Item 1. Report to Shareholders T. Rowe Price New Horizons Fund - -------------------------------------------------------------------------------- June 30, 2004 Certified Semiannual Report This report is certified under the Sarbanes-Oxley Act of 2002, which requires that public companies, including mutual funds, affirm that the information provided in their annual and semiannual shareholder reports fully and fairly represents their financial position. T. Rowe Price New Horizons Fund - -------------------------------------------------------------------------------- Certified Semiannual Report (Unaudited) FINANCIAL HIGHLIGHTS For a share outstanding throughout each period - -------------------------------------------------------------------------------- 6 Months Year Ended Ended 6/30/04 12/31/03 12/31/02 12/31/01 12/31/00 12/31/99 NET ASSET VALUE Beginning of period $ 24.80 $ 16.61 $ 22.63 $ 23.89 $ 27.53 $ 23.34 Investment activities Net investment income (loss) (0.09) (0.15) (0.17) (0.17) (0.13) (0.15) Net realized and unrealized gain (loss) 1.91 8.34 (5.85) (0.53) (0.37) 7.36 Total from investment activities 1.82 8.19 (6.02) (0.70) (0.50) 7.21 Distributions Net realized gain - - - (0.56) (3.14) (3.02) NET ASSET VALUE End of period $ 26.62 $ 24.80 $ 16.61 $ 22.63 $ 23.89 $ 27.53 -------------------------------------------------------------- Ratios/Supplemental Data Total return^ 7.34% 49.31% (26.60)% (2.84)% (1.86)% 32.52% Ratio of total expenses to average net assets 0.87%! 0.91% 0.92% 0.91% 0.88% 0.90% Ratio of net investment income (loss) to average net assets (0.69)%! (0.75)% (0.81)% (0.77)% (0.51)% (0.66)% Portfolio turnover rate 28.9%! 28.6% 23.7% 27.4% 47.2% 44.7% Net assets, end of period (in millions) $ 5,371 $ 4,955 $ 3,359 $ 5,583 $ 6,122 $ 6,022 ^ Total return reflects the rate that an investor would have earned on an investment in the fund during each period, assuming reinvestment of all distributions. ! Annualized The accompanying notes are an integral part of these financial statements. T. Rowe Price New Horizons Fund - -------------------------------------------------------------------------------- Certified Semiannual Report (Unaudited) June 30, 2004 PORTFOLIO OF INVESTMENTS (1) Shares Value - -------------------------------------------------------------------------------- (Cost and value in $ 000s) EQUITY INVESTMENTS 99.6% (s.) CONSUMER DISCRETIONARY 20.1% Auto Components 0.1% LKQ Corporation * 192,900 3,575 3,575 Hotels, Restaurants & Leisure 5.9% CEC Entertainment * 750,000 22,133 Life Time Fitness * 445,000 9,345 Multimedia Games *! 2,000,000 53,640 Panera Bread, Class A * 1,000,000 35,880 PF Chang's China Bistro * 1,000,000 41,150 Rare Hospitality International * 1,125,000 28,012 Ruby Tuesday 1,000,000 27,450 Sonic * 1,096,892 24,954 Station Casinos 1,175,000 56,870 WMS Industries * 487,100 14,516 313,950 Household Durables 2.7% Ryland Group 500,000 39,100 Toll Brothers * 1,800,000 76,176 WCI Communities * 240,000 5,354 Yankee Candle Company * 800,000 23,400 144,030 Internet & Catalog Retail 0.2% priceline.com * 500,000 13,465 13,465 Media 4.4% ADVO 1,250,000 41,150 Catalina Marketing * 2,132,500 39,003 Cox Radio, Class A * 1,000,000 17,380 Entercom Communications * 1,000,000 37,300 Radio One, Class D * 2,123,778 34,002 Regent Communications * 1,700,200 10,524 Spanish Broadcasting, Class A *! 2,500,000 23,275 TiVo * 800,000 5,672 Westwood One * 150,000 3,570 XM Satellite Radio Holdings, Class A * 1,000,000 27,290 239,166 Multiline Retail 1.2% Tuesday Morning *! 2,231,900 64,725 64,725 Specialty Retail 5.6% AC Moore Arts & Crafts * 857,800 23,598 AnnTaylor Stores * 1,500,000 43,470 Christopher & Banks ! 2,000,000 35,420 Guitar Center * 83,100 3,695 Hot Topic * 250,000 5,123 Linens 'n Things * 600,000 17,586 O'Reilly Automotive * 1,800,000 81,360 PETCO Animal Supplies * 1,200,000 38,652 Sonic Automotive, Class A 750,000 16,613 The Finish Line, Class A * 850,000 25,645 Tweeter Home Entertainment Group * 863,043 4,660 Ultimate Electronics *! 