<PAGE>
Annual Report
New
Horizons
Fund
December 31, 1998
[LOGO OF T. ROWE PRICE APPEARS HERE]
T. Rowe Price
<PAGE>
REPORT HIGHLIGHTS
- ----------------------------------
New Horizons Fund
. The markets overcame significant volatility to record strong gains, yet
small-cap stocks underperformed larger stocks by unprecedented margins.
. The New Horizons Fund's 6- and 12-month gains were considerably better than
peer returns but fell far behind the S&P 500.
. Technology and health care stocks aided returns, while energy and health care
services detracted.
. The portfolio's core is built on business services, technology, health care,
and consumer stocks.
. Small stocks now offer attractive valuations and growth records, and history
suggests they should provide improved relative performance.
<PAGE>
Fellow Shareholders
Shrugging off international economic turmoil and a slowdown in corporate
earnings growth in the U.S., the stock market once again surged to record highs.
Despite a sharp correction in the third quarter, the Standard & Poor's 500 Stock
Index, which is an index of large-capitalization issues, rose 9.22% in the
second half of 1998 and 28.57% for the full year, an unprecedented fourth
consecutive year of gains greater than 20%.
- ----------------------
Performance Comparison
- -----------------------------------------------------------------
Periods Ended 12/31/98 6 Months 12 Months
- -----------------------------------------------------------------
New Horizons Fund -1.53% 6.25%
.................................................................
Russell 2000 Growth Index -4.01% 1.23%
.................................................................
Lipper Small Cap Fund Index -6.86% -0.85%
.................................................................
S&P 500 9.22% 28.57%
.................................................................
The stock market's advance was dominated by an increasingly narrow list of
large-cap blue chips. Small-company stocks, as represented by the Russell 2000
Index, underperformed the S&P 500 by a record amount for the full calendar year,
posting a 12-month decline of 2.55%. This was the fifth consecutive year of
underperformance by the small-cap sector. The New Horizons Fund fell 1.53% for
the six months and rose 6.25% for all of 1998, outperforming the Russell 2000
Growth Index and the average small-company mutual fund (as represented by the
Lipper Small Cap Fund Index) for both periods.
It is also worth noting that the fund has performed substantially better than
the small-company indices and the average small-company fund over longer time
periods as well. For the 5- and 10-year periods ended December 31, 1998, the
fund provided shareholders with returns of 112.81% and 388.70%, respectively.
This compares with returns of 62.65% and 198.19% for the Russell 2000 Growth
Index and 70.83% and 244.30% for the Lipper Small Cap Fund Index.
YEAR-END DISTRIBUTION
On December 15, 1998, your Board of Directors declared a long-term capital gain
distribution of $1.27 per share to shareholders of record on that date. The
distribution was paid on December 17. You should
1
<PAGE>
- ---------------------------
Preparing For The Year 2000
- --------------------------------------------------------------------------------
The Year 2000 draws closer every day, and it holds special meaning beyond the
arrival of a new millennium. The issue for investors is that many computer
programs throughout the world use two digits instead of four to identify the
year and may assume the next century starts with 1900. If these programs are not
modified, they will not be able to correctly handle the century change when the
year changes from "99" to "00" on January 1, 2000, and they will no longer be
able to perform necessary functions. The Year 2000 issue affects all companies
and organizations.
T. Rowe Price has been taking steps to assure that its computer systems and
processes are capable of functioning in the Year 2000. Detailed plans for
remediation efforts have been developed and are currently being executed.
OUR PLAN OF ACTION
We began to address these issues several years ago by requiring that all new
systems process and store four-digit years. All critical systems have been
reprogrammed (including business applications required to service our customers
and processing infrastructure necessary to ensure the integrity of customer data
and investments), and they are currently being tested. Because we exchange data
electronically with customers and vendors, we are working with them to assess
the adequacy of their own compliance efforts. Our goal is to ensure the
continuation of the same level of service to all our mutual fund shareholders
and clients after December 31, 1999.
We are asking all vendors and companies we do business with for a Year 2000
compliance status, with the expectation that some organizations will not be able
to modify their interface files prior to December 31, 1999. In addition, we are
scheduling tests for critical vendors and companies that claim Year 2000
compliance to ensure that time-related data and calculations function properly
as we move into the next century.
SMOOTH TRANSITION PLANNED
We believe our programs and initiatives will provide a smooth transition into
the next millennium. We are assessing all systems providing products or services
to our retail mutual fund shareholders, retirement plan sponsors, and
participants, and we have modified them where necessary for the Year 2000.
The Securities Industry Association (SIA) is coordinating Year 2000 testing to
assure that securities markets, clearing corporations, depositories, and third
party service providers can send, receive, and process files and transactions
accurately. In late July 1998, the SIA completed a beta test of Year 2000
readiness. The test was considered successful in terms of transactions completed
and will serve as the basis for the SIA's industry-wide approach. During October
1998, T. Rowe Price completed its beta test of Year 2000 readiness with the SIA
and is ready for the industry-wide test that is scheduled for March and April
1999.
For a more detailed discussion of our Year 2000 effort, as well as continuing
updates on our progress, please check our Web site (www.troweprice.com).
2
<PAGE>
already have received your check or statement reflecting this distribution, as
well as Form 1099-DIV summarizing this information for 1998 tax purposes.
MARKET ENVIRONMENT
Despite a slowdown in the industrial sector, the U.S. economy performed quite
well again in 1998, marking eight consecutive years of growth. The consumer
sector led the economy as consumers benefited from record employment levels,
nominal inflation, falling interest rates, and high levels of confidence
stemming from the strong economy and ebullient financial markets. Corporate
profits rose again overall, although the rate of gain slowed and an increasing
percentage of companies reported profit downturns.
Aided by declines in most commodity prices, inflation fell below 2% on an annual
basis, and some economists began to worry about the possibility of deflation.
Long-term interest rates fell yet again, from 5.9% at the beginning of 1998 to
5.1% at year-end, no doubt aided by the first federal budget surplus since 1969.
Wall Street paid little attention to the soap opera in Washington surrounding
President Clinton's personal affairs, and does not seem overly concerned about
the outcome of the impeachment process currently under way.
Investor confidence was shaken in the third quarter, however, by escalating
financial and economic turmoil around the globe. While investors had already
discounted the effects of deeply troubled Asian economies, the collapse of the
Russian economy in the summer and growing problems in some Latin American
economies caused a brief credit crunch and the potential for financial crisis in
the U.S. The near collapse of several over-leveraged hedge funds also threatened
many of our leading banks and brokerage firms. Stock prices fell 20% from their
July peaks into early October (small-company stocks fell even more sharply)
before the Federal Reserve reassured investors with a series of three rate cuts
between September and November. Stocks surged to record highs again by year-end.
