<PAGE>
Semiannual Report
HEALTH
SCIENCES
FUND
- -------------
JUNE 30, 1998
- -------------
[LOGO OF T. ROWE PRICE APPEARS HERE]
T. ROWE PRICE
<PAGE>
Report Highlights
Health Sciences Fund
. The first half of 1998 was beneficial
for health sciences stocks, with
pharmaceuticals performing best.
. Your fund posted double-digit gains
for both the 6- and 12-month periods,
but fell short of its peer group and the
surging broad market.
. In keeping with market themes, we
focused on larger health care companies
with more visible and sustainable
earnings potential.
. We believe that the health sciences
sector will continue to be a dynamic
growth area offering many investment
opportunities.
<PAGE>
Fellow Shareholders
The first half of 1998 was beneficial for health sciences stocks, which as a
whole posted double-digit gains. The pharmaceutical sector turned in some of the
best results, as investors showed a preference for large companies with stable
earnings growth in an uncertain market. Returns of health care services stocks
were mixed, as were the results from the products and devices sector.
Biotechnology stocks generally lagged.
- ----------------------
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 6/30/98 6 Months 12 Months
- --------------------------------------------------------------------------------
Health Sciences Fund 10.10% 17.75%
................................................................................
S&P 500 17.71 30.16
................................................................................
Lipper Health/Biotechnology
Fund Index 12.57 20.56
................................................................................
Your fund finished the six months ended June 30, 1998 with a 10.10% gain. For
the one-year period, the fund posted a 17.75% total return. These results fell
somewhat short of those for the Lipper Health/Biotechnology Fund Index due to an
overweighting early in the period in smaller-cap companies, especially in the
biotechnology sector. Both the fund and its peer group were well behind the
unmanaged Standard & Poor's 500 Stock Index for these periods, which soared on
investor demand for large, liquid companies.
Market Environment
The surprisingly lengthy bull market for U.S. equities extended into the first
half of 1998. Low interest rates and inflation, solid mutual-fund investment
flows, and record merger-and-acquisition activity helped power many stock
indices to record levels. While corporate profits remained healthy in early
1998, there was evidence that earnings growth may be weakening. Asia's economic
troubles were another major cloud on the horizon. As a result, investors once
again favored highly liquid, large capitalization stocks, as illustrated by the
performance of the S&P 500 (up almost 18%) versus the small-cap Russell 2000
Index (up only 5%).
The first half of 1998 will also be remembered for the staggering size and value
of the corporate deals. Eight of the 10 largest corporate
1
<PAGE>
transactions ever assembled were announced between January 1 and June 30, 1998,
and included such proposed mergers as Travelers/Citicorp, Monsanto/American
Home Products, and Mercedes Benz/Chrysler. These deals spanned a number of
industries and served to draw even more attention to the large-cap universe of
stocks.
The market for health sciences stocks was generally favorable in the first half
of 1998, especially for stocks of large companies with steady earnings. The
pharmaceutical sector, for example, led both the health care sector and the
broader market. Pharmaceuticals have met investor demand for consistent earnings
growth and have been rewarded with ever-increasing stock values. Health
maintenance organization (HMO) stocks also did well, rebounding off their
December lows after fears regarding the collapse of Oxford Health Plans abated
and investors gained confidence that future premium increases would exceed
expense growth. Health care information stocks were good performers as
underlying demand remained strong.
The health sciences sector is diverse and dynamic and represents one of the most
attractive growth areas in the global economy.
Other areas of the health care services sector, however, were less successful.
Health care provider stocks, such as physician practice management companies,
underperformed because of earnings shortfalls and uncertainty regarding changes
in Medicare reimbursement. These stocks were also held back by lower projected
earnings growth rates after the Securities and Exchange Commission shortened
mandated acquisition cost amortization periods -- an accounting change that
pinches the bottom line in the short term. Products and devices companies also
posted mixed results, with the difference between the stronger and weaker
performers defined by the ability of their product cycles to fuel future
earnings growth. Biotechnology stocks were volatile during the first half of
1998 and generally trailed the overall market. The American Stock Exchange
Biotechnology Index declined 10% during the first six months of the year.