800,000 3,952 299,774 Total Consumer Discretionary 1,078,685 CONSUMER STAPLES 0.3% Food & Staples Retailing 0.3% Duane Reade * 1,000,000 16,330 Total Consumer Staples 16,330 ENERGY 5.2% Energy Equipment & Services 4.6% BJ Services * 350,000 16,044 Cooper Cameron * 300,000 14,610 FMC Technologies * 1,500,000 43,200 Grant Prideco * 1,522,100 28,098 Helmerich & Payne 900,000 23,535 Hydril * 531,000 16,727 Key Energy Services * 1,500,000 14,160 National Oilwell * 950,000 29,915 Smith International * 250,000 13,940 Tidewater 700,000 20,860 Varco International * 400,000 8,756 W-H Energy Services * 784,000 15,366 245,211 Oil & Gas 0.6% Cimarex Energy * 550,000 16,627 Encore Aquisition * 620,000 17,298 33,925 Total Energy 279,136 FINANCIALS 8.2% Capital Markets 2.5% Affiliated Managers Group * 531,000 26,746 Greenhill * 135,500 2,833 Investor's Financial Services 800,000 34,864 Legg Mason 350,000 31,854 National Financial Partners 500,000 17,635 Waddell & Reed Financial, Class A 1,050,000 23,216 137,148 Commercial Banks 1.4% Boston Private Financial 350,000 8,106 Signature Bank * 83,400 1,981 Silicon Valley Bancshares * 266,000 10,547 Texas Capital Bancshares * 600,000 9,960 UCBH Holdings 1,200,000 47,424 78,018 Consumer Finance 0.6% First Marblehead * 450,000 18,117 Moneygram International * 250,000 5,150 Nelnet, Class A * 400,000 7,100 30,367 Diversified Financial Services 0.8% Assured Guaranty * 560,000 9,492 CapitalSource * 1,350,000 33,008 42,500 Insurance 2.0% Direct General 526,100 16,972 Hilb Rogal and Hamilton 209,600 7,479 Hub International 400,000 7,636 Infinity Property & Casualty 625,000 20,625 MaxRe Capital 700,000 13,636 Platinum Underwriters 550,000 16,736 Scottish Annuity & Life 1,000,000 23,250 106,334 Thrifts & Mortgage Finance 0.9% Radian Group 1,000,000 47,900 47,900 Total Financials 442,267 HEALTH CARE 21.1% Biotechnology 7.1% Abgenix * 875,000 10,255 Acadia Pharmaceuticals * 700,000 4,340 Alexion Pharmaceutical * 500,000 9,300 Alkermes * 1,681,700 22,871 Amylin Pharmaceuticals * 550,000 12,540 Anadys Pharmaceuticals * 607,100 4,310 Angiotech Pharmaceuticals * 127,700 2,573 BioCryst Pharmaceuticals * 323,400 2,231 Cephalon * 699,500 37,773 Cubist Pharmaceuticals * 1,025,000 11,377 Cytogen * 400,000 6,360 Cytokinetics * 62,500 928 deCODE GENETICS * 1,550,000 13,175 Diversa * 1,400,000 14,182 Dynavax Technologies * 360,000 2,398 EXACT Sciences * 400,000 2,460 Exelixis * 1,350,000 13,621 Eyetech Pharmaceuticals * 125,000 5,365 Gilead Sciences * 25,000 1,675 Human Genome Sciences * 450,000 5,234 ImClone Systems * 150,000 12,868 Keryx Biopharmaceuticals * 275,000 3,482 Kosan Biosciences * 209,600 1,656 Lexicon Genetics * 1,000,000 7,840 Memory Pharmaceuticals * 500,000 4,551 Momenta Pharmaceuticals * 650,000 5,850 Myogen * 150,000 1,164 Myriad Genetics * 1,000,000 14,920 Neurocrine Biosciences * 960,500 49,802 NPS Pharmaceuticals * 1,210,000 25,410 ONYX Pharmaceuticals * 500,000 21,180 Protein Design Labs * 175,000 3,348 Rigel Pharmaceuticals * 393,900 5,597 Senomyx * 870,000 5,438 Theravance, Pfd., Series D1 *!!@ 513,334 4,620 Transkaryotic Therapies * 400,000 5,984 Trimeris * 519,400 7,495 United Therapeutics * 175,000 4,489 Vertex Pharmaceuticals * 675,000 7,317 Vicuron Pharmaceuticals * 100,000 1,256 Vion Pharmaceuticals * 250,000 1,040 ViroPharma * 509,000 911 XOMA * 425,000 1,904 381,090 Health Care Equipment & Supplies 1.4% Advanced Neuromodulation Systems * 150,000 4,920 Analogic 120,000 5,092 Control Delivery Systems, Cvt. Pfd., 8.00%, Series A *!!