<PAGE>
Semiannual Report
[HEALTH
SCIENCES
FUND
JUNE 30, 1999]
[LOGO APPEARS HERE]
T. ROWE PRICE
<PAGE>
Report Highlights
- ---------------------------
Health Sciences Fund
. After a strong 1998, health sciences stocks posted mostly flat results for
the first half of 1999.
. The fund's returns were modestly behind the Lipper peer group average for
both the 6- and 12-month periods.
. Drug stocks were hurt by market shifts and political concerns, but
biotechnology stocks generally performed well.
. Although the coming election may pose some challenges, we remain
enthusiastic about the long-term potential of health care stocks.
<PAGE>
FELLOW SHAREHOLDERS
After posting outstanding results in 1998, health sciences stocks paused for
breath during the first six months of 1999. The equity market as a whole
continued to advance, but returns for the health sector and for your fund were
essentially flat.
Although the fund posted a six-month return of -0.62%, it still managed a
double-digit gain of 10.45% for the past year. Results for both periods modestly
trailed the Lipper Health/Biotechnology Fund Index. Pharmaceutical stocks, a
leading market group through most of 1998, struggled more recently as investors
rotated into cyclical stocks. Results were mixed in both the health service and
the products and devices sectors, while large-capitalization biotechnology
stocks provided one of the few pockets of strength.
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PERFORMANCE COMPARISON
- -----------------------------------------------------------
Periods Ended 6/30/99 6 Months 12 Months
- -----------------------------------------------------------
Health Sciences Fund -0.62% 10.45%
S&P 500 12.38 22.76
Lipper Health/Biotechnology
Fund Index 0.76 12.79
Market Environment
Major U.S. stock indices once again turned in surprisingly strong results in the
first half of 1999. Although the war in Kosovo and a widely predicted interest
rate hike by the Federal Reserve threatened investor confidence, the S&P 500 and
the Nasdaq finished the half at record levels. The broad themes that have driven
this lengthy bull market persisted: solid corporate profit growth, extensive
merger-and-acquisition activity, and investor preference for large-cap stocks.
There were, however, some important changes in market leadership during the
period. First-quarter earnings suggested that U.S. economic growth was stronger
than expected. Investors became less concerned with international troubles and
more optimistic about the domestic economy. As a result, basic industries and
other cyclicals made a long-awaited return to the limelight, while stocks
favored for their steady earnings growth and liquidity fell behind. Many
significant market sectors, such as financials and health sciences, generally
did not participate in the overall rally. Finally, at the end of June, the
Federal Reserve raised interest rates to help moderate growth, though it also
announced that it no longer maintained a bias toward tightening.
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Pharmaceutical stocks are the locomotive of the health care sector, and
four forces combined to derail the group's long-running outperformance.
As mentioned, the economic outlook heading into the second quarter of
1999 provided a psychological boost to depressed industrial sectors.
Second, bellwether Pfizer announced that profit growth would be delayed
to the back half of 1999 due to increased spending on research and
development and in marketing. Third, the increased valuations accorded
to the pharmaceutical sector over the last year left little room for
error, especially given the high level of investor expectations. Last,
Medicare reform is once again a political football as President Clinton
seeks to leave some positive marks on a checkered history and as the
Democratic party seeks to revive an issue that was central to winning
back the White House almost eight years ago.
Biotechnology stocks were one of the few areas of strength during the
period. Stocks of many of the larger companies in this field rose on
solid revenue and profit growth. Increased merger and acquisition
activity also attracted investor attention. For example, Warner-Lambert
acquired Agouron Pharmaceuticals to boost its research capabilities as
well as its product portfolio, while Roche Holding exercised its option
to acquire 100% of Genentech.
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INFORMATION ON YEAR-END DISTRIBUTIONS
- -------------------------------------------------------------------------------
To help you with tax planning, we try to give you a good idea of the per-share
income and capital gain amounts our funds may distribute near year-end. In late
October, we will provide estimates of these amounts, which will be paid on
December 16, 1999, to shareholders of record on December 14. These preliminary
numbers will be included in The Price Report mailing to shareholders in late
October and will also be available on our Web site--www.troweprice.com.