While pleased that overall stock prices recorded yet another strong double-digit
gain in 1998, we are increasingly frustrated by the continued weakness of small
stocks. As noted previously, the Russell 2000 lagged the S&P 500 by a greater
margin than in any other calendar year since the Russell Index was formed in
1979, and 1998 was the
3
<PAGE>
fifth consecutive year that small-company stocks lagged the large-cap index.
Even the S&P 500 is being driven by a narrower and narrower list of the largest
blue chips. While the index rose 28.57% for the year, its 25 largest companies
rose 60.1% on average, and the remaining 475 companies rose an average of only
12%. Valuations for the leading blue chip growth companies are more extended
than at any time since 1972, yet investors continue to pour money into them. As
a result, smaller companies now offer much more compelling valuations with
comparable or better earnings growth.
- -----------------------
Small-Cap Stock Returns
- ----------------------------------------------------------------
Periods Ended 12/31/98 6 Months 12 Months
- ----------------------------------------------------------------
Russell 2000 Index - 7.12% - 2.55%
................................................................
Russell 2000 Growth Index - 4.01 1.23
................................................................
Russell 2000 Value Index - 10.43 - 6.45
................................................................
Aided by a surge in smaller technology issues in the fourth quarter, small-cap
growth stocks outperformed small-cap value stocks in 1998 for the first time in
three years, as noted in the accompanying table. Growth stocks usually do better
in periods of slowing overall economic growth, which was the case in 1998. Your
fund focuses on the small-cap growth sector.
PORTFOLIO REVIEW
Technology stocks were the fund's standouts in the last six months, while most
other major sectors showed declines. Technology holdings had held back results
in 1997 and the first half of 1998 but soared late in the year after bottoming
in early October. Semiconductor holdings were particularly strong, led by
long-time top holdings Xilinx, Altera, Maxim Integrated Products, and Linear
Technology. Computer software also produced gains, led by Network Associates and
Adobe Systems. Health care was another contributing sector during the past six
months as improvements in biotechnology holdings more than offset weakness in
health care services. Biogen and PathoGenesis were our best performers, but
Millennium Pharmaceuticals and Agouron Pharmaceuticals also did well.
Weak areas included our much-reduced energy holdings and the aforementioned
health care services sector (particularly Quorum Health Group and Concentra
Managed Care). Several segments of the business services sector also struggled,
including many distribution companies and temporary staffing firms that are
perceived to be sensitive to a possible economic downturn.
4
<PAGE>
Business services stocks were important contributors for the year as a whole,
however, surpassed only by our technology holdings. The leading contributor for
the year was long-time number one holding Paychex. Paychex, the leading payroll
processor for small businesses, rose more than 50% in price again in 1998 and
has appreciated approximately 40-fold since being added to the portfolio in
1987. We cut our Paychex position in half in 1998 as the company's growth has
taken it out of the small-cap area with a market capitalization in excess of $8
billion and a lofty valuation. We haven't sold the stock completely, however,
which epitomizes our philosophy of letting our winners run and not selling great
companies prematurely.
We changed the fund's sector weightings little in the last six months. For the
full year, the major portfolio change was the continued buildup of business
services holdings, including firms in the telecommunications, computer services,
distribution, media, and staffing areas, from 29% to 37% of assets. We continue
to find more high-growth companies at reasonable valuations in this sector than
in any other. As the accompanying table indicates, over the past two years, we
have increased business services while reducing our energy and industrial
positions. More than ever, the core of the portfolio lies in four sectors:
business services, technology, health care, and consumer. These sectors are
driving growth in the economy, offering significant opportunities for
well-managed, innovative small companies.
- ----------------------
Sector Diversification
- -----------------------------------------------------------------------
12/31/96 12/31/97 12/31/98
- -----------------------------------------------------------------------
Financial 6% 6% 4%
.......................................................................
Health Care 18 18 17
.......................................................................
Consumer 16 17 15
.......................................................................
Technology 23 20 20
.......................................................................
Business Services 25 29 37
.......................................................................
Energy 5 4 1
.......................................................................
Industrial 5 2 2
.......................................................................
Reserves 2 4 4
- -----------------------------------------------------------------------
Total 100% 100% 100%
OUTLOOK
Having shaken off growing worldwide financial and economic problems on the one
hand and a slowdown in domestic economic growth on the other, the stock market
exited 1998 in near-record territory
5
<PAGE>
and with a great deal of momentum. Strong market fundamentals--a still-healthy,
consumer-led economy, negligible inflation, and record low long-term interest
rates--underpin the record-high valuation levels of the overall market today.
Nonetheless, we are troubled by the increasing divergence between the narrow
group of market leaders and the rest of the market, particularly the small-cap
sector. Even more worrisome is the incredible speculation in a small group of
Internet stocks. While the Internet is certainly in the process of
revolutionizing how we conduct our business and personal lives, the
extraordinary moves in any stock with ".com" in its name have taken speculation
to a level not seen in this or any recent market cycle. These are not healthy
signs and are symptomatic of a market nearing its peak.
Growth and valuation measures of small-cap growth stocks do not look out of
line. Our research staff continues to forecast close to 25% annual earnings
growth for our portfolio companies, yet the average price/earnings ratio is 23.5
times estimated 1999 earnings. This P/E is considerably lower than the S&P
500's, where earnings are forecast to grow only half as fast. At year-end, the
fund's P/E relative to that of the S&P was 0.92, the lowest level ever in the
38-year history of the fund and only the third time that the fund's relative P/E
has been lower than the market's. Small-cap stock cycles typically last five to
seven years; small-caps have now underperformed for five years in a row. While
it is not easy to foresee a catalyst for change, history suggests that small
stocks will provide improved relative performance from these levels over the
next several years. We remain optimistic that the fund will continue to provide
attractive returns for investors in the future.