Portfolio Review
As noted in a special letter to you this past February, I became chairman of
this fund's Investment Advisory Committee in March. Given this change in
portfolio management, we thought it would be helpful to explain our approach to
investing and some changes we have made
2
<PAGE>
over the past few months. The health sciences sector is diverse and dynamic and
represents one of the most attractive growth areas in the global economy. We
divide the health sciences universe into four major areas: services, products
and devices, pharmaceuticals, and biotechnology. As you can see from the
portfolio section of this report, we then divide each of these into as many as
four subsectors. This gives us an organized means of viewing the landscape for
investment opportunities.
We search for themes that will drive the various sectors of the health sciences
universe and create more fertile areas of investment. We choose stocks from the
bottom up, based on our analysis of current and expected fundamentals and on
each security's valuation. Our general bias is toward mid- to large-cap
companies with visible growth drivers, which we view as the core of the
portfolio. We seek to supplement the portfolio with investments ranging from
rapidly growing small-cap companies to out-of-favor large-cap stocks.
Currently, the themes we seek to exploit include:
. The development of drug innovations to address major medical needs, e.g.
cardiovascular disease, cancer, and diabetes, by such companies as Pfizer,
Bristol-Myers Squibb, and Warner-Lambert.
. The development of life-saving and lifestyle-enhancing devices by companies
such as Medtronic, Boston Scientific, and Arterial Vascular Engineering.
. The growing importance of health care information management systems
provided by companies such as IDX Systems, National Data, and Access Health
Marketing.
. The breakthrough products being discovered and developed by biotechnology
companies such as Centocor, Biogen, and MedImmune.
. The ability of advances in drug delivery to improve patient health and to
extend pharmaceutical economic life cycles. Companies include Elan,
Alkermes, and R.P. Scherer.
In keeping with our strategy and current market trends, we made a number of
changes in both sector weightings and individual stock holdings. Our goals were
to increase exposure to companies with more tangible growth prospects and to
raise the overall market cap and trading liquidity of the fund's holdings. As a
result, holdings in the pharmaceutical
3
<PAGE>
sector increased significantly from year-end 1997, while the services, products
and devices, and biotechnology sectors all declined as a percentage of assets.
- ----------------------
Sector Diversification
- --------------------------------------------------------------------------------
12/31/97 6/30/98
- --------------------------------------------------------------------------------
PHARMACEUTICALS 23% 40%
................................................................................
HEALTH CARE SERVICES 31 25
................................................................................
PRODUCTS AND DEVICES 22 17
................................................................................
BIOTECHNOLOGY 20 11
................................................................................
RESERVES 4 7
................................................................................
Total 100% 100%
The fund's pharmaceutical weighting grew because of additional investments and
the generally superior performance of the sector. New positions were initiated
in large-cap companies, such as Schering-Plough, American Home Products, and
Astra. We also purchased stocks in mid-size pharmaceutical companies such as
Elan, Shire Pharmaceuticals, and Watson Pharmaceuticals. We believe these
mid-cap companies offer a good combination of superior growth prospects and
attractive relative valuations. Positions were increased in Bristol-Myers
Squibb, Alkermes, and Johnson & Johnson, while holdings in Japanese
pharmaceutical companies Takeda Chemical Industries and Banyu Pharmaceutical
were eliminated. Significant contributors to the fund's first half performance
included Pfizer, Warner-Lambert, and R.P. Scherer. Laggards included Dura
Pharmaceuticals and PathoGenesis.
Service company holdings were trimmed as we selectively took profits after a
first half rebound. Positions in PacifiCare Health Systems and Nationwide Health
Properties were eliminated, and holdings in IDX Systems, National Data, and
Synetic were reduced. New investments included Wellpoint, a California-based
provider of health insurance and managed care services, Access Health Marketing,
a provider of health care information and analytical services, and Total Renal
Care Holdings, a leading provider of kidney dialysis services. In other areas,
our health care service holdings lagged in the first half, with notable
underperformers including PhyCor, American Oncology Resources, and Concentra
Managed Care.