@ 74,432 2,000 CTI Molecular Imaging * 350,000 4,963 Encore Medical * 446,265 2,812 Endologix * 682,500 3,337 EPIX Medical * 450,000 9,495 Integra LifeServices Holdings * 544,100 19,190 Nuvasive * 155,000 1,691 Regeneration Technologies * 200,000 2,146 Thoratec * 700,000 7,511 Wilson Greatbatch Technologies * 400,000 11,180 74,337 Health Care Providers & Services 10.6% Accredo Health * 350,000 13,633 Advisory Board * 300,000 10,680 Community Health System * 1,000,000 26,770 Coventry Health Care * 1,275,000 62,347 Davita * 3,400,000 104,822 HealthStream *! 2,405,000 4,764 Henry Schein * 2,100,000 132,594 LabOne * 300,000 9,534 Mariner Health Care * 555,600 14,960 Omnicare 3,000,000 128,430 Symbion * 143,300 2,502 United Surgical Partners International * 350,000 13,814 VCA Antech * 800,000 35,856 WellChoice * 300,000 12,420 573,126 Pharmaceuticals 2.0% Able Laboratories * 544,800 11,201 Atherogenics * 850,000 16,175 Inspire Phamaceuticals * 1,000,000 16,720 Medicines Company * 753,900 23,001 MGI Pharma * 200,000 5,402 Nektar Therapeutics * 300,000 5,988 Noven Pharmaceuticals * 375,000 8,258 Salix Pharmaceuticals * 300,000 9,885 Taro Pharmaceuticals, Class A * 233,300 10,149 106,779 Total Health Care 1,135,332 INDUSTRIALS & BUSINESS SERVICES 17.8% Aerospace & Defense 1.5% Armor Holdings * 775,000 26,350 Mercury Computer Systems * 600,000 14,880 MTC Technologies * 200,000 5,164 Triumph Group * 600,000 19,158 United Defense Industries * 435,000 15,225 80,777 Air Freight & Logistics 0.3% EGL * 300,000 7,980 Forward Air * 200,000 7,480 15,460 Commercial Services & Supplies 12.5% Apollo Group, Class A * 2,150,000 189,823 Bright Horizons Family Solutions * 400,000 21,444 Corporate Executive Board 798,800 46,163 Education Management * 1,300,000 42,718 Exult * 4,750,000 25,555 First Advantage, Class A * 241,400 4,562 Intersections * 78,000 1,871 Laureate * 1,650,000 63,096 LECG * 500,000 8,655 Mobile Mini *! 1,100,000 31,251 Resources Connection * 498,000 19,477 School Specialty *! 1,500,000 54,465 SOURCECORP * 500,000 13,760 Tetra Tech * 900,000 14,688 University of Phoenix Online * 1,000,000 87,590 Waste Connections * 1,500,100 44,493 669,611 Industrial Conglomerates 1.0% Roper Industries 950,000 54,055 54,055 Machinery 2.1% Actuant Corporation, Class A * 1,168,700 45,568 Oshkosh Truck 1,200,000 68,772 114,340 Trading Companies & Distributors 0.4% MSC Industrial Direct 650,000 21,346 21,346 Total Industrials & Business Services 955,589 INFORMATION TECHNOLOGY 21.5% Communications Equipment 1.7% Black Box 200,000 9,452 Bookham Technology ADR * 3,000,000 2,880 Emulex * 1,550,000 22,180 F5 Networks * 750,000 19,860 Harmonic * 800,000 6,816 Packeteer * 700,500 11,313 Sirf Technology Holdings * 550,000 7,189 Tekelec * 500,000 9,085 88,775 Computers & Peripherals 0.0% Synaptics * 100,000 1,915 1,915 Electronic Equipment & Instruments 1.2% Daktronics * 100,000 2,495 Digital Theater Systems * 500,000 13,075 Molex 100,000 3,208 National Instruments 500,000 15,325 Newport * 925,000 14,957 Trimble Navigation * 550,000 15,285 64,345 Internet Software & Services 1.1% Autobytel * 1,000,000 9,080 Digital Insight * 950,000 19,693 MatrixOne * 1,225,000 8,465 Netegrity * 1,200,000 10,152 Sonicwall * 850,000 7,310 The Knot *! 1,350,000 5,468 60,168 IT Services 2.6% BISYS Group * 2,000,000 28,120 Certegy 1,100,000 42,680 Global Payments 500,000 22,510 Maximus * 350,000 12,411 META Group *! 1,000,000 3,910 Paychex 100,000 3,388 SkillSoft ADR * 3,250,000 24,700 SRA International, Class A * 100,000 4,232 141,951 Semiconductor & Semiconductor Equipment 6.2% Altera * 600,000 13,332 AMIS Holdings * 1,250,000 21,150 Analog Devices 750,000 35,310 Artisan Components * 375,000 9,675 Atheros Communications * 400,000 4,216 ATMI * 1,100,000 30,041 Cabot Microelectronics * 300,000 9,183 Cognex 350,000 13,468 Integrated Circuit Systems * 1,000,000 27,160 Intersil Holding, Class A 1,050,000 22,743 Intevac * 400,000 3,548 Lattice Semiconductor * 700,000 4,907 Linear Technology 200,000 7,894 Maxim Integrated Products 750,000 39,316 Micrel * 725,000 8,809 Microsemi * 1,000,000 14,210 MKS Instruments * 450,000 10,269 PDF Solutions * 400,000 3,388 Semtech * 825,000 19,420 Sigmatel * 266,700 7,750 Tessera Technologies * 500,000 9,010 Xilinx 500,000 16,655 331,454 Software 8.7% Actuate * 900,000 3,555 Agile Software *! 