Respectfully submitted,
/s/ John H. Laporte
John H. Laporte
President and Chairman of the Investment Advisory Committee
January 25, 1998
6
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
NEW HORIZONS FUND NEW HORIZONS FUND P/E RELATIVE
P/E RATIO TO THE S&P 500 P/E
[LINE GRAPH APPEARS HERE] [LINE GRAPH APPEARS HERE]
Jun-63 19.7 Jun-63 1.14
23 1.28
24 1.32
20.1 1.16
Jun-64 20.6 Jun-64 1.14
20.1 1.09
22 1.18
19.9 1.2
Jun-65 17.5 Jun-65 1.08
21.1 1.22
24.6 1.47
20.4 1.27
Jun-66 21.4 Jun-66 1.4
20.7 1.5
23.6 1.56
30.9 1.83
Jun-67 32.4 Jun-67 1.91
36.4 2.01
31.9 1.91
29.2 1.86
Jun-68 37.1 Jun-68 2.14
32.8 1.84
33.5 1.86
30.1 1.71
Jun-69 31.4 Jun-69 1.86
28.6 1.64
28.6 1.57
25 1.43
Jun-70 17.7 Jun-70 1.27
20.4 1.28
22.2 1.31
29.7 1.62
Jun-71 28 Jun-71 1.63
27.7 1.63
28.6 1.8
33.5 1.99
Jun-72 33.5 Jun-72 2.11
29.7 1.97
29.2 1.9
22.6 1.67
Jun-73 17.9 Jun-73 1.46
21.7 1.67
16.8 1.47
15.7 1.39
Jun-74 12.5 Jun-74 1.19
8.7 1.13
8.7 1.04
13.7 1.25
Jun-75 15.3 Jun-75 1.29
11.7 1.16
11.5 1.17
12.4 1.14
Jun-76 10.7 Jun-76 1.03
10.1 1.04
10.4 1.07
9 0.94
Jun-77 8.7 Jun-77 1.02
8.6 1.05
8.8 1.11
8.6 1.18
Jun-78 9.5 Jun-78 1.22
10.7 1.29
8.9 1.17
9.6 1.28
Jun-79 9 Jun-79 1.18
9.8 1.2
10.7 1.32
9.3 1.37
Jun-80 10.4 Jun-80 1.28
14.2 1.63
16.5 1.88
15.7 1.89
Jun-81 14.9 Jun-81 1.94
11.3 1.66
11.5 1.53
10.4 1.53
Jun-82 10.8 Jun-82 1.54
13.1 1.7
16.8 1.89
19.4 2.11
Jun-83 21.5 Jun-83 2.17
19.3 2.05
17.3 1.86
14.4 1.6
Jun-84 13.9 Jun-84 1.62
13.5 1.52
12.4 1.35
14.5 1.42
Jun-85 15 Jun-85 1.35
14 1.27
16.1 1.3
17.3 1.26
Jun-86 17.5 Jun-86 1.15
14.6 1.05
14.5 1.02
18.3 1.1
Jun-87 17.9 Jun-87 1.13
18.2 1.14
12.5 1.01
13.9 1.09
Jun-88 14.7 Jun-88 1.2
12.8 1.12
12.5 1.14
13 1.12
Jun-89 13.8 Jun-89 1.12
14.5 1.08
14.3 1.01
13.4 0.99
Jun-90 15 Jun-90 1.05
12 0.96
13.6 1.01
18.3 1.2
Jun-91 17.1 Jun-91 1.17
17.8 1.15
19.8 1.19
19.4 1.23
Jun-92 16.8 Jun-92 1.06
17 1.06
19.8 1.2
19 1.14
Jun-93 19.7 Jun-93 1.2
20.9 1.25
21.5 1.34
20 1.32
Jun-94 18.2 Jun-94 1.26
18.9 1.29
18.2 1.37
18.9 1.32
Jun-95 20.4 Jun-95 1.34
22.8 1.44
23.6 1.49
24.1 1.48
Jun-96 26.2 Jun-96 1.58
3/31/97 21.4 1.23
6/30/97 23.1 6/30/97 1.17
27.2 1.33
23.6 1.16
3/31/98 24.7 1.09
6/30/98 24.4 6/30/98 1.04
20.6 0.96
23.5 12/31/98 0.92
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-ended.
7
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
- --------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
12/31/98
- --------------------------------------------------------------------------------
Synopsys 1.4%
................................................................................
Paychex 1.3
................................................................................
Network Associates 1.3
................................................................................
Maxim Integrated Products 1.3
................................................................................
Outback Steakhouse 1.2
- --------------------------------------------------------------------------------
Sylvan Learning Systems 1.2
................................................................................
Affiliated Computer Services 1.2
................................................................................
Outdoor Systems 1.1
................................................................................
U.S. Foodservice 1.1
................................................................................
SunGard Data Systems 1.1
- --------------------------------------------------------------------------------
Xilinx 1.1
................................................................................
BISYS Group 1.1
................................................................................
Catalina Marketing 1.1
................................................................................
Orthodontic Centers of America 1.1
................................................................................
Analog Devices 1.1
- --------------------------------------------------------------------------------
Henry Schein 1.0
................................................................................
Cendant 1.0
................................................................................
Total Renal Care Holdings 1.0
................................................................................
Altera 1.0
................................................................................
Apollo Group 1.0
- --------------------------------------------------------------------------------
Omnicare 1.0
................................................................................
National Data 0.9
................................................................................
Renal Care Group 0.9
................................................................................
Cellular Communications International 0.8
................................................................................
PathoGenesis 0.8
- --------------------------------------------------------------------------------
Total 27.1%
8
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
- ------------------------
Portfolio Highlights
- ---------------------------------------------------------------------
CONTRIBUTIONS TO THE CHANGE IN NET ASSET VALUE PER SHARE
6 Months Ended 12/31/98
Ten Best Contributors
- ---------------------------------------------------------------------
Paychex 13(cent)
.....................................................................
Xilinx 13
.....................................................................
Altera 12
.....................................................................
PathoGenesis 12
.....................................................................
Network Associates 11
.....................................................................
Electronics for Imaging 9
.....................................................................
Biogen 9
.....................................................................
Maxim Integrated Products 8
.....................................................................
U.S. Foodservice 8
.....................................................................
Affiliated Computer Services 7
- ---------------------------------------------------------------------
Total 102(cent)
Ten Worst Contributors
- ---------------------------------------------------------------------
CBT ** -14(cent)
.....................................................................
Quorum Health Group 13
.....................................................................
Renaissance Worldwide 12
.....................................................................
Paging Network 11
.....................................................................
Concentra Managed Care 10
.....................................................................
Premisys Communications * 10
.....................................................................
General Nutrition 9
.....................................................................
Corporate Express ** 8
.....................................................................
InaCom 8
.....................................................................
Metamor Worldwide 8
- ---------------------------------------------------------------------
Total -103(cent)
12 Months Ended 12/31/98
Ten Best Contributors
- ---------------------------------------------------------------------
Paychex 25(cent)
.....................................................................
Network Associates 17
.....................................................................
Cellular Communications International 13
.....................................................................
Biogen 12
.....................................................................
Xilinx 12
.....................................................................
Electronics for Imaging 12
.....................................................................
Synopsys 12
.....................................................................
Outdoor Systems 12
.....................................................................
Affiliated Computer Services 11
.....................................................................
Altera 11
- ---------------------------------------------------------------------
Total 137(cent)
Ten Worst Contributors
- ---------------------------------------------------------------------
Cendant -36(cent)
.....................................................................
Republic Industries ** 18
.....................................................................
Concentra Managed Care 15
.....................................................................
Quorum Health Group 12
.....................................................................
CBT ** 11
.....................................................................
General Nutrition 11
.....................................................................
PennCorp Financial Group ** 10
.....................................................................
