,500 744
.............................................................................
ITG * 200,000 5,600
.............................................................................
Lasalle Partners * 600,000 26,700
.............................................................................
Legg Mason 300,000 17,269
.............................................................................
93,136
...............
TOTAL FINANCIAL 223,714
...............
HEALTH CARE 16.2%
Pharmaceuticals 1.5%
Alkermes * 775,000 13,926
.............................................................................
Genta, Units (Each unit consists of 1 share
Cvt. Pfd. (Series A) and 1 warrant) *++ 50,000 206
.............................................................................
Genta, Warrants, 9/24/98 *++ 50,000 0
.............................................................................
Incyte Pharmaceuticals * 470,000 16,068
.............................................................................
Inhale Therapeutic Systems * 587,200 14,607
.............................................................................
Inhale Therapeutic Systems *++ 243,750 5,457
.............................................................................
Intercardia * + 535,000 5,450
.............................................................................
Magainin Pharmaceuticals, Warrants, 8/6/01 *++ 337,299 0
.............................................................................
PharmaPrint * 650,000 6,642
.............................................................................
Shire Pharmaceuticals ADR * + 415,700 8,912
.............................................................................
10
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Zonagen * 400,000 $ 8,763
.............................................................................
80,031
.............
Biotechnology 3.9%
.............................................................................
Agouron Pharmaceuticals * 250,000 7,602
.............................................................................
Alexion Pharmaceutical * 250,000 2,469
.............................................................................
Biogen * 625,000 30,625
.............................................................................
Cell Genesys * 275,000 2,346
.............................................................................
Cell Therapeutics * 500,000 1,367
.............................................................................
COR Therapeutics * 1,055,200 14,707
.............................................................................
Corvas International * 450,000 1,877
.............................................................................
CV Therapeutics * 435,000 3,779
.............................................................................
EPIX * 525,000 5,348
.............................................................................
Gilead Sciences * 500,000 16,031
.............................................................................
Guilford Pharmaceuticals * 700,000 12,381
.............................................................................
Human Genome Sciences * 490,000 17,502
.............................................................................
IDEXX Laboratories * 800,000 19,950
.............................................................................
Ligand Pharmaceuticals (Class B) * 570,000 7,285
.............................................................................
Millennium Pharmaceuticals * 985,500 13,982
.............................................................................
NABI * 915,000 2,788
.............................................................................
Neurocrine Biosciences * 800,000 6,250
.............................................................................
Neurogen * 100,000 1,803
.............................................................................
NPS Pharmaceuticals * + 700,000 5,097
.............................................................................
PathoGenesis * 760,000 22,088
.............................................................................
Serologicals * 200,000 6,500
.............................................................................
Shaman Pharmaceuticals * 755,000 2,525
.............................................................................
Triangle Pharmaceuticals * 402,500 5,912
.............................................................................
Xenova Group (GBP) * 517,500 1,123
.............................................................................
Xenova Group ADR * 811,700 1,750
.............................................................................
213,087
.............
Medical Equipment .4%
Dentsply International 750,000 18,656
.............................................................................
18,656
.............
Medical Instruments and Devices 2.1%
Arrow International 300,000 8,297
.............................................................................
Cardima * + 500,000 1,422
.............................................................................
CardioVascular Dynamics * 150,080 849
.............................................................................
Conceptus * 60,000 81
.............................................................................
Cytyc * 500,000 8,172
.............................................................................
11
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Haemonetics * 300,000 $ 4,800
.............................................................................
Incontrol * 397,900 1,057
.............................................................................
Innovasive Devices * 100,000 944
.............................................................................
Mentor 1,000,000 24,187
.............................................................................
ResMed * 287,500 13,090
.............................................................................
ReSound *++ 773,023 4,587
.............................................................................
Stryker 600,000 23,025
.............................................................................
Sybron International * 1,000,000 25,250
.............................................................................
115,761
.............
Health Care Services 8.3%
Access Health Marketing * 350,000 8,936
.............................................................................
American Oncology Resources * 1,000,000 12,219
.............................................................................