Performance of the fund's products and devices investments was mixed. We took
advantage of share price volatility to initiate positions in Guidant and
Arterial Vascular Engineering, two leading providers of devices for the
cardiovascular system. We cut back positions in Collagen and Smith & Nephew as
part of our efforts to raise the level
4
<PAGE>
and predictability of the portfolio's overall growth rate. Investments in
NeoPath, Pall, and St. Jude Medical were eliminated for similar reasons. We sold
holdings in United States Surgical shortly after it agreed to be acquired by
Tyco International.
Exposure to the biotechnology sector declined appreciably as several of our
former holdings either underperformed or no longer met our investment criteria.
We continue to believe that the biotechnology industry is a fertile investment
area with the potential for significant gains. However, consistent with our
desire to enhance earnings visibility and predictability, we focused our
biotechnology holdings on companies with either established products or products
in the later stages of development and approval. The number of holdings in the
sector was reduced from 22 to 13; some of those eliminated included Bone Care
International, Synaptic Pharmaceutical, and CytoTherapeutics. We believe the
current negative sentiment toward the biotechnology sector is excessive and
anticipate increasing our exposure to take advantage of the improved risk/reward
tradeoff.
Investment Outlook
We believe that the health sciences sector will continue to be a dynamic growth
area offering many investment opportunities. The field is driven by three major
forces: insatiable global demand by aging populations and better-educated young
and middle-aged consumers; significant financial resources, provided by internal
profit growth and external investment capital; and continuous advances in health
care technology and the health care delivery system. The pace of scientific
discovery is accelerating as we reap the benefits of extensive research and
development investments as well as advances in analytical and computing
technologies.
. . .there are a number of rapidly growing areas within the health care service
sector, such as information and analytical services.
For the immediate future, we view pharmaceutical companies and the products and
devices sector as the central beneficiaries of these forces. These companies
have the right products and the global distribution systems needed to maximize
returns on their investments. Biotechnology companies will be significant but
more volatile beneficiaries of these trends, and we expect to take an aggressive
approach to opportunities in the sector. Health care services firms will provide
a
5
<PAGE>
more diverse set of rewards and challenges. The pricing pressures on health care
providers are not likely to abate soon, and we currently have moderate
expectations for revenue and profit growth. Yet there are a number of rapidly
growing areas within the sector, such as information and analytical services.
Our greatest concerns at the moment are the divergent performances and valuation
discrepancies between large- and small-cap stocks in general and the
historically high valuations being accorded to fundamentally attractive sectors,
such as pharmaceuticals and devices. We are taking a measured approach to
increasing the visibility and predictability of the fund's growth profile. Our
underlying belief is that stock prices follow earnings and that a patient
approach will reward our fellow shareholders over the long term. We would like
to thank you for your continued support and reaffirm our commitment to finding
good investment opportunities on your behalf.
Respectfully submitted,
/s/ Brian D. Stansky
Brian D. Stansky
Chairman of the Investment Advisory Committee
July 23, 1998
<PAGE>
T. ROWE PRICE HEALTH SCIENCES FUND
- --------------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS
------------------------------------------------------------------------------
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
6/30/98
---------------------------------------------------------------------------
Bristol-Myers Squibb 4.0%
...........................................................................
Pfizer 3.6
...........................................................................
Eli Lilly 2.9
...........................................................................
R.P. Scherer 2.7
...........................................................................
Warner-lambert 2.5
---------------------------------------------------------------------------
Idx Systems 2.3
...........................................................................
Schering-Plough 2.3
...........................................................................
Merck 2.2
...........................................................................
Medtronic 2.1
...........................................................................
National Data 2.0
---------------------------------------------------------------------------
Biogen 2.0
...........................................................................
Omnicare 1.9
...........................................................................
United Healthcare 1.9
...........................................................................
Monsanto 1.9
...........................................................................
Sandoz Capital 1.8
---------------------------------------------------------------------------
Johnson & Johnson 1.8
...........................................................................
IDEXX Laboratories 1.8
...........................................................................
American Home Products 1.7
...........................................................................
Service Corp. International 1.7
...........................................................................
Collagen 1.7
---------------------------------------------------------------------------
Boston Scientific 1.7
...........................................................................