Premisys Communications * 10
.....................................................................
Cooper Cameron 10
.....................................................................
Lam Research ** 9
- ---------------------------------------------------------------------
Total -142(cent)
* Position added
** Position eliminated
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]
Russell 2000 Lipper Small
Date Growth Index Cap Funds Index New Horizons
---- ------------ --------------- ------------
12/31/88 $10,000 $10,000 $10,000
12/1/89 $12,017 $12,106 $12,619
12/1/90 $9,925 $10,438 $11,404
12/1/91 $15,005 $15,504 $17,369
12/1/92 $16,171 $17,238 $19,206
12/1/93 $18,333 $20,155 $23,434
12/1/94 $17,888 $20,058 $23,504
12/1/95 $23,441 $26,400 $36,536
12/1/96 $26,081 $30,193 $42,758
12/1/97 $29,457 $34,727 $46,938
12/1/98 $29,819 $34,430 $49,870
- ----------------------------------------
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 12/31/98 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
New Horizons Fund 6.25% 10.93% 16.31% 17.43%
................................................................................
Income 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
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 23.30 $ 21.77 $ 20.50 $ 14.76 $ 16.16
............................................................
Investment activities
Net investment income (0.15) (0.12) (0.08) (0.04) (0.07)
Net realized and
unrealized gain (loss) 1.46 2.23 3.54 8.19 0.10
............................................................
Total from
investment activities 1.31 2.11 3.46 8.15 0.03
............................................................
Distributions
Net realized gain (1.27) (0.58) (2.19) (2.41) (1.43)
............................................................
NET ASSET VALUE
End of period $ 23.34 $ 23.30 $ 21.77 $ 20.50 $ 14.76
------------------------------------------------------------
Ratios/Supplemental Data
Total return* 6.25% 9.77% 17.03% 55.44% 0.30%
.......................................................................................
Ratio of expenses to
average net assets 0.89% 0.88% 0.90% 0.90% 0.93%
.......................................................................................
Ratio of net investment
income to average
net assets (0.65)% (0.57)% (0.41)% (0.23)% (0.50)%
.......................................................................................
Portfolio turnover rate 41.2% 45.2% 41.4% 55.9% 44.3%
.......................................................................................
Net assets, end of period
(in millions) $ 5,228 $ 5,104 $ 4,363 $ 2,855 $ 1,648
.......................................................................................
</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.
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
December 31, 1998
- -----------------------------
Portfolio of Investments Shares Value
- --------------------------------------------------------------------------------
In thousands
Equity Investments ** 96.3%
FINANCIAL 3.6%
Bank and Trust 0.2%
TeleBanc Financial * + 270,000 $ 9,231
................................................................................
9,231
...............
Insurance 1.9%
CMAC Investment 850,000 39,047
................................................................................
ESG Re 300,000 6,131
................................................................................
Mutual Risk Management 900,000 35,213
................................................................................
Presidential Life 977,200 19,330
...............
99,721
...............
Financial Services 1.5%
Affiliated Managers Group * 200,000 5,975
................................................................................
Financial Federal * + 750,000 18,562
................................................................................
ITG * 200,000 12,413
................................................................................
Lasalle Partners * 800,000 23,550
................................................................................
Legg Mason 600,000 18,937
................................................................................
79,437
...............
Total Financial 188,389
...............
HEALTH CARE 16.9%
Pharmaceuticals 1.6%
Alkermes * 900,000 19,912
................................................................................
Genta Units (Each unit consists of 1 share
cvt. Pfd. (Series A) and 1 warrant) *++ 50,000 175
................................................................................
Magainin Pharmaceuticals, Warrants, 8/6/01 *++ 337,299 0
................................................................................
PathoGenesis * 765,000 43,940
................................................................................
PharmaPrint * 600,000 7,894
................................................................................
Shire Pharmaceuticals ADR * 600,000 12,037
................................................................................
83,958
...............
Biotechnology 5.8%
Agouron Pharmaceuticals * 250,000 14,680
................................................................................
Alexion Pharmaceutical * + 845,000 11,117
................................................................................
12
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
In thousands
Aviron * 182,600 $ 4,736
................................................................................
Biogen * 384,300 31,873
................................................................................
COR Therapeutics * 1,000,000 13,344
................................................................................
CV Therapeutics * 300,000 1,462
................................................................................
Epix Medical * + 700,000 6,541
................................................................................
Gilead Sciences * 925,000 37,954
................................................................................
Guilford Pharmaceuticals * 700,000 10,041
................................................................................
Human Genome Sciences * 410,000 14,542
................................................................................
IDEXX Laboratories * 225,000 6,054
................................................................................
Incyte Pharmaceuticals * 600,000 22,387
................................................................................
Inhale Therapeutic Systems * +++ 852,550 28,108
................................................................................
Intercardia * + 475,000 4,216
................................................................................
Ligand Pharmaceuticals * 585,000 6,782
................................................................................
Millennium Pharmaceuticals * 1,000,000 25,812
................................................................................
Neurocrine Biosciences * + 985,000 6,587
................................................................................
NPS Pharmaceuticals * + 1,300,000 10,156
................................................................................
SangStat Medical * 250,000 5,344
................................................................................
Serologicals * 550,000 16,397
................................................................................
Triangle Pharmaceuticals * 550,000 7,597
................................................................................
Triangle Pharmaceuticals *++ 1,000,000 12,431
................................................................................
Xenova Group (GBP) * 517,500 301
................................................................................
Zonagen * 400,000 7,575
................................................................................
306,037
..............
Medical Instruments and Devices 2.3%
Arrow International 300,000 9,431
................................................................................
Cytyc * 750,000 19,359
................................................................................
Mentor 1,000,000 23,406
................................................................................
Optical Coating Laboratory 350,000 8,991
................................................................................
ResMed * 575,000 26,091
................................................................................
ReSound *++ 773,023 2,718
................................................................................
Sybron International * 1,000,000 27,187
................................................................................
VI Technologies * 335,000 3,434
................................................................................
120,617
..............
Health Care Services 7.2%
................................................................................
American Oncology Resources * 1,000,000 14,625
................................................................................
AmeriPath * 1,000,000 9,016
................................................................................
Boron Lepore & Associates * + 700,000 23,997
................................................................................
Carematrix * 200,000 6,125
................................................................................
13
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
In thousands
Concentra Managed Care * 1,905,000 $ 20,181
................................................................................
Eclipsys * 160,000 4,630
................................................................................
HCIA * 400,000 1,725
................................................................................
Health Management Systems * 250,000 2,016
................................................................................
HealthSouth * 400,000 6,175
................................................................................
IDX Systems * 777,800 34,272
................................................................................
Medical Manager * 390,000 12,188
................................................................................
NCS HealthCare * 915,000 21,874
................................................................................