2,850,000 24,937 Altiris * 707,300 19,529 Business Objects ADR * 450,000 10,184 Cadence Design Systems * 500,000 7,315 Concord Communications * 675,000 7,702 Convera * 1,500,000 3,465 FactSet Research Systems 500,000 23,635 FileNet * 600,000 18,942 Informatica * 4,100,000 31,283 Internet Security Systems * 600,000 9,204 Jack Henry & Associates 1,625,000 32,662 Kronos * 1,050,000 43,260 Macromedia * 1,200,000 29,460 Magma Design Automation * 600,000 11,538 Mercury Interactive * 650,000 32,389 Motive * 609,900 6,294 Nassda * 850,000 3,519 NetIQ * 1,750,000 23,100 Network Associates * 1,425,000 25,835 Open Solutions * 410,893 10,264 Quest Software * 800,000 10,320 Red Hat * 1,000,000 22,970 RSA Security * 725,000 14,841 Salesforce.com * 262,000 4,210 TALX Corporation 550,000 13,437 Verisity Ltd. * 175,000 1,050 Verity * 1,450,000 19,590 464,490 Total Information Technology 1,153,098 MATERIALS 1.2% Chemicals 0.6% Airgas 400,000 9,564 Symyx Technologies * 1,000,000 24,120 33,684 Metals & Mining 0.6% Steel Dynamics * 1,000,000 28,630 28,630 Total Materials 62,314 TELECOMMUNICATION SERVICES 4.2% Wireless Telecommunication Services 4.2% @Road * 500,000 3,825 Crown Castle International * 1,000,000 14,750 Millicom International Cellular * 600,000 13,116 Nextel Partners, Class A * 2,850,000 45,372 NII Holdings, Class B * 2,250,000 75,802 Triton PCS Holdings, Class A * 636,900 2,777 Western Wireless, Class A * 2,000,000 57,820 Wireless Facilities * 1,400,000 13,762 Total Telecommunication Services 227,224 Total Equity Investments (Cost $3,585,064) 5,349,975 SHORT-TERM INVESTMENTS 0.8% Money Market Fund 0.8% T. Rowe Price Reserve Investment Fund, 1.16% # 44,557,447 44,557 Total Short-Term Investments (Cost $44,557) 44,557 Total Investments in Securities 100.4% of Net Assets (Cost $3,629,621) $5,394,532 ---------- (1) Denominated in U.S. dollars unless otherwise noted # Seven-day yield * Non-income producing (s.) Common stocks, rights, and warrants - cost $3,576,444, value $5,343,355, 99.5% of net assets; Preferred stocks - cost $4,620, value $4,620, 0.1% of net assets; Convertible preferred stocks - cost $4,000, value $2,000, 0% of net assets ! Affiliated company - See Note 2. !! Security contains restrictions as to public resale pursuant to the Securities Act of 1933 and related rules - total value of such securities at period-end amounts to $6,620 and represents 0.1% of net assets @ Valued by the T. Rowe Price Valuation Committee, established by the fund's Board of Directors ADR American Depository Receipts The accompanying notes are an integral part of these financial statements. T. Rowe Price New Horizons Fund - -------------------------------------------------------------------------------- Certified Semiannual Report (Unaudited) June 30, 2004 STATEMENT OF ASSETS AND LIABILITIES - -------------------------------------------------------------------------------- (In thousands except shares and per share amounts) Assets Investments in securities, at value Affiliated companies (cost $243,691) $ 305,807 Other companies (cost $3,385,930) 5,088,725 Total investments in securities 5,394,532 Other assets 32,783 Total assets 5,427,315 Liabilities Total liabilities 56,419 NET ASSETS $ 5,370,896 ------------- Net Assets Consist of: Undistributed net investment income (loss) $ (18,236) Undistributed net realized gain (loss) (36,477) Net unrealized gain (loss) 1,764,911 Paid-in-capital applicable to 201,735,292 shares of $1.00 par value capital stock outstanding; 300,000,000 shares authorized 3,660,698 NET ASSETS $ 5,370,896 ------------- NET ASSET VALUE PER SHARE $ 26.62 ------------- The accompanying notes are an integral part of these financial statements. T. Rowe Price New Horizons Fund - -------------------------------------------------------------------------------- Certified Semiannual Report (Unaudited) STATEMENT OF OPERATIONS - -------------------------------------------------------------------------------- ($ 000s) 6 Months Ended 6/30/04 Investment Income (Loss) Dividend income $ 4,766 Expenses Investment management 17,498 Shareholder servicing 5,203 Custody and accounting 143 Prospectus and shareholder reports 58 Legal and audit 56 Registration 34 Directors 6 Miscellaneous 5 Total expenses 23,003 Expenses paid indirectly (1) Net expenses 23,002 Net investment income (loss) (18,236) Realized and Unrealized Gain (Loss) Net realized gain (loss) on securities 219,046 Change in net unrealized gain (loss) on securities 161,025 Net realized and unrealized gain (loss) 380,071 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 361,835 ------------- The accompanying notes are an integral part of these financial statements. T. Rowe Price New Horizons Fund - -------------------------------------------------------------------------------- Certified Semiannual Report (Unaudited) STATEMENT OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- ($ 000s) 6 Months Year Ended Ended 6/30/04 12/31/03 Increase (Decrease) in Net Assets Operations Net investment income (loss) $ (18,236) $ (30,379) Net realized gain (loss) 219,046 115,336 Change in net unrealized gain (loss) 161,025 1,545,443 Increase (decrease) in net assets from operations 361,835 1,630,400 Capital share transactions * Shares sold 527,219 794,491 Distributions reinvested - 10 Shares redeemed (473,234) (829,181) Increase (decrease) in net assets from capital share transactions 53,985 (34,680) Net Assets Increase (decrease) during period 415,820 1,595,720 Beginning of period 4,955,076 3,359,356 End of period $ 5,370,896 $ 4,955,076 ----------- ----------- (Including undistributed net investment income (loss) of $(18,236) at 6/30/04 and $0 at 12/31/03) *Share information Shares sold 20,065 38,617 Shares redeemed (18,114) (41,135) Increase (decrease) in shares outstanding 1,951 (2,518) The accompanying notes are an integral part of these financial statements. T. Rowe Price New Horizons Fund - -------------------------------------------------------------------------------- Certified Semiannual Report (Unaudited) June 30, 2004 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 (the 1940 Act) as a diversified, open-end management investment company and commenced operations on June 3, 1960. The fund seeks long-term capital growth by investing primarily in common stocks of small, rapidly growing companies. The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of estimates made by fund management. Valuation The fund values its investments and computes its net asset value per share at the close of the New York Stock Exchange (NYSE), normally 4 p.m. ET, each day that the NYSE is open for business. Equity securities listed or regularly traded on a securities exchange or in the over-the-counter market are valued at the last quoted sale price or, for certain markets, the official closing price at the time the valuations are made, except for OTC Bulletin Board securities, which are valued at the mean of the latest bid and asked prices. A security that is listed or traded on more than one exchange is valued at the quotation on the exchange determined to be the primary market for such security. Listed securities not traded on a particular day are valued at the mean of the latest bid and asked prices for domestic securities and the last quoted sale price for international securities. Debt securities are generally traded in the over-the-counter market. Securities with original