Zeneca Group 1.7
...........................................................................
Elan 1.6
...........................................................................
Tenet Healthcare 1.6
...........................................................................
Phycor 1.5
---------------------------------------------------------------------------
Total 52.9%
7
<PAGE>
T. ROWE PRICE HEALTH SCIENCES FUND
- --------------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS
------------------------------------------------------------------------------
CONTRIBUTIONS TO THE CHANGE IN NET ASSET VALUE PER SHARE
6 Months Ended 6/30/98
Ten Best Contributors
----------------------------------------------------------------------------
Pfizer 17(CENT)
............................................................................
Warner-Lambert 16
............................................................................
R.P. Scherer 14
............................................................................
IDEXX Laboratories 10
............................................................................
IDX Systems 9
............................................................................
Ventana Medical Systems 9
............................................................................
PacifiCare Health Systems** 9
............................................................................
Biogen* 8
............................................................................
Merck 8
............................................................................
United HealthCare 7
----------------------------------------------------------------------------
Total 107(cent)
Ten Worst Contributors
----------------------------------------------------------------------------
PhyCor - 13(cent)
............................................................................
Dura Pharmaceuticals * 8
............................................................................
COR Therapeutics 6
............................................................................
American Oncology Resources 6
............................................................................
PathoGenesis 5
............................................................................
Collagen 5
............................................................................
Dentsply International 4
............................................................................
Teva Pharmaceutical Industries * 4
............................................................................
Smith & Nephew 3
............................................................................
Concentra Managed Care * 3
----------------------------------------------------------------------------
Total - 57(cent)
12 Months Ended 6/30/98
Ten Best Contributors
----------------------------------------------------------------------------
Medimmune * 26(CENT)
............................................................................
Pfizer 25
............................................................................
Warner-Lambert 20
............................................................................
R.P. Scherer 16
............................................................................
IDEXX Laboratories 15
............................................................................
IDX Systems 14
............................................................................
Bristol-Myers Squibb 13
............................................................................
Medtronic 13
............................................................................
Ventana Medical Systems 11
............................................................................
Cardinal Health ** 11
----------------------------------------------------------------------------
Total 164(cent)
Ten Worst Contributors
----------------------------------------------------------------------------
PhyCor - 15(cent)
............................................................................
Xenova Group 10
............................................................................
Altana AG ** 10
............................................................................
Dura Pharmaceuticals * 8
............................................................................
Vencor ** 7
............................................................................
Banyu Pharmaceutical ** 5
............................................................................
CytoTherapeutics ** 5
............................................................................
Agouron Pharmaceuticals 4
............................................................................
Zonagen 4
............................................................................
Teva Pharmaceutical Industries * 4
----------------------------------------------------------------------------
Total - 72(cent)
* POSITION ADDED
** POSITION ELIMINATED
8
<PAGE>
T. ROWE PRICE HEALTH SCIENCES 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.
HEALTH SCIENCES FUND
------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date S&P 500 Stock Index Health Sciences Fund
---- ------------------- --------------------
12/95 10,000 10,000
6/96 11,010 12,020
6/97 14,830 14,153
6/98 19,303 16,665
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.
Since Inception
Periods Ended 6/30/98 1 Year Inception Date
------------------------------------------------------------------------------
Health Sciences Fund 17.75% 22.66% 12/29/95
------------------------------------------------------------------------------
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original
purchase.
9
<PAGE>
T. ROWE PRICE HEALTH SCIENCES FUND
- --------------------------------------------------------------------------------
Unaudited
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
- --------------------------------------------------------------------------------
6 Months Year 12/31/95
Ended Ended Through
6/30/98 12/31/97 12/31/96
NET ASSET VALUE
Beginning of period $ 13.66 $ 12.27 $ 10.00
........................................
Investment activities
Net investment income (0.02) (0.03) (0.03)*
Net realized and
unrealized gain (loss) 1.40 2.39 2.70
........................................
Total from
investment activities 1.38 2.36 2.67
........................................
Distributions
Net realized gain -- (0.97) (0.40)
........................................