Omnicare ++ 1,382,383 48,038
................................................................................
Omnicare, Warrants, 8/11/00 *++ 105,253 2,158
................................................................................
PhyCor * 2,500,000 17,031
................................................................................
ProMedCo * 762,600 4,599
................................................................................
Quorum Health Group * 1,650,000 21,295
................................................................................
Renal Care Group * 1,650,000 47,850
................................................................................
Sunrise Assisted Living * 250,000 12,922
................................................................................
Superior Consultant Holdings * 157,400 6,876
................................................................................
Synetic * 112,700 4,945
................................................................................
Total Renal Care Holdings * 1,750,000 51,734
................................................................................
374,272
..............
Total Health Care 884,884
..............
CONSUMER 15.4%
Soft Goods Retailers 0.8%
Jo Ann Stores (Class B) * 570,000 7,909
................................................................................
Jos. A. Bank Clothiers * 200,000 1,587
................................................................................
Pacific Sunwear * 750,000 12,352
................................................................................
Urban Outfitters * + 1,087,100 18,922
................................................................................
40,770
..............
Hard Goods Retailers 2.9%
Casey's General Stores 1,500,000 19,547
................................................................................
CSK Auto * 900,000 24,019
................................................................................
Discount Auto Parts * + 1,100,000 24,131
................................................................................
Duane Reade * 600,000 23,100
................................................................................
General Nutrition * 1,500,000 24,328
................................................................................
Office Depot * 400,000 14,775
................................................................................
TSC * + 800,000 19,400
................................................................................
149,300
..............
14
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
In thousands
Consumer Nondurables 2.0%
American Italian Pasta * 500,000 $ 13,188
................................................................................
Beringer Wine Estates * 128,700 5,731
................................................................................
Jones Apparel Group * 500,000 11,031
................................................................................
Linens `n Things * 200,000 7,925
................................................................................
Natrol * 500,000 5,453
................................................................................
Nautica Enterprises * 1,000,000 14,906
................................................................................
Quicksilver * + 750,000 22,500
................................................................................
Rayovac * 683,300 18,236
................................................................................
St. John Knits 300,000 7,800
................................................................................
106,770
...............
Restaurants 1.8%
Outback Steakhouse * 1,550,000 61,709
................................................................................
Schlotzsky's * 230,000 2,264
................................................................................
Sonic * + 1,287,500 30,900
................................................................................
94,873
...............
Food and Beverages 0.3%
United Natural Foods * 700,000 16,756
................................................................................
16,756
...............
Entertainment 1.4%
Cinar Films (Class B) * 213,700 5,383
................................................................................
Dover Downs Entertainment 300,000 3,619
................................................................................
Imax * 1,000,000 31,687
................................................................................
SFX Entertainment (Class A) * 300,000 16,472
................................................................................
Speedway Motorsports * 500,000 14,250
................................................................................
Spice Entertainment * + 650,000 3,981
................................................................................
75,392
...............
Consumer Services 6.2%
Ambassadors International * + 500,000 7,563
................................................................................
Apollo Group (Class A) * 1,500,000 50,719
................................................................................
Avis Rent A Car * 1,000,000 24,187
................................................................................
Caliber Learning Network * 560,000 2,389
................................................................................
Cendant * 2,800,000 53,375
................................................................................
Devry * 300,000 9,188
................................................................................
Equity Corp. International * + 1,236,600 32,847
................................................................................
Extended Stay America * 2,000,000 21,000
................................................................................
ITT Educational Service * 400,000 13,600
................................................................................
Learning Tree International * 727,200 6,613
................................................................................
15
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
In thousands
Strayer Education + 800,000 $ 28,125
................................................................................
Sunterra * 750,000 11,250
................................................................................
Sylvan Learning Systems * 2,000,000 61,062
................................................................................
321,918
...............
Total Consumer 805,779
...............
TECHNOLOGY 20.2%
Semiconductors and Components 8.1%
Altera * 850,000 51,691
................................................................................
Analog Devices * 1,750,000 54,906
................................................................................
Applied Micro Circuits * 600,000 20,400
................................................................................
Brooks Automation * 300,000 4,369
................................................................................
Burr Brown * 1,500,000 35,063
................................................................................
Cognex * 750,000 14,953
................................................................................
Galileo Technology * 750,000 20,274
................................................................................
Lattice Semiconductor * 350,000 16,067
................................................................................
Linear Technology 400,000 35,813
................................................................................
Marshall Industries * 350,000 8,575
................................................................................
Maxim Integrated Products * 1,500,000 65,484
................................................................................
Methode Electronics (Class A) 600,000 9,431
................................................................................
Micrel * 400,000 22,100
................................................................................
Molex 97,656 3,720
................................................................................
SIPEX * 150,000 5,320
................................................................................
Xilinx * 900,000 58,584
................................................................................
426,750
...............
Networking and Telecom Equipment 0.5%
Premisys Communications * 1,200,000 10,913
................................................................................
Sawtek * 500,000 8,781
................................................................................
Tekelec * 300,000 4,978
................................................................................
24,672
...............
Computer Hardware/Peripherals 0.7%
Electronics for Imaging * 1,000,000 39,969
................................................................................
39,969
...............
E-Commerce 2.2%
Checkfree Holdings * 600,000 13,988
................................................................................
E*TRADE * 400,000 18,712
................................................................................
Preview Travel * 600,000 11,081
................................................................................
16
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
In thousands
PSINet * 2,050,000 $ 43,050
................................................................................
Sterling Commerce * 597,900 26,905
................................................................................
113,736
...............
Computer Service and Software 8.7%
Adobe Systems 345,000 16,150
................................................................................
Avant * 1,100,000 17,531
................................................................................
BMC Software * 500,000 22,297
................................................................................
Caere * 300,000 4,106
................................................................................
Concur Technologies * 200,000 6,044
................................................................................
Electronic Arts * 500,000 28,031
................................................................................
Great Plains Software * 300,000 14,494
................................................................................
Integrated Systems * 500,000 7,516
................................................................................
National Instruments * 485,000 16,535
................................................................................
Network Associates * 1,000,000 66,344
................................................................................
Parametric Technology * 1,800,000 29,250
................................................................................
Peerless Systems * 500,000 4,219
................................................................................
PLATINUM technology * 1,100,000 21,141
................................................................................
Security Dynamics Technologies * 850,000 19,577
................................................................................
Summit Design * 700,000 6,453
................................................................................
Synopsys * 1,375,000 74,508
................................................................................
The Learning Company * 1,500,000 38,906
................................................................................
Vantive * 400,000 3,212
................................................................................
Verisign * 300,000 17,756
................................................................................
VERITAS Software * 200,000 11,975
................................................................................
Viasoft * 500,000 3,531
................................................................................
Visio * 650,000 23,583
................................................................................
453,159
...............