American Physician Partners * 630,000 4,528
.............................................................................
AmeriPath * 800,000 9,425
.............................................................................
Carematrix * 200,000 5,387
.............................................................................
Concentra Managed Care * 1,500,000 38,953
.............................................................................
Harborside Healthcare * 342,200 8,170
.............................................................................
HCIA * 450,000 5,822
.............................................................................
Health Management Systems * 250,000 2,828
.............................................................................
HealthSouth * 400,000 10,675
.............................................................................
IDX Systems * 777,800 35,925
.............................................................................
Medical Manager * 390,000 10,822
.............................................................................
NCS HealthCare (Class A) * 915,000 26,135
.............................................................................
Omnicare 1,277,131 48,691
.............................................................................
Omnicare *++ 105,252 3,411
.............................................................................
Omnicare, Warrants, 8/11/00 *++ 105,252 2,275
.............................................................................
Pediatrix Medical Group * 150,000 5,578
.............................................................................
ProMedCo * 762,600 7,721
.............................................................................
Quorum Health Group * 2,100,000 55,584
.............................................................................
Raytel Medical * + 470,000 2,556
.............................................................................
Renal Care Group * 1,250,000 55,156
.............................................................................
Stericycle * 23,500 344
.............................................................................
Sunrise Assisted Living * 250,000 8,601
.............................................................................
Superior Consultant Holdings * 157,400 6,783
.............................................................................
Synetic * 112,700 6,438
.............................................................................
Synetic, Cv. Sub. Deb., 5.00%, 2/15/07 $8,240,000 8,819
.............................................................................
Total Renal Care Holdings * 1,690,550 58,324
.............................................................................
12
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
UroMed, Cv. Sub. Notes, (144a), 6.00%, 10/15/03 $ 3,000,000 $ 1,258
.............................................................................
451,364
.............
TOTAL HEALTH CARE 878,899
.............
CONSUMER 16.4%
Soft Goods Retailers 1.2%
Fabri-Centers of America (Class B) * 570,000 13,502
.............................................................................
Gadzooks * + 800,000 22,175
.............................................................................
Gymboree * 700,000 10,609
.............................................................................
Jos. A. Bank Clothiers * 200,000 1,662
.............................................................................
Urban Outfitters * + 1,087,100 19,908
.............................................................................
67,856
.............
Hard Goods Retailers 3.6%
Casey's General Stores 1,000,000 16,594
.............................................................................
CSK Auto * 400,000 10,100
.............................................................................
Discount Auto Parts * + 1,100,000 28,600
.............................................................................
Dominicks Supermarkets * 600,000 26,738
.............................................................................
Duane Reade * 500,000 15,000
.............................................................................
General Nutrition * 1,250,000 38,984
.............................................................................
Guitar Center * 500,000 15,094
.............................................................................
Micro Warehouse * 250,000 3,875
.............................................................................
Republic Industries * 800,000 20,000
.............................................................................
TSC * + 800,000 19,950
.............................................................................
194,935
.............
Consumer Nondurables 2.0%
American Italian Pasta (Class A) * 441,000 16,427
.............................................................................
Beringer Wine Estates * 128,700 5,667
.............................................................................
Jones Apparel Group * 500,000 18,281
.............................................................................
Linens 'n Things * 200,000 6,113
.............................................................................
Nautica Enterprises * 900,000 24,187
.............................................................................
QuikSilver * + 700,000 13,956
.............................................................................
Rayovac * 400,000 9,075
.............................................................................
St. John Knits 350,000 13,519
.............................................................................
107,225
.............
Restaurants 1.7%
Einstein/Noah Bagel * 750,000 3,457
.............................................................................
Outback Steakhouse * 1,550,000 60,401
.............................................................................
13
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Schlotzsky's * 230,000 $ 3,673
................................................................................
Silver Diner * +++ 750,000 749
................................................................................
Sonic * + 1,157,050 25,817
................................................................................
94,097
..............
Food and Beverages 0.3%
United Natural Foods * 500,000 14,344
................................................................................
14,344
..............