NET ASSET VALUE
End of period $ 15.04 $ 13.66 $ 12.27
----------------------------------------
Ratios/Supplemental Data
Total return. 10.10% 19.41% 26.75%*
........................................
Ratio of expenses to
average net assets 1.17%+ 1.18% 1.35%*
........................................
Ratio of net investment
income to average
net assets (0.24)%+ (0.21)% (0.32)%*
........................................
Portfolio turnover rate 40.3% 104.4% 133.1%
........................................
Net assets, end of period
(in thousands) $ 299,811 $ 271,351 $ 193,958
........................................
. 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.
* Excludes expenses in excess of a 1.35% voluntary expense limitation in effect
through 12/31/97.
+ Annualized.
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
T. ROWE PRICE HEALTH SCIENCES FUND
- --------------------------------------------------------------------------------
Unaudited June 30, 1998
- -------------------------
STATEMENT OF NET ASSETS Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Common Stocks and Warrants 90.3%
SERVICES 23.5%
Payors 4.6%
Aetna 50,000 $ 3,806
.............................................................................
United HealthCare 90,000 5,715
.............................................................................
Wellpoint Health Networks * 60,000 4,440
.............................................................................
13,961
..............
Providers 10.5%
American Oncology Resources * 294,500 3,598
.............................................................................
Columbia/HCA Healthcare 100,000 2,913
.............................................................................
Concentra Managed Care * 170,000 4,415
.............................................................................
PhyCor * 280,000 4,629
.............................................................................
Quorum Health Group * 105,000 2,779
.............................................................................
Service Corp. International 120,000 5,145
.............................................................................
Tenet Healthcare * 150,000 4,687
.............................................................................
Total Renal Care Holdings * 95,000 3,278
.............................................................................
31,444
..............
Information 5.4%
Access Health Marketing * 130,000 3,319
.............................................................................
IDX Systems * 150,000 6,928
.............................................................................
National Data 135,000 5,906
.............................................................................
16,15
..............
Distribution 1.9%
Omnicare 150,000 5,719
.............................................................................
5,719
..............
Other Services 1.1%
Covance * 150,000 3,375
.............................................................................
3,375
..............
Total Services 70,652
..............
PRODUCTS & DEVICES 16.7%
Supply 1.5%
Analogic 100,000 4,475
.............................................................................
4,475
..............
11
<PAGE>
T. ROWE PRICE HEALTH SCIENCES FUND
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Capital Equipment 1.3%
Ventana Medical Systems * 140,000 $ 3,929
.............................................................................
3,929
..............
Implants 9.2%
Arterial Vascular Engineering * 100,000 3,572
.............................................................................
Boston Scientific * 70,000 5,014
.............................................................................
Guidant 50,000 3,566
.............................................................................
Medtronic 100,000 6,375
.............................................................................
Mentor 98,400 2,380
.............................................................................
Smith & Nephew (GBP) * 1,113,400 2,779
.............................................................................
Stryker 100,000 3,837
.............................................................................
27,523
..............
Dental 1.2%
Dentsply International 140,000 3,483
.............................................................................
3,483
..............
Other Products & Devices 3.5%
Collagen 281,400 5,083
.............................................................................
IDEXX Laboratories * 215,000 5,361
.............................................................................
Stericycle * 10,100 148
.............................................................................
10,592
..............
Total Products & Devices 50,002
..............
PHARMACEUTICALS 38.5%
U.S. Major - Pharmaceutical 24.4%
American Home Products 100,000 5,175
.............................................................................
Bristol-Myers Squibb 105,000 12,068
.............................................................................
Eli Lilly 130,000 8,588
.............................................................................
Johnson & Johnson 75,000 5,531
.............................................................................
Merck 50,000 6,688
.............................................................................
Monsanto 100,000 5,588
.............................................................................
Pfizer 100,000 10,869
.............................................................................
Schering-Plough 75,000 6,872
.............................................................................
Teva Pharmaceutical ADR 115,000 4,047
.............................................................................
Warner-Lambert 110,000 7,631
.............................................................................
73,057
..............
European Major - Pharmaceuticals 2.7%
Astra (Class B) (SEK) 150,000 2,990
.............................................................................