Total Technology 1,058,286
...............
BUSINESS SERVICES 36.4%
Telecom Services 2.6%
Brightpoint * 1,500,000 20,484
................................................................................
Cellular Communications International * 650,000 44,362
................................................................................
ICG Communications * 500,000 10,781
................................................................................
Intermedia Communications * 350,000 6,059
................................................................................
Metromedia International * 1,000,000 5,438
................................................................................
MetroNet Communications * 400,000 13,400
................................................................................
17
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
In thousands
Millicom International Cellular * 200,000 $ 6,813
................................................................................
NTL * 266,666 15,042
................................................................................
Omnipoint * 1,160,700 10,918
................................................................................
Paging Network * 975,600 4,543
................................................................................
137,840
...............
Computer Services 7.3%
Acxiom * 1,300,000 40,219
................................................................................
Affiliated Computer Services (Class A) * 1,350,000 60,750
................................................................................
BISYS Group * 1,135,000 58,523
................................................................................
Concord EFS * 300,000 12,656
................................................................................
HBO 507,500 14,575
................................................................................
National Data 1,000,000 48,688
................................................................................
Paychex 1,300,000 66,909
................................................................................
Saville Systems ADR * 1,000,000 18,969
................................................................................
SunGard Data Systems * 1,478,700 58,686
................................................................................
379,975
...............
Distribution 5.9%
Barnett * 600,000 8,138
................................................................................
Daisytek International * + 1,000,000 18,938
................................................................................
Henry Schein * 1,200,000 53,625
................................................................................
InaCom * + 1,200,000 17,850
................................................................................
MSC * 1,250,000 28,281
................................................................................
Richfood Holdings 1,100,000 22,825
................................................................................
Strategic Distribution * + 1,761,000 4,403
................................................................................
Tech Data * 700,000 28,131
................................................................................
U.S. Foodservice * 1,200,000 58,800
................................................................................
United Stationers * 750,000 20,203
................................................................................
Watsco (Class A) 2,024,300 33,907
................................................................................
White Cap Industries * 415,000 6,549
................................................................................
Wilmar Industries * 250,000 5,070
................................................................................
306,720
...............
Transportation 1.2%
................................................................................
Coach USA * 1,250,000 43,359
................................................................................
Eagle USA Air Freight * 750,000 18,375
................................................................................
61,734
...............
Media and Advertising 6.7%
................................................................................
ADVO * 1,155,000 30,463
................................................................................
Catalina Marketing * 845,000 57,777
................................................................................
18
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
In thousands
Clear Channel Communications * 670,000 $ 36,515
................................................................................
Emmis Broadcasting (Class A) * 500,000 21,687
................................................................................
Getty Images * 653,000 11,285
................................................................................
IDG Books (Class A) * 78,000 1,331
................................................................................
Jacor Communications * 588,200 38,049
................................................................................
Lamar Advertising * 309,000 11,587
................................................................................
Metro Networks * 405,800 17,272
................................................................................
National Media * 900,000 9,619
................................................................................
Outdoor Systems * 1,976,062 59,282
................................................................................
Pegasus Communications * 500,000 12,516
................................................................................
Sinclair Broadcast Group (Class A) * 1,535,000 30,364
................................................................................
The Peterson Companies (Class A) * 200,000 6,775
................................................................................
Young Broadcasting (Class A) * 207,300 8,661
................................................................................
353,183
..............
Environmental 1.8%
Allied Waste Industries * 1,250,000 29,531
................................................................................
Casella Waste Systems (Class A) * 500,000 18,531
................................................................................
Superior Services * 677,000 13,583
................................................................................
Waste Management 650,000 30,306
................................................................................
91,951
..............
Engineering and Construction 0.7%
................................................................................
Tetra Tech * 970,000 26,160
................................................................................
Toll Brothers * 500,000 11,281
................................................................................
37,441
..............
Miscellaneous Business Services 10.2%
Billing Information Concepts * 750,000 8,273
................................................................................
Career Blazers *++ 200,000 914
................................................................................
Comfort Systems USA * 1,500,000 26,812
................................................................................
Data Processing Resources * 175,000 5,119
................................................................................
Electromagnetic Sciences * 360,000 5,062
................................................................................
Hagler Bailly * 700,000 14,394
................................................................................
Infousa (Class A) * 1,057,600 5,288
................................................................................
Infousa (Class B) * 347,700 1,804
................................................................................
IntelliQuest Information Group * + 750,000 5,203
................................................................................
Iron Mountain * 258,750 9,283
................................................................................
Lason * 250,000 14,555
................................................................................
MemberWorks * 250,000 7,391
................................................................................
META Group * + 800,000 24,100
................................................................................
19
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
In thousands
Metamor Worldwide * 1,600,000 $ 39,700
................................................................................
Modis Professional Services * 1,500,000 21,750
................................................................................
New England Business Service 200,000 7,825
................................................................................
NFO Worldwide * + 1,800,000 20,700
................................................................................
NOVA * 766,350 26,583
................................................................................
Orthodontic Centers of America * + 2,900,000 56,369
................................................................................
Outsource International * + 590,000 2,839
................................................................................
Paxar * 450,000 4,022
................................................................................
ProBusiness Services * 110,000 5,012
................................................................................
Professional Staff ADR * + 600,000 4,538
................................................................................
Renaissance Worldwide * 2,306,400 14,271
................................................................................
Romac International * 1,800,000 39,937
................................................................................
SITEL * 1,000,000 2,438
................................................................................
Snyder Communications * 702,000 23,692
................................................................................
SPR * + 1,450,500 24,658
................................................................................
StaffMark * 531,000 11,947
................................................................................
Startek * 100,000 1,238
................................................................................
Technology Solutions * 925,000 9,915
................................................................................
The Vincam Group * 510,600 8,951
................................................................................
Tier Technologies (Class B) * 1,000,000 17,187
................................................................................
Trammell Crow * 500,000 14,000
................................................................................
Trident International * 135,000 1,245
................................................................................
United Road Services * 500,000 9,219
................................................................................
West TeleServices * 480,300 4,893
................................................................................
Whittman-Hart * 400,000 11,087
................................................................................
Zebra Technologies (Class A) * 365,000 10,505
................................................................................
Zebra Technologies (Class B) * 450,000 12,952
................................................................................
535,671
..............
Total Business Services 1,904,515
..............
ENERGY 1.5%
Exploration and Production 0.5%
Barrett Resources * 450,000 10,800
................................................................................
Devon Energy 300,387 9,218
................................................................................
Noble Affiliates 200,000 4,925
................................................................................
24,943
..............
20
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
In thousands
Energy Services 1.0%
BJ Services * 1,500,000 $ 23,437
................................................................................
Cooper Cameron * 500,000 12,250
................................................................................
Smith International * 750,000 18,891
................................................................................