Entertainment 1.0%
Cinar Films (Class B) * 213,700 4,060
................................................................................
Dover Downs Entertainment + 150,000 4,650
................................................................................
Imax * 900,000 20,419
................................................................................
Penske Motorsports * 350,000 10,249
................................................................................
Speedway Motorsports * 500,000 12,781
................................................................................
Spice Entertainment * + 650,000 3,981
................................................................................
56,140
..............
Consumer Services 6.6%
Ambassadors International * + 500,000 15,141
................................................................................
Apollo Group (Class A) * 1,500,000 49,641
................................................................................
Avis Rent A Car * 1,000,000 24,750
................................................................................
Caliber Learning Network * 560,000 8,785
................................................................................
Cendant * 3,750,000 78,281
................................................................................
Devry * 300,000 6,581
................................................................................
Equity Corp. International * + 1,500,000 36,000
................................................................................
Extended Stay America * 2,000,000 22,500
................................................................................
ITT Educational Services * 400,000 12,900
................................................................................
Learning Tree International * 727,200 14,658
................................................................................
Signature Resorts * 750,000 12,375
................................................................................
Strayer Education 660,850 23,852
................................................................................
Sylvan Learning Systems * 1,650,000 54,295
................................................................................
359,759
..............
TOTAL CONSUMER 894,356
..............
TECHNOLOGY 19.6%
Computer Software 7.3%
AXENT Technologies * 450,000 13,767
................................................................................
BMC Software * 1,000,000 51,969
................................................................................
Caere * 350,000 4,659
................................................................................
14
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Electronic Arts * 300,000 $ 16,219
................................................................................
Great Plains Software * 300,000 10,144
................................................................................
Integrated Systems * 600,000 9,188
................................................................................
Legato Systems * 450,000 17,578
................................................................................
The Learning Company * 1,000,000 29,625
................................................................................
Manugistics Group * 200,000 4,975
................................................................................
National Instruments * 300,000 10,734
................................................................................
Network Associates * 750,000 35,883
................................................................................
Peerless Systems * 98,300 2,052
................................................................................
PLATINUM technology * 750,000 21,445
................................................................................
Security Dynamics Technologies * 1,350,000 24,342
................................................................................
Summit Design * 600,000 8,869
................................................................................
Synopsys * 1,375,000 62,949
................................................................................
Transaction Systems Architects (Class A) * 400,000 15,413
................................................................................
Vantive * 1,100,000 22,653
................................................................................
VERITAS Software * 562,500 23,256
................................................................................
Viasoft * 650,000 10,542
................................................................................
396,262
..............
Semiconductors and Components 7.8%
Altera * 850,000 25,102
................................................................................
Analog Devices * 1,750,000 42,984
................................................................................
Applied Micro Circuits * 535,000 13,893
................................................................................
Berg Electronics* 1,000,000 19,562
................................................................................
Brooks Automation * + 550,000 7,184
................................................................................
Burr Brown * 1,250,000 26,445
................................................................................
Cognex * 850,000 15,858
................................................................................
Galileo Technology * 350,000 4,769
................................................................................
KLA-Tencor * 500,000 13,859
................................................................................
Lam Research * 1,000,000 19,094
................................................................................
Lattice Semiconductor * 740,000 21,021
................................................................................
Linear Technology 550,000 33,172
................................................................................
Marshall Industries * 600,000 16,350
................................................................................
Maxim Integrated Products * 1,700,000 53,922
................................................................................
Methode Electronics (Class A) 56,000 865
................................................................................
Micrel * 550,000 18,047
................................................................................
Microchip Technology * 1,015,000 26,580
................................................................................
Molex 97,656 2,448
................................................................................
PMC-Sierra * 210,000 9,831
................................................................................
15
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
QLogic * 400,000 $ 14,262
................................................................................
SIPEX * 150,000 3,220
................................................................................
SpeedFam International * 260,000 4,794
................................................................................
Xilinx * 900,000 30,628
................................................................................
423,890
.............
Networking and Telecom Equipment 2.4%
Advanced Fibre Communications * 500,000 20,031
................................................................................