We hope that these preliminary numbers will be useful to you in approximating
the income and capital gains taxes you may pay on distributions to taxable
accounts. If your fund distributed any capital gains earlier in 1999, you can
find the amounts on your statements and should include them in your tax planning
calculations. Please keep in mind that the numbers are not final and are likely
to be revised before the December 14 declaration and record date. As the fall
progresses, you may want to check our Web site for revisions.
If you would like information on tax matters relating to mutual funds, please
visit our Web site to download our Insights report, Tax Information for Mutual
Fund Investors, or call 1-800-225-5132 to request a copy.
2
<PAGE>
The health care services sector posted mixed results. Health maintenance
organization (HMO) stocks were generally good performers. Evidence has
been mounting that premium increases will continue to exceed expense
growth for these organizations, and investor sentiment about their
earnings prospects has therefore brightened. On the other hand, health
care provider stocks, such as hospital management companies,
underperformed due to earnings shortfalls and the continuing negative
impact of changes in Medicare reimbursement.
The products and devices sector posted mixed results, with better
performance going to firms able to generate earnings growth through the
development of new product cycles. Our holdings remain skewed toward
companies developing cardiovascular-related products as we believe they
have attractive secular growth prospects.
Portfolio Review
During the first half of 1999, we made modest changes in broad sector
weightings but more substantial changes in subsectors. The generally
flat performance of the health care industry disguised some broad and
rapid rotation of investor sentiment. In many cases, our best option was
to take advantage of market movement by purchasing companies with strong
longer-term growth prospects at lowered prices.
- -----------------------
SECTOR DIVERSIFICATION
- -----------------------------------------------
12/31/98 6/30/99
- -----------------------------------------------
Pharmaceuticals 48% 53%
Health Care Services 21 19
Products and Devices 9 11
Biotechnology 17 15
Reserves 5 2
- -----------------------------------------------
Total 100% 100%
For the first time in a long time, pharmaceutical stocks lagged the
overall portfolio. General price weakness afforded us an opportunity to
modestly increase the pharmaceutical sector weighting from 48% at the
end of December to 53% on June 30. It is our belief that election-driven
rhetoric about health care reform will keep a lid on pharmaceutical
stock valuations, and, as a result, the rate and sustainability of
earnings growth in individual companies will take on increased
importance. Positions were increased in American Home Products, Bristol-
Myers Squibb, Schering-Plough, and Warner-Lambert. However, we reduced
or eliminated positions in Eli Lilly, Elan, and Watson Pharmaceuticals
3
<PAGE>
as part of our efforts to enhance the earnings growth prospects of the
overall portfolio.
While we do not expect a rapid trip back to the top of the investor
"favorites" list, we do believe that the top pharmaceutical companies
have superior business models and growth prospects. We believe that
regulation will not imperil these companies and that current valuation
levels, which are generally in line with the overall market, already
reflect much of the election-related uncertainty.
At 19% of assets, the portfolio weighting in the services sector was
little changed from December 31, yet we made substantial changes to
service company holdings. We reduced or eliminated holdings in care
providers while increasing positions in payors due to their more
attractive earnings prospects. Stakes in providers American Oncology
Resources, Columbia/HCA Healthcare, and Quorum Health Group were
eliminated. Holdings were increased in Aetna, United HealthCare, and
Wellpoint Health Networks - our three payor holdings from six months
ago. While health care service stocks were mixed performers overall
during the first half of 1999, these three holdings were positive
contributors.
Products and devices investments increased slightly, from 9% to 11%, as
a percentage of assets. Holdings in Medtronic were reduced after the
completion of its mergers with Arterial Vascular Engineering and
Sofamor/Danek Group, which were also held by the fund. We initiated a
position in Waters, a leader in precision chemical measurement
instruments, and reestablished a position in device maker Boston
Scientific.