54,578
..............
Total Energy 79,521
..............
INDUSTRIAL 2.0%
Paper and Forest Products 0.1%
Lydall * 500,000 5,937
................................................................................
5,937
..............
Auto Related 0.1%
Aftermarket Technology * 619,500 4,917
................................................................................
4,917
..............
Machinery 1.8%
Danaher 200,000 10,863
................................................................................
Group Maintenance America * 1,000,000 12,125
................................................................................
Innovative Valve Technologies * + 750,000 1,945
................................................................................
JLG Industries 1,000,000 15,625
................................................................................
Teleflex 600,000 27,375
................................................................................
United Rentals * 750,000 24,844
................................................................................
92,777
..............
Total Industrial 103,631
..............
BASIC MATERIALS 0.1%
Miscellaneous Materials 0.1%
Energy Conversion Devices * 400,000 2,925
................................................................................
Energy Conversion Devices, Warrants, 7/31/01 * 400,000 319
................................................................................
Total Basic Materials 3,244
..............
Miscellaneous Common Stocks 0.2% 8,699
..............
Total Equity Investments (Cost $3,433,546) 5,036,948
..............
Short-Term Investments 3.8%
Money Market Fund 3.8%
Reserve Investment Fund, 5.42% # + 197,187,500 197,188
................................................................................
Total Short-Term Investments (Cost $197,188) 197,188
..............
21
<PAGE>
T. Rowe Price New Horizons Fund
- ------------------------------------------------------------------------------
Value
- ------------------------------------------------------------------------------
In thousands
Total Investments in Securities
100.1% of Net Assets (Cost $3,630,734) $ 5,234,136
Other Assets Less Liabilities (5,657)
..............
NET ASSETS $ 5,228,479
--------------
# Seven-day yield
+ Affiliated company
* Non-income producing
++ Securities contain some restrictions as to public resale-total of such
securities at period-end amounts to 1.8% of net assets.
** Common stocks, rights, and warrants - cost $3,431,046, value $5,036,773,
96.3% of net assets Preferred stocks - cost $2,500, value $175, 0.0% of net
assets
ADR American Depository Receipt
GBP British sterling
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
December 31, 1998
- -------------------------------------
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
In thousands
Assets
Investments in securities, at value
Affiliated companies (cost $650,884) $ 685,614
Other companies (cost $2,979,850) 4,548,522
............
Total investments in securities 5,234,136
Other assets 37,272
............
Total assets 5,271,408
Liabilities
Total liabilities 42,929
............
NET ASSETS $5,228,479
------------
Net Assets Consist of:
Accumulated net realized gain/loss - net of distributions $ 58,972
Net unrealized gain (loss) 1,603,402
Paid-in-capital applicable to 224,046,467 shares of
$1.00 par value capital stock outstanding;
300,000,000 shares authorized 3,566,105
............
NET ASSETS $5,228,479
------------
NET ASSET VALUE PER SHARE $ 23.34
------------
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
- --------------------------
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
Year
Ended
12/31/98
Investment Income
Income
Interest (including $7,067 from affiliated companies) $ 7,630
Dividend 4,213
.............
Total income 11,843
.............
Expenses
Investment management 33,743
Shareholder servicing 9,928
Prospectus and shareholder reports 444
Custody and accounting 240
Registration 91
Legal and audit 24
Directors 20
Miscellaneous 40
.............
Total expenses 44,530
.............
Net investment income (32,687)
.............
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities 214,659
Change in net unrealized gain or loss on securities 127,070
.............
Net realized and unrealized gain (loss) 341,729
.............
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 309,042
-------------
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
- -------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
Year
Ended
12/31/98 12/31/97
Increase (Decrease) in Net Assets
Operations
Net investment income $ (32,687) $ (26,335)
Net realized gain (loss) 214,659 260,205
Change in net unrealized gain or loss 127,070 209,666
...........................
Increase (decrease) in net assets from operations 309,042 443,536
...........................
Distributions to shareholders
Net realized gain (270,553) (124,120)
...........................
Capital share transactions*
Shares sold 1,173,003 1,465,785
Distributions reinvested 260,068 118,842
Shares redeemed (1,346,820) (1,163,722)
...........................
Increase (decrease) in net assets from capital
share transactions 86,251 420,905
...........................
Net Assets
Increase (decrease) during period 124,740 740,321
Beginning of period 5,103,739 4,363,418
...........................
End of period $ 5,228,479 $ 5,103,739
---------------------------
* Share information
Shares sold 50,954 66,264
Distributions reinvested 12,419 5,259
Shares redeemed (58,401) (52,887)
...........................
Increase (decrease) in shares outstanding 4,972 18,636
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
December 31, 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.
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.
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
26
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
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 $2,022,794,000 and $2,253,081,000, respectively, for the year ended
December 31, 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.
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, 1998. The results
of operations and net assets were not affected by the increases/(decreases) to
these accounts.
- --------------------------------------------------------------------------------
Undistributed net investment income $ 32,687,000
Undistributed net realized gain (3,987,000)
Paid-in-capital (28,700,000)
27
<PAGE>
T. Rowe Price New Horizons Fund
- --------------------------------------------------------------------------------
At December 31, 1998, the cost of investments for federal income tax purposes
was substantially the same as for financial reporting and totaled
$3,630,734,000. Net unrealized gain aggregated $1,603,402,000 at period-end, of
which $1,921,257,000 related to appreciated investments and $317,855,000 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 $2,775,000 was payable at December 31, 1998. 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. At
December 31, 1998, and for the year 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. 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 $6,996,000 for the year ended
December 31, 1998, of which $614,000 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
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T. Rowe Price New Horizons Fund
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T. Rowe Price Spectrum International, Rowe Price-Fleming International. Spectrum
Growth Fund held approximately 11.7% of the outstanding shares of the New
Horizons Fund at December 31, 1998. For the year then ended, the fund was
allocated $1,199,000 of Spectrum expenses, $90,000 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, 1998, totaled
$7,067,000 and are reflected as interest income in the accompanying Statement of
Operations.
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T. Rowe Price New Horizons Fund
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- ----------------------------------
Report of Independent Accountants
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To the Board of Directors and Shareholders of
T. Rowe Price New Horizons Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of T. Rowe Price New Horizons Fund,
Inc. (the "Fund") at December 31, 1998, and the results of its operations, the
changes in its net assets and the financial highlights for each of the fiscal
periods presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1998, by correspondence with custodians, provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
January 21, 1999
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T. Rowe Price New Horizons Fund
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- ------------------------------------------------------------
Tax Information (Unaudited) for the Tax Year Ended 12/31/98
- --------------------------------------------------------------------------------
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 $270,553,000 from long-term
capital gains, subject to the 20% rate gains category.
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T. Rowe Price Shareholder Services
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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.