maturities of one year or more are valued at prices furnished by dealers who make markets in such securities or by an independent pricing service, which considers yield or price of bonds of comparable quality, coupon, maturity, and type, as well as prices quoted by dealers who make markets in such securities. Securities with original maturities of less than one year are valued at amortized cost in local currency, which approximates fair value when combined with accrued interest. Investments in mutual funds are valued at the mutual fund's closing net asset value per share on the day of valuation. Other investments and those for which the above valuation procedures are inappropriate or are deemed not to reflect fair value are stated at fair value as determined in good faith by the T. Rowe Price Valuation Committee, established by the fund's Board of Directors. Rebates and Credits Subject to best execution, the fund may direct certain security trades to brokers who have agreed to rebate a portion of the related brokerage commission to the fund in cash. Commission rebates are included in realized gain on securities in the accompanying financial statements and totaled $124,000 for the six months ended June 30, 2004. Additionally, the fund earns credits on temporarily uninvested cash balances at the custodian that reduce the fund's custody charges. Custody expense in the accompanying financial statements is presented before reduction for credits, which are reflected as expenses paid indirectly. Investment Transactions, Investment Income, and Distributions Income and expenses are recorded on the accrual basis. Dividends received from mutual fund investments are reflected as dividend income; capital gain distributions are reflected as realized gain/loss. Dividend income and capital gain distributions are recorded on the ex-dividend date. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Distributions to shareholders are recorded on the ex-dividend date. Income distributions are declared and paid on an annual basis. Capital gain distributions, if any, are declared and paid by the fund, typically on an annual basis. Other In the normal course of business, the fund enters into contracts that provide general indemnifications. The fund's maximum exposure under these arrangements is dependent on claims that may be made against the fund in the future and, therefore, cannot be estimated; however, based on experience, the risk of material loss from such claims is considered remote. NOTE 2 - INVESTMENT TRANSACTIONS Consistent with its investment objective, the fund engages in the following practices to manage exposure to certain risks or enhance performance. The investment objective, policies, program, and risk factors of the fund are described more fully in the fund's prospectus and Statement of Additional Information. Affiliated Companies The fund may invest in certain securities that are considered affiliated companies. As defined by the 1940 Act, an affiliated company is one in which the fund owns 5% or more of the outstanding voting securities. At June 30, 2004, the value of affiliated companies totaled $305,807,000, representing 5.7% of the value of the fund's investments in securities. For the six months then ended, $160,000 (3.4%) of dividend income, and $10,232,000 (4.7%) of net realized loss reflected in the accompanying financial statements resulted from the fund's transactions with affiliated companies. Other Purchases and sales of portfolio securities, other than short-term securities, aggregated $797,783,000 and $757,784,000, respectively, for the six months ended June 30, 2004. 