Avant * 750,000 18,539
................................................................................
Concord Communications * 230,000 5,915
................................................................................
Digital Microwave * 500,000 3,641
................................................................................
Electromagnetic Sciences * 360,000 6,772
................................................................................
Glenayre Technologies * 652,600 7,056
................................................................................
Level One * 900,000 21,178
................................................................................
Natural MicroSystems * 400,000 6,438
................................................................................
Premisys Communications * + 1,300,000 32,419
................................................................................
Sawtek * 600,000 8,756
................................................................................
130,745
.............
Computer Hardware/Peripherals 0.5%
Box Hill Systems * 400,000 2,775
................................................................................
Electronics for Imaging * 1,150,000 24,222
................................................................................
26,997
.............
E-Commerce 1.6%
Checkfree Holdings * 600,000 17,681
................................................................................
E*TRADE * 570,000 13,057
................................................................................
Harbinger * 525,000 12,731
................................................................................
N2K * 200,000 3,931
................................................................................
Sportsline USA * 250,000 9,133
................................................................................
Sterling Commerce * 700,000 33,950
................................................................................
90,483
.............
TOTAL TECHNOLOGY 1,068,377
.............
BUSINESS SERVICES 36.7%
Telecom Services 3.8%
Brightpoint * 1,000,000 14,469
................................................................................
Cellular Communications International * 750,000 37,500
................................................................................
Concentric Network * 211,600 6,407
................................................................................
Intermedia Communications * 500,000 20,953
................................................................................
16
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Metromedia International * 1,265,700 $ 15,109
................................................................................
MetroNet Communications (Class B) * 601,700 16,923
................................................................................
Millicom International Cellular * 200,000 8,744
................................................................................
NTL * 266,666 14,258
................................................................................
Paging Network * 2,500,000 34,922
................................................................................
Powertel * 500,000 9,344
................................................................................
PSINet * 500,000 6,469
................................................................................
SmarTalk TeleServices * 750,000 10,640
................................................................................
Vanguard Cellular (Class A) * 466,800 8,811
................................................................................
204,549
.............
Computer Services 6.8%
Acxiom * 500,000 12,516
................................................................................
Affiliated Computer Services (Class A) * 750,000 28,875
................................................................................
American Management Systems * 325,000 9,730
................................................................................
BISYS Group * 1,135,000 46,570
................................................................................
Concord EFS * 427,500 11,168
................................................................................
ENVOY * 280,000 13,309
................................................................................
National Data 1,000,000 43,750
................................................................................
Paychex 3,500,000 142,297
................................................................................
SunGard Data Systems * 1,566,800 60,126
................................................................................
368,341
.............
Distribution 6.3%
Corporate Express * 2,408,600 30,484
................................................................................
Daisytek International * 500,000 12,797
................................................................................
Henry Schein * 1,000,000 45,937
................................................................................
InaCom * + 1,000,000 31,750
................................................................................
MSC (Class A) * 1,200,000 34,200
................................................................................
Patterson Dental * 377,850 13,910
................................................................................
Richfood Holdings 1,000,000 20,687
................................................................................
Strategic Distribution * + 1,761,000 9,465
................................................................................
Tech Data * 805,500 34,561
................................................................................
U.S. Foodservice * 1,200,000 42,075
................................................................................
United Stationers * 335,000 21,712
................................................................................
Watsco (Class A) 1,216,200 42,795
................................................................................
Wilmar Industries * 55,000 1,403
................................................................................
341,776
.............
17
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Transportation 1.0%
Coach USA * 1,000,000 $ 45,625
...........................................................................
Eagle USA Air Freight * 300,000 10,416
...........................................................................
56,041
...........
Media and Advertising 5.4%
ADVO * 1,155,000 32,557
...........................................................................
Catalina Marketing * 845,000 43,887
...........................................................................
Clear Channel Communications * 335,000 36,557
...........................................................................
CMP Media * 601,100 10,407
...........................................................................
Emmis Broadcasting (Class A) * 250,000 11,992
...........................................................................
