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
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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
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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
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Certified Semiannual Report (Unaudited) June 30, 2004
STATEMENT OF ASSETS AND LIABILITIES
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(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
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The accompanying notes are an integral part of these financial statements.
T. Rowe Price New Horizons Fund
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Certified Semiannual Report (Unaudited)
STATEMENT OF OPERATIONS
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($ 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
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The accompanying notes are an integral part of these financial statements.
T. Rowe Price New Horizons Fund
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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
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Certified Semiannual Report (Unaudited) June 30, 2004
NOTES TO FINANCIAL STATEMENTS
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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
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Certified Semiannual Report
INFORMATION ON PROXY VOTING
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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