Internet. T. Rowe Price Web site: www.troweprice.com All the information and
services available on Tele*Access are available on our Web site, including
transactions in your fund and brokerage accounts (with preauthorized access).
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.
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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.
BROKERAGE SERVICES*
Investments Available You can trade stocks, bonds, options, precious metals, and
other securities at a savings over full-service 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. Detail pages itemize
account transactions.
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 or
CD-ROM for PC use) can help you determine and reach your investment goals.
* T. Rowe Price Brokerage is a division of T. Rowe Price Investment Services,
Inc., Member NASD/SIPC.
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<PAGE>
T. Rowe Price Mutual Funds
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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 Growth & Income
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 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 Intermediate Bond+
Tax-Free Short-Intermediate
Virginia Short-Term
Tax-Free Bond
Virginia Tax-Free Bond
................................................................................
International/Global
Emerging Markets Bond
Global 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 named Equity Index.
** Closed to new investors.
*** Formerly named Florida Insured Intermediate Tax-Free.
+ Formerly named Tax-Free Insured Intermediate Bond.
++ Formerly named Global Government Bond.
+++ Neither the funds nor their share prices are insured or guaranteed by the
U.S. government.
Please call for a prospectus. Read it carefully before investing.
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.
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<PAGE>
T. Rowe Price Retirement Plans and Resources
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Retirement Plans and Resources
We recognize that saving for retirement is the number one investment goal for
most Americans. We can help you meet your retirement needs, whether you are
starting an IRA or designing a retirement program for your employees. T. Rowe
Price offers an assortment of retirement plans for individuals, the
self-employed, small businesses, corporations, and nonprofit organizations. We
provide recordkeeping, communications, and investment management services, as
well as a variety of educational materials, self-help planning guides, and
software tools to help you choose and implement a retirement plan appropriate
for you. For information or to request literature, call us at 1-800-638-5660.
IRAs AND QUALIFIED PLANS
................................................................................
Traditional IRA
Roth IRA
Rollover IRA
SEP-IRA
SIMPLE IRA
Profit Sharing
Money Purchase Pension
"Paired" Plans (Money Purchase Pension and Profit Sharing Plans)
401(k)
403(b)
457 Deferred Compensation
RETIREMENT RESOURCES AT T. ROWE PRICE
................................................................................
Planning and Informational Guides
Minimum Required Distributions Guide
Retirement Planning Kit
Retirees Financial Guide
Tax Considerations for Investors
Investment Kits
The IRA Investing Kit
Roth IRA Conversion Kit
Rollover IRA Kit
The T. Rowe Price SIMPLE IRA Plan Kit
The T. Rowe Price SEP-IRA Plan
The Simplified Keogh Plan(R) From T. Rowe Price
The T. Rowe Price 401(k) Century Plan(R) (for small businesses)
Money Purchase Pension/Profit Sharing Plan Kit
Investing for Retirement in Your 403(b) Account
The T. Rowe Price No-Load Variable Annuity Information Kit
Insights Reports
The Challenge of Preparing for Retirement
Financial Planning After Retirement
The Roth IRA: A Review
Software Packages
T. Rowe Price Retirement Planning Analyzer/TM/ CD-ROM or diskette $19.95. To
order, please call 1-800-541-5760. Also available on the Internet for $9.95.
T. Rowe Price Variable Annuity Analyzer/TM/ CD-ROM or diskette, free. To order,
please call 1-800-469-5304.
Many of these resources are also available for viewing or ordering on the
Internet at www.troweprice.com.
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T. Rowe Price Insights Reports
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The Fundamentals of Investing
Whether you are unsure how to get started or are saving for a specific goal,
such as retirement or college, the T. Rowe Price Insights series can help you
make informed investment decisions. These reports, written in plain English
about fundamental investment topics, can be useful at every stage of your
investment journey. They cover a range of topics, from the basic, such as
getting started with mutual funds, to the more advanced, such as managing risk
through diversification or buying individual securities through a broker. To
request one or more Insights, call us at 1-800-638-5660.
INSIGHTS REPORTS
................................................................................
General Information
The ABCs of Giving
Back to Basics: The ABCs of Investing
The Challenge of Preparing for Retirement
Financial Planning After Retirement
Getting Started: Investing With Mutual Funds
The Roth IRA: A Review
Tax Information for Mutual Fund Investors
Investment Strategies
Conservative Stock Investing
Dollar Cost Averaging
Equity Index Investing
Growth Stock Investing
Investing for Higher Yield
Managing Risk Through Diversification
The Power of Compounding
Value Investing
Types of Securities
The Basics of International Stock Investing
The Basics of Tax-Free Investing
The Fundamentals of Fixed Income Investing
Global Bond Investing
Investing in Common Stocks
Investing in Emerging Growth Stocks
Investing in Financial Services Stocks
Investing in Health Care Stocks
Investing in High-Yield Municipal Bonds
Investing in Money Market Securities
Investing in Mortgage-Backed Securities
Investing in Natural Resource Stocks
Investing in Science and Technology Stocks
Investing in Small-Company Stocks
Understanding Derivatives
Understanding High-Yield "Junk" Bonds
Brokerage Insights
Combining Individual Securities With Mutual Funds
Getting Started: An Introduction to Individual Securities
What You Should Know About Bonds
What You Should Know About Margin and Short-Selling
What You Should Know About Options
What You Should Know About Stocks
T. Rowe Price Insights are also available for reading or downloading on the
Internet at www.troweprice.com.
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T. Rowe Price Brokerage
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Brokerage Services
T. Rowe Price Brokerage is a division of T. Rowe Price Investment Services,
Inc., Member NASD/SIPC.
Our brokerage service offers significant commission savings over full-service
brokerages on a wide range of individual securities and other investments.* It
also provides high-quality services and financial tools you can use to manage
your investments effectively and conveniently.
Internet and Automated Services You can enter trades, access quotes, and review
account information 24 hours a day, seven days a week, by telephone or computer.
Trades executed through these automated services provide additional commission
savings.**
Research Services To help you make informed investment decisions, we offer
access to several sources of data. You can research your investments using our
Online Research & News Service, provided by Thomson Investors Network, which
includes company profiles, intra-day and 12-month interactive charting, and
analysts' ratings and earnings estimates. Using our Research On Call service,
you can request reports from Standard & Poor's, Vickers, Lipper, and other
well-known research providers.
Dividend Reinvestment Service This service helps keep more of your money working
for you. Virtually all stocks held in customer accounts are eligible for this
service, free of charge.
* Based on an April 1998 survey for representative-assisted stock trades.
Services vary by firm, and commissions may vary by size of order.
** Discount applies to our current commission schedule. All trades subject to a
$35 minimum commission except equity trades placed through Internet-Trader,
which are subject to a $29.95 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 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. F42-050 12/31/98