12
<PAGE>
T. ROWE PRICE HEALTH SCIENCES FUND
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Zeneca Group (GBP) * 50,000 $ 2,147
.............................................................................
Zeneca Group ADR 64,200 2,817
.............................................................................
7,954
..............
Generic & Drug Delivery 11.4%
Alkermes * 200,000 3,594
.............................................................................
Dura Pharmaceuticals * 150,000 3,361
.............................................................................
Elan ADR * 75,000 4,823
.............................................................................
Global Pharmaceutical * + 354,400 1,218
.............................................................................
Inhale Therapeutic Systems * 50,000 1,244
.............................................................................
Inhale Therapeutic Systems *++ 81,250 1,819
.............................................................................
PathoGenesis * 130,000 3,778
.............................................................................
R.P. Scherer * 90,000 7,976
.............................................................................
Shire Pharmaceuticals ADR * 136,300 2,922
.............................................................................
Watson Pharmaceuticals * 75,000 3,502
.............................................................................
34,237
..............
Total Pharmaceuticals 115,248
..............
BIOTECHNOLOGY 11.0%
U.S. Major - Biotechnology 6.1%
Agouron Pharmaceuticals * 80,000 2,432
.............................................................................
Biogen * 120,000 5,880
.............................................................................
Centocor * 109,300 3,966
.............................................................................
Gilead Sciences * 75,000 2,405
.............................................................................
MedImmune * 60,000 3,757
.............................................................................
18,440
..............
Other Biotechnology 4.9%
COR Therapeutics * 150,000 2,091
.............................................................................
Guilford Pharmaceuticals * 120,000 2,122
.............................................................................
Magainin Pharmaceuticals,
Warrants, 8/6/01*++ 84,325 0
.............................................................................
Millennium Pharmaceuticals * 70,000 993
.............................................................................
Neurocrine Biosciences * 260,000 2,031
.............................................................................
Neurogen * 132,500 2,389
.............................................................................
Xenova Group (GBP) * 363,000 788
.............................................................................
Xenova Group ADR * 187,000 403
.............................................................................
Zonagen * 175,000 3,834
.............................................................................
14,651
..............
13
<PAGE>
T. ROWE PRICE HEALTH SCIENCES FUND
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Total Biotechnology $ 33,091
..............
Miscellaneous Common Stocks 0.6% 1,841
..............
Total Common Stocks and Warrants
(Cost $234,284) 270,834
..............
Convertible Bonds 2.4%
Sandoz Capital, (144a),
2.00%, 10/06/02 $ 3,500,000 5,543
.............................................................................
Synetic, Sub. Deb. Notes,
5.00%, 2/15/07 1,373,000 1,469
.............................................................................
Total Convertible Bonds
(Cost $5,310) 7,012
..............
Short-Term Investments 7.4%
Money Market Funds 7.4%
Reserve Investment Fund, 5.69% # 22,178,980 22,179
.............................................................................
Total Short-Term Investments
(Cost $22,179) 22,179
..............
14
<PAGE>
T. ROWE PRICE HEALTH SCIENCES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
- -----------------------------------------------------------------------------------------
In thousands
<S> <C>
Total Investments in Securities
100.1% of Net Assets (Cost $261,773) $ 300,025
Other Assets Less Liabilities (214)
............
NET ASSETS $ 299,811
------------
Net Assets Consist of:
Accumulated net investment income - net of distributions $ (344)
Accumulated net realized gain/loss - net of distributions 18,284
Net unrealized gain (loss) 38,254
Paid-in-capital applicable to 19,931,601 shares of $0.0001 par
value capital stock outstanding; 1,000,000,000 shares authorized 243,617
............
NET ASSETS $ 299,811
------------
NET ASSET VALUE PER SHARE $ 15.04
------------
</TABLE>
+ Affiliated company
* Non-income producing
++ Securities contain some restrictions as to public resale--total of such
securities at period-end amounts to 0.61% of net assets.
# Seven-day yield
ADR American Depository Receipt
144A Security was purchased pursuant to Rule 144a under the Securities Act
of 1933 and may not be resold subject to that rule except to qualified
institutional buyers -- total of such securities at period-end amounts to
1.85% of net assets.