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 under Subchapter M of the Internal Revenue Code and distribute to shareholders all of its taxable income and gains. Federal income tax regulations differ from generally accepted accounting principles; therefore, distributions determined in accordance with tax regulations may differ in amount or character from net investment income and realized gains for financial reporting purposes. Financial reporting records are adjusted for permanent book/tax differences to reflect tax character. Financial records are not adjusted for temporary differences. The amount and character of tax-basis distributions and composition of net assets are finalized at fiscal year-end; accordingly, tax-basis balances have not been determined as of June 30, 2004. For tax purposes, the fund has elected to treat net capital losses realized between November 1 and December 31 of each year as occurring on the first day of the following tax year; consequently, $7,117,000 of realized losses recognized for financial reporting purposes in the year ended December 31, 2003 were recognized for tax purposes on January 1, 2004. Further, the fund intends to retain realized gains to the extent of available capital loss carryforwards. As of December 31, 2003, the fund had $248,406,000 of unused capital loss carryforwards, of which $34,264,000 expire in 2009, and $214,142,000 expire in 2010. At June 30, 2004, the cost of investments for federal income tax purposes was $3,629,621,000. Net unrealized gain aggregated $1,764,911,000 at period-end, of which $2,127,134,000 related to appreciated investments and $362,223,000 related to depreciated investments. NOTE 4 - RELATED PARTY TRANSACTIONS The fund is managed by T. Rowe Price Associates, Inc. (the manager or Price Associates), a wholly owned subsidiary of T. Rowe Price Group, Inc. The investment management agreement between the fund and the manager provides for an annual investment management fee, which is computed daily and paid monthly. The fee consists of an individual fund fee, equal to 0.35% of the fund's average daily net assets, and the fund's pro-rata share of a group fee. The group fee is calculated based on the combined net assets of certain mutual funds sponsored by Price Associates (the group) applied to a graduated fee schedule, with rates ranging from 0.48% for the first $1 billion of assets to 0.295% for assets in excess of $120 billion. The fund's portion of the group fee is determined by the ratio of its average daily net assets to those of the group. At June 30, 2004, the effective annual group fee rate was 0.31%, and investment management fee payable totaled $2,903,000. In addition, the fund has entered into service agreements with Price Associates and two wholly owned subsidiaries of Price Associates (collectively, Price). Price Associates computes the daily share price and maintains the financial records of the fund. T. Rowe Price Services, Inc., provides shareholder and administrative services in its capacity as the fund's transfer and dividend disbursing agent. T. Rowe Price Retirement Plan Services, Inc., provides subaccounting and recordkeeping services for certain retirement accounts invested in the fund. Expenses incurred pursuant to these service agreements totaled $3,789,000 for the six months ended June 30, 2004, of which $623,000 was payable at period-end. The fund is also one of several mutual funds sponsored by Price Associates (underlying Price funds) in which the T. Rowe Price Spectrum Funds (Spectrum Funds) may invest. The Spectrum Funds do not invest in the underlying Price funds for the purpose of exercising management or control. Pursuant to a special servicing agreement, expenses associated with the operation of the Spectrum Funds are borne by each underlying Price fund to the extent of estimated savings to it and in proportion to the average daily value of its shares owned by the Spectrum Funds. Expenses allocated under this agreement are reflected as shareholder servicing expense in the accompanying financial statements. For the