Biotechnology holdings ended the six months at 15% of assets versus 17%
at year-end. In keeping with our strategy of focusing on biotechnology
companies with either established products or products in the later
stages of development and approval, we increased our holdings in Amgen
and Biogen. We also initiated a position in QLT PhotoTherapeutics, a
leader in noninvasive eye surgery. The sector weighting was reduced
through attrition, as Warner-Lambert acquired Agouron Pharmaceuticals
and majority owner Roche Holding acquired Genentech. Large
pharmaceutical companies will likely continue to look at acquisitions of
and joint ventures with biotechnology companies as an important source
of new products and scientific discovery.
4
<PAGE>
Investment Outlook
We believe that the health sciences sector will be torn between two
major forces over the next 18 months. On the positive side are secular
factors such as the aging populations of Western economies and the
continuing advances in scientific discovery and health care technology.
On the negative side is the rhetoric that comes with the presidential
election cycle. While we acknowledge that changes in the national health
care system are needed and that the issues are serious, we also believe
that many politicians are more interested in using health care issues as
an election tool than in truly solving the challenges at hand. As a
result, we are assuming that health care stock valuations will trade in
the middle to lower end of historical ranges and that underlying revenue
and earnings growth will be the key differentiating factor in stock
performance. We have made substantial changes to the portfolio since
early 1998 to emphasize stocks with visible revenue and earnings growth.
At this point, changes are likely to be more modest and to reflect
shifts in market sentiment as much as changes in underlying
fundamentals.
Our positive sentiment toward the health sciences sector and our
investment approach are unchanged. We continue to believe that the
health sciences sector is diverse and dynamic and represents one of the
most attractive growth areas in the global economy. Secular forces such
as the development of new drugs to address major medical needs,
breakthrough products being discovered and developed by biotechnology
companies, and the development of life saving and lifestyle enhancing
devices will remain in force regardless of the near term political
climate. We seek to benefit from secular growth opportunities as well as
the ebb and flow of investor sentiment while picking stocks on a bottom-
up basis. Our underlying belief is that stocks follow earnings and that
a patient approach will build wealth for our fellow shareholders over
the long term. We would like to thank our shareholders for their
continued support and reaffirm our commitment to seizing wealth-building
opportunities on your behalf.
Respectfully submitted,
/s/ Brian D. Stansky
Brian D. Stansky
Chairman of the Investment Advisory Committee
July 19, 1999
5
<PAGE>
T. ROWE PRICE HEALTH SCIENCES FUND
- --------------------------------------------------------------------------------
- --------------------
PORTFOLIO HIGHLIGHTS
- ------------------------------------------------------
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
6/30/99
- ------------------------------------------------------
Bristol-Myers Squibb 7.0%
Warner-Lambert 5.3
Schering-Plough 5.2
United HealthCare 5.0
Pfizer 4.9
- ------------------------------------------------------
American Home Products 4.8
Pharmacia & Upjohn 4.6
Johnson & Johnson 4.4
Biogen 4.4
Merck 4.2
- ------------------------------------------------------
Amgen 3.9
Cardinal Health 2.9
Aetna 2.9
Boston Scientific 2.8
Waters 2.4
- ------------------------------------------------------
Total Renal Care Holdings 2.4
Eli Lilly 2.3
Wellpoint Health Networks 2.2
Medtronic 2.0
Teva Pharmaceutical Industries 2.0
- ------------------------------------------------------
National Data 1.9
QLT PhotoTherapeutics 1.8
IMS Health 1.5
Zeneca Group 1.4
Glaxo Wellcome 1.4
- ------------------------------------------------------
Total 83.6%
Note: Table excludes reserves
6
<PAGE>
T. ROWE PRICE HEALTH SCIENCES FUND
- --------------------------------------------------------------------------------
- --------------------
PORTFOLIO HIGHLIGHTS
- --------------------
CONTRIBUTIONS TO THE CHANGE IN NET ASSET VALUE PER SHARE
6 Months Ended June 30, 1999
<TABLE>
<CAPTION>
Ten Best Contributors Ten Worst Contributors