GBP British sterling
SEK Swedish krona
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
T. ROWE PRICE HEALTH SCIENCES FUND
- --------------------------------------------------------------------------------
Unaudited
- -----------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
In thousands
6 Months
Ended
6/30/98
Investment Income
Income
Dividend $ 863
Interest 515
..............
Total income 1,378
..............
Expenses
Investment management 979
Shareholder servicing 544
Prospectus and shareholder reports 64
Custody and accounting 49
Registration 36
Legal and audit 7
Directors 3
Miscellaneous 40
..............
Total expenses 1,722
..............
Net investment income (344)
..............
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 10,836
Foreign currency transactions (101)
..............
Net realized gain (loss) 10,735
..............
Change in net unrealized gain or loss
Securities 17,049
Other assets and liabilities
denominated in foreign currencies 5
..............
Change in net unrealized gain or loss 17,054
..............
Net realized and unrealized gain (loss) 27,789
..............
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 27,445
--------------
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
T. ROWE PRICE HEALTH SCIENCES FUND
- --------------------------------------------------------------------------------
Unaudited
- -----------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
In thousands
6 Months Year
Ended Ended
6/30/98 12/31/97
Increase (Decrease) in Net Assets
Operations
Net investment income $ (344) $ (533)
Net realized gain (loss) 10,735 25,668
Change in net unrealized gain or loss 17,054 16,196
..........................
Increase (decrease) in net assets
from operations 27,445 41,331
..........................
Distributions to shareholders
Net realized gain -- (18,004)
..........................
Capital share transactions *
Shares sold 59,558 164,002
Distributions reinvested -- 17,508
Shares redeemed (58,543) (127,444)
..........................
Increase (decrease) in net assets from
capital share transactions 1,015 54,066
..........................
Net Assets
Increase (decrease) during period 28,460 77,393
Beginning of period 271,351 193,958
..........................
End of period $ 299,811 $ 271,351
--------------------------
* Share information
Shares sold 4,046 12,409
Distributions reinvested -- 1,311
Shares redeemed (3,982) (9,662)
..........................
Increase (decrease) in shares outstanding 64 4,058
The accompanying notes are an integral part of these financial statements.
17
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T. ROWE PRICE HEALTH SCIENCES FUND
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Unaudited June 30, 1998
NOTES TO FINANCIAL STATEMENTS
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NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Health Sciences 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 December 31, 1995.
The accompanying financial statements are prepared in accordance with
generally accepted accounting principles for the investment company industry;
these principles may require the use of estimates by fund management.
Valuation Equity securities listed or regularly traded on a securities
exchange are valued at the last quoted sales price on the day the valuations are
made. A security which is listed or traded on more than one exchange is valued
at the quotation on the exchange determined to be the primary market for such
security. Listed securities not traded on a particular day and securities
regularly traded in the over-the-counter market are valued at the mean of the
latest bid and asked prices. Other equity securities are valued at a price
within the limits of the latest bid and asked prices deemed by the Board of
Directors, or by persons delegated by the Board, best to reflect fair value.
Debt securities are generally traded in the over-the-counter market and are
valued at a price deemed best to reflect fair value as quoted by dealers who
make markets in these securities or by an independent pricing service.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation.
For purposes of determining the fund's net asset value per share, the U.S.
dollar value of all assets and liabilities initially expressed in foreign
currencies is determined by using the mean of the bid and offer prices of such
currencies against U.S. dollars quoted by a major bank.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair value
as determined in good faith by or under the supervision of the officers of the
fund, as authorized by the Board of Directors.
Affiliated Companies As defined by the Investment Company Act of
1940, an affiliated company is one in which the fund owns at least 5% of the
outstanding voting securities.
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T. ROWE PRICE HEALTH SCIENCES FUND
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Currency Translation Assets and liabilities are translated into U.S.
dollars at the prevailing exchange rate at the end of the reporting period.
Purchases and sales of securities and income and expenses are translated
into U.S. dollars at the prevailing exchange rate on the dates of such
transactions. The effect of changes in foreign exchange rates on realized
and unrealized security gains and losses is reflected as a component of
such gains and losses.