six months ended June 30, 2004, the fund was allocated $411,000 of Spectrum Funds' expenses, of which $298,000 related to services provided by Price and $58,000 was payable at period-end. At June 30, 2004, approximately 7.3% of the outstanding shares of the fund were held by the Spectrum Funds. The fund may invest in the T. Rowe Price Reserve Investment Fund and the T. Rowe Price Government Reserve Investment Fund (collectively, the Reserve Funds), open-end management investment companies managed by Price Associates. The Reserve Funds are offered as cash management options to mutual funds, trusts, and other accounts managed by Price Associates and/or its affiliates, and are not available for direct purchase by members of the public. The Reserve Funds pay no investment management fees. During the six months ended June 30, 2004, dividend income from the Reserve Funds totaled $179,000. T. Rowe Price New Horizons Fund - -------------------------------------------------------------------------------- Certified Semiannual Report INFORMATION ON PROXY VOTING - -------------------------------------------------------------------------------- A description of the policies and procedures that the T. Rowe Price New Horizons Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request by calling 1-800-225-5132. It also appears in the fund's Statement of Additional Information (Form 485B), which can be found on the SEC's Web site, www.sec.gov. Item 2. Code of Ethics. A code of ethics, as defined in Item 2 of Form N-CSR, applicable to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions is filed as an exhibit to the registrant's annual Form N-CSR. No substantive amendments were approved or waivers were granted to this code of ethics during the registrant's most recent fiscal half-year. Item 3. Audit Committee Financial Expert. Disclosure required in registrant's annual Form N-CSR. Item 4. Principal Accountant Fees and Services. Disclosure required in registrant's annual Form N-CSR. Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. Schedule of Investments. Not applicable. The complete schedule of investments is included in Item 1 of this Form N-CSR. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable. Item 9. Submission of Matters to a Vote of Security Holders. Not applicable. Item 10. Controls and Procedures. (a) The registrant's principal executive officer and principal financial officer have evaluated the registrant's disclosure controls and procedures within 90 days of this filing and have concluded that the registrant's disclosure controls and procedures were effective, as of that date, in ensuring that information required to be disclosed by the registrant in this Form N-CSR was recorded, processed, summarized, and reported timely. (b) The registrant's principal executive officer and principal financial officer are aware of no changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 11. Exhibits. (a)(1) The registrant's code of ethics pursuant to Item 2 of Form N-CSR is filed with the registrant's annual Form N-CSR. (2) Separate certifications by the registrant's principal executive officer and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(a) under the Investment Company Act of 1940, are attached. (3) Written solicitation to repurchase securities issued by closed-end companies: not applicable. (b) A certification by the registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940, is attached. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. T. Rowe Price New Horizons Fund, Inc. By: /s/ James S. Riepe James S. Riepe Principal Executive Officer Date: August 16, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ James S. Riepe James S. Riepe Principal Executive Officer Date: August 16, 2004 By: /s/ Joseph A. Carrier Joseph A. Carrier Principal Financial Officer Date: August 16, 2004