Getty Images * 700,000 15,553
...........................................................................
Jacor Communications * 588,200 34,741
...........................................................................
Lamar Advertising * 309,000 11,027
...........................................................................
Metro Networks * 405,800 17,462
...........................................................................
Outdoor Systems * 1,976,062 55,330
...........................................................................
Pegasus Communications * 283,000 5,978
...........................................................................
The Peterson Companies (Class A) * 200,000 5,125
...........................................................................
SFX Entertainment (Class A) * 200,000 9,169
...........................................................................
Young Broadcasting (Class A) * 100,000 6,506
...........................................................................
296,291
...........
Environmental 1.5%
American Disposal Services * 300,000 14,072
...........................................................................
Eastern Environmental Services * 225,000 7,615
...........................................................................
Superior Services * 677,000 20,373
...........................................................................
USA Waste Services * 650,000 32,094
...........................................................................
Waste Industries * 345,000 7,169
...........................................................................
81,323
...........
Engineering and Construction 0.5%
Tetra Tech * 750,000 18,375
...........................................................................
Toll Brothers * 400,000 11,475
...........................................................................
29,850
...........
Miscellaneous Business Services 11.4%
AccuStaff * 585,600 18,300
...........................................................................
Alternative Resources * 352,700 4,376
...........................................................................
American Business Information (Class A) * 620,400 9,539
...........................................................................
American Business Information (Class B) 347,700 5,541
...........................................................................
Atlantic Data Services * 110,000 2,117
...........................................................................
Career Blazers *++ 200,000 978
...........................................................................
18
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
CBT Group ADR * 500,000 $ 26,875
...........................................................................
Comfort Systems USA * 1,000,000 23,375
...........................................................................
Copart * 150,000 3,455
...........................................................................
Data Processing Resources * 175,000 5,452
...........................................................................
Eltron International * + 500,000 13,844
...........................................................................
G & K Services 400,000 17,500
...........................................................................
IntelliQuest Information Group * + 750,000 7,641
...........................................................................
Iron Mountain * 172,500 7,655
...........................................................................
Lason * 510,000 27,699
...........................................................................
May & Speh * 1,000,000 19,844
...........................................................................
MemberWorks * 250,000 8,109
...........................................................................
META Group * + 767,400 16,931
...........................................................................
Metamor WorldWide * 1,600,000 56,350
...........................................................................
New England Business Service 200,000 6,450
...........................................................................
NFO Worldwide * + 1,520,000 27,075
...........................................................................
Orthodontic Centers of America * + 2,730,000 57,159
...........................................................................
Outsource International * + 590,000 5,347
...........................................................................
Paxar * 450,000 5,175
...........................................................................
PMT Services * 510,000 12,973
...........................................................................
ProBusiness Services * 125,000 5,867
...........................................................................
Renaissance Worldwide * 1,350,000 29,405
...........................................................................
Romac International * 1,457,590 44,456
...........................................................................
SITEL * 1,000,000 6,625
...........................................................................
Snyder Communications * 702,000 30,888
...........................................................................
SPR * + 620,000 18,871
...........................................................................
Startek * 100,000 1,256
...........................................................................
Technology Solutions * 725,000 22,996
...........................................................................
Tier Technologies * 650,000 11,639
...........................................................................
Trammell Crow * 400,000 13,375
...........................................................................
Trident International * 135,000 2,017
...........................................................................
United Road Services * 500,000 9,531
...........................................................................
Viking Office Products * 400,000 12,525
...........................................................................
The Vincam Group * 55,500 1,110
...........................................................................
West TeleServices * 480,300 5,884
...........................................................................
Whittman-Hart * 300,400 14,551
...........................................................................
620,756
...........
Total Business Services 1,998,927
...........
<PAGE>
T. Rowe Price New Horizons Fund
- -------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
ENERGY 2.5%
Exploration and Production 0.7%
Barrett Resources * 450,000 $ 16,847
..........................................................................
Berkley Petroleum (CAD) * 500,000 3,873
..........................................................................
Devon Energy 300,387 10,495
..........................................................................