Premiums and Discounts Premiums and discounts on debt securities are
amortized for both financial reporting and tax purposes.
Other Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses
are reported on the identified cost basis. Dividend income and
distributions to shareholders are recorded by the fund on the ex-dividend
date. Income and capital gain distributions are determined in accordance
with federal income tax regulations and may differ from those determined in
accordance with generally accepted accounting principles.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $112,816,000 and $122,515,000, respectively, for the
six months ended June 30, 1998.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of
its taxable income. At June 30, 1998, the aggregate cost of investments for
federal income tax and financial reporting purposes was $261,773,000, and
net unrealized gain aggregated $38,252,000, of which $50,974,000 related to
appreciated investments and $12,722,000 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
19
<PAGE>
T. ROWE PRICE HEALTH SCIENCES FUND
- --------------------------------------------------------------------------------
fee, of which $163,000 was payable at June 30, 1998. The fee is computed
daily and paid monthly, and consists of an individual fund fee equal to
0.35% of average daily net assets and a group fee. The group fee is based
on the combined assets of certain mutual funds sponsored by the manager or
Rowe Price-Fleming International, Inc. (the group). The group fee rate
ranges from 0.48% for the first $1 billion of assets to 0.30% for assets in
excess of $80 billion. At June 30, 1998, and for the six months then ended,
the effective annual group fee rate was 0.32%. The fund pays a pro-rata
share of the group fee based on the ratio of its net assets to those of the
group.
In addition, the fund has entered into agreements with the manager and two
wholly owned subsidiaries of the manager, pursuant to which the fund
receives certain other services. The manager computes the daily share price
and maintains the financial records of the fund. T. Rowe Price Services,
Inc., 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 $454,000 for the six months ended June 30, 1998, of which
$97,000 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 six months ended
June 30, 1998, totaled $350,000 and are reflected as interest income in the
accompanying Statement of Operations.
During the six months ended June 30, 1998, the fund, in the ordinary course
of business, placed security purchase and sale orders aggregating
$3,435,000 with certain affiliates of the manager and paid commissions of
$5,000 related thereto.
20
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T. ROWE PRICE SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
INVESTMENT SERVICES AND INFORMATION
KNOWLEDGEABLE SERVICE REPRESENTATIVES
By Phone 1-800-225-5132 Available Monday through Friday from
8 a.m. to 10 p.m. ET and weekends from 8:30 a.m. to 5 p.m. ET.
In Person Available in T. Rowe Price Investor Centers.
ACCOUNT SERVICES
Checking Available on most fixed income funds ($500 minimum).
Automatic Investing From your bank account or paycheck.
Automatic Withdrawal Scheduled, automatic redemptions.
Distribution Options Reinvest all, some, or none of your distributions.
Automated 24-Hour Services Including Tele*Access(R) and the T. Rowe Price
Web site on the Internet. Address: www.troweprice.com
DISCOUNT BROKERAGE*
Individual Investments Stocks, bonds, options, precious metals, and other
securities at a savings over regular commission rates.
INVESTMENT INFORMATION
Combined Statement Overview of all your accounts with T. Rowe Price.
Shareholder Reports Fund managers' reviews of their strategies and results.
T. Rowe Price Report Quarterly investment newsletter discussing markets and
financial strategies.
Performance Update Quarterly review of all T. Rowe Price fund results.
Insights Educational reports on investment strategies and financial
markets.
Investment Guides Asset Mix Worksheet, College Planning Kit, Diversifying
Overseas: A Guide to International Investing, Personal Strategy Planner,
Retirees Financial Guide, and Retirement Planning Kit.
*A division of T. Rowe Price Investment Services, Inc. Member NASD/SIPC.
21
<PAGE>
For yield, price, last transaction,
current balance, or to conduct
transactions,24 hours, 7 days
a week, call Tele*Access(R):
1-800-638-2587 toll free
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
410-625-6500 Baltimore area
To open a Discount Brokerage
account or obtain information,
call: 1-800-638-5660 toll free
Internet address:
www.troweprice.com
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus of the
T. Rowe Price Health Sciences Fund.
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.