Noble Affiliates 200,000 7,600
..........................................................................
38,815
...........
Energy Services 1.8%
BJ Services * 700,000 20,344
..........................................................................
Camco International 450,000 35,044
..........................................................................
Cooper Cameron * 500,000 25,500
..........................................................................
Smith International * 500,000 17,406
..........................................................................
98,294
...........
TOTAL ENERGY 137,109
...........
INDUSTRIAL 2.5%
Paper and Forest Products 0.2%
..........................................................................
Lydall * 500,000 7,281
..........................................................................
7,281
...........
Auto Related 0.2%
Aftermarket Technology * 619,500 11,693
..........................................................................
11,693
...........
Machinery 2.1%
Danaher 800,000 29,350
..........................................................................
FARO Technologies * 90,000 965
..........................................................................
Group Maintenance America * 682,000 12,276
..........................................................................
Innovative Valve Technologies * + 478,500 3,484
..........................................................................
JLG Industries 750,000 15,188
..........................................................................
Teleflex 600,000 22,800
..........................................................................
United Rentals * 750,000 31,500
..........................................................................
115,563
...........
Total Industrial 134,537
...........
20
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
Value
- --------------------------------------------------------------------------------
In thousands
BASIC MATERIALS 0.1%
Miscellaneous Materials 0.1%
Energy Conversion Devices * 400,000 $ 3,850
...........................................................................
Energy Conversion Devices, Warrants, 7/31/01 * 400,000 875
...........................................................................
Total Basic Materials 4,725
............
Miscellaneous Common Stocks 0.4% 22,979
............
Total Equity Investments and Convertibles
(Cost $3,638,470) 5,363,623
............
SHORT-TERM INVESTMENTS 1.6%
Money Market Funds 1.6%
Reserve Investment Fund, 5.69% # 87,852,589 87,853
...........................................................................
Total Short-Term Investments (Cost $87,853) 87,853
............
TOTAL INVESTMENTS IN SECURITIES
100.1% of Net Assets (Cost $3,726,323) $5,451,476
Other Assets Less Liabilities (6,263)
............
NET ASSETS $5,445,213
------------
# Seven-day yield
* Non-income producing
+ Affiliated company
++ Securities contain some restrictions as to public resale--total of such
securities at period-end amounts to 0.32% of net assets.
** Common stocks, rights, and warrants - cost $3,624,719, value 5,353,340,
98.3% of net assets
Preferred stocks - cost $2,500, value $206, 0.0% of net assets
Bonds and notes - cost $11,251, value $10,077, 0.2% of net assets
ADR American Depository Receipt
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 period-end amounts to
0.02% of net assets.
CAD Canadian dollar
GBP British sterling
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
Unaudited June 30, 1998
- -------------------------------------
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
In thousands
Assets
Investments in securities, at value
Affiliated companies (cost $395,123) $ 445,534
Other companies (cost $3,331,200) 5,005,942
............
Total investments in securities 5,451,476
Other assets 22,240
............
Total assets 5,473,716
............
Liabilities
Total liabilities 28,503
............
NET ASSETS $ 5,445,213
------------
NET ASSETS CONSIST OF:
Accumulated net investment income-net of distributions $ (18,409)
Accumulated net realized gain/loss-net of distributions 287,259
Net unrealized gain (loss) 1,725,153
Paid-in-capital applicable to 216,572,682 shares of
$1.00 par value capital stock outstanding;
300,000,000 shares authorized 3,451,210
............
NET ASSETS $ 5,445,213
------------
NET ASSET VALUE PER SHARE $ 25.14
------------
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
Unaudited
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
6 Months
Ended
6/30/98
Investment Income
Income
Interest $ 3,048
Dividend 2,197
..........
Total income 5,245
..........
Expenses
Investment management
17,946
Shareholder servicing
5,290
Prospectus and shareholder reports 174
Custody and accounting
124
Registration
70
Legal and audit
12
Directors
10
Miscellaneous 28
..........
Total expenses 23,654
..........
Net investment income (18,409)
..........
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities 168,406
Change in net unrealized gain or loss on securities 248,821
..........
Net realized and unrealized gain (loss) 417,227
..........
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 398,818
---------
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
Unaudited
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
6 Months Year
Ended Ended
6/30/98 12/31/97
Increase (Decrease) in Net Assets
Operations
Net investment income $ (18,409) $ (26,335)
Net realized gain (loss) 168,406 260,205
Change in net unrealized gain or loss 248,821 209,666
.............................
Increase (decrease) in net assets from
operations 398,818 443,536
.............................
Distributions to shareholders
Net realized gain -- (124,120)
.............................
Capital share transactions *
Shares sold 603,527 1,465,785
Distributions reinvested -- 118,842
Shares redeemed (660,871) (1,163,722)
.............................
Increase (decrease) in net assets from
capital share transactions (57,344) 420,905
.............................
Net Assets
Increase (decrease) during period 341,474 740,321
Beginning of period 5,103,739 4,363,418
.............................
End of period $ 5,445,213 $ 5,103,739
-----------------------------
*Share information
Shares sold 24,445 66,264
Distributions reinvested -- 5,259
Shares redeemed (26,946) (52,887)
.............................
Increase (decrease) in shares outstanding (2,501) 18,636
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
Unaudited June 30, 1998
- -----------------------------
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.
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.
25
<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.
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 $1,106,555,000 and $1,086,654,000, respectively, for
the six months ended June 30, 1998.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of
its taxable income. At June 30, 1998, the aggregate cost of investments for
federal income tax and financial reporting purposes was $3,726,323,000, and
net unrealized gain aggregated $1,725,153,000, of which $2,047,588,000
related to appreciated investments and $322,435,000 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 $2,905,000 was payable at June 30, 1998. The fee is computed
daily and paid monthly, and consists of an individual fund fee equal to
0.35%
26
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
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. At June 30, 1998, and for the six months then ended, the
effective annual group fee rate was 0.32%. 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 $4,360,000 for the six months ended June 30, 1998, of which
$808,000 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 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 10.1% of the
outstanding shares of the New Horizons Fund at June 30, 1998. For the six
months then ended, the fund was allocated $626,000 of Spectrum expenses,
$96,000 of which was payable at period-end.
27
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
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 six months ended
June 30, 1998, totaled $2,646,000 and are reflected as interest income in
the accompanying Statement of Operations.
28
<PAGE>
T. Rowe Price Shareholder Services
- --------------------------------------------------------------------------------
INVESTMENT SERVICES AND INFORMATION
KNOWLEDGEABLE SERVICE REPRESENTATIVES
By Phone 1-800-225-5132 Available Monday through Friday from 8 a.m. to
10 p.m. ET and weekends from 8:30 a.m. to 5 p.m. ET.
In Person Available in T. Rowe Price Investor Centers.
ACCOUNT SERVICES
Checking Available on most fixed income funds ($500 minimum).
Automatic Investing From your bank account or paycheck.
Automatic Withdrawal Scheduled, automatic redemptions.
Distribution Options Reinvest all, some, or none of your distributions.
Automated 24-Hour Services Including Tele*Access(R) and the T. Rowe
Price Web site on the Internet. Address: www.troweprice.com
DISCOUNT BROKERAGE*
Individual Investments Stocks, bonds, options, precious metals, and
other securities at a savings over regular commission rates.
INVESTMENT INFORMATION
Combined Statement Overview of all your accounts with T. Rowe Price.
Shareholder Reports Fund managers' reviews of their strategies and
results.
T. Rowe Price Report Quarterly investment newsletter discussing markets
and financial strategies.
Performance Update Quarterly review of all T. Rowe Price fund results.
Insights Educational reports on investment strategies and financial
markets.
Investment Guides Asset Mix Worksheet, College Planning Kit,
Diversifying Overseas: A Guide to International Investing, Personal
Strategy Planner, Retirees Financial Guide, and Retirement Planning
Kit.
*A division of T. Rowe Price Investment Services, Inc. Member
NASD/SIPC.
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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. F42-051 6/30/98