--------------------------------------------------------------------------------------
<S> <C> <C>
Biogen 22(cent)IDX Systems ** -18(cent)
United HealthCare 21 Eli Lilly 10
QLT PhotoTherapeutics* 11 Pfizer 10
Amgen 11 Watson Pharmaceuticals ** 8
Johnson & Johnson 9 Sepracor ** 8
Gilead Sciences 8 Serologicals * 8
Bristol-Myers Squibb 8 Cardinal Health 7
Alkermes 6 PathoGenesis ** 7
Teva Pharmaceutical Industries 6 Inhale Therapeutic Systems 6
Aetna 5 US Oncology ** 5
--------------------------------------------------------------------------------------
Total 107(cent)Total -87(cent)
<CAPTION>
12 Months Ended June 30, 1999
Ten Best Contributors Ten Worst Contributors
--------------------------------------------------------------------------------------
<S> <C> <C>
Biogen 42(cent) IDX Systems ** -19(cent)
Gilead Sciences 22 Concentra Managed Care ** 15
Amgen * 17 Quorum Health Group ** 13
Agouron Pharmaceuticals *** 16 Monsanto ** 12
Bristol-Myers Squibb 15 Oxford Health Plans ** 11
Arterial Vascular Engineering ***14 PhyCor ** 11
PathoGenesis ** 14 Serologicals * 8
Johnson & Johnson 13 Zonagen 7
MedImmune 13 Analogic ** 6
United HealthCare 13 Columbia/HCA Healthcare ** 5
---------------------------------------------------------------------------------------
Total 179(cent) Total -107(cent)
</TABLE>
* Position added
** Position eliminated
*** Acquired by another company
7
<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. An index return does not reflect expenses, which have
been deducted from the fund's return.
HEALTH SCIENCES FUND
--------------------------------------------------------------------------
As of 6/30/99
S&P HSF HSF
12/29/95 10,000 10,000 10,000
6/30/96 11,010 12,020 12,020
6/30/97 14,830 14,153 14,153
6/30/98 19,303 16,665 16,665
6/30/99 23,696 18,407 18,407
- ------------------------------------
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 6/30/99 1 Year 3 Years Inception Date
-------------------------------------------------------------------------
Health Sciences Fund 10.45% 15.26% 19.04% 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.
8
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T. ROWE PRICE HEALTH SCIENCES FUND
- -------------------------------------------------------------------------------
Unaudited
<TABLE>
<CAPTION>
- --------------------
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
- ----------------------------------------------------------------------------------------
6 Months Year 2/29/95
Ended Ended Through
6/30/99 12/31/98 12/31/97 12/31/96
<S> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 16.01 $ 13.66 $ 12.27 $ 10.00
------------------------------------------------------
Investment activities
Net investment income (0.02) (0.04) (0.03) (0.03)*
Net realized and
unrealized gain (loss) (0.08) 3.05 2.39 2.70
------------------------------------------------------
Total from
investment activities (0.10) 3.01 2.36 2.67
------------------------------------------------------
Distributions
Net realized gain - (0.66) (0.97) (0.40)
------------------------------------------------------
NET ASSET VALUE
End of period $ 15.91 $ 16.01 $ 13.66 $ 12.27
------------------------------------------------------
Ratios/Supplemental Data
- ----------------------------------------------------------------------------------------
Total return++ (0.62)% 22.37% 19.41% 26.75%*
------------------------------------------------------
Ratio of total expenses to
average net assets 1.13%+ 1.16% 1.18% 1.35%*
------------------------------------------------------
Ratio of net investment
income to average
net assets (0.24)%+ (0.25)% (0.21)% (0.32)%*
------------------------------------------------------
Portfolio turnover rate 103.5%+ 85.7% 104.4% 133.1%
--------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $307,297 $316,573 $271,351 $193,958
</TABLE>
++ Total return reflects the rate that an investor would have earned on an
investment in the fund during each period, assuming reinvestment of all
distributions.
* 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.
9
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T. ROWE PRICE HEALTH SCIENCES FUND
- ------------------------------------------------------------------------------
Unaudited June 30, 1999
- -----------------------
STATEMENT OF NET ASSETS Shares Value
- ------------------------------------------------------------------------------
In thousands
COMMON STOCKS 98.0%
SERVICES 18.9%
Payors 10.1%
Aetna 100,000 $ 8,944
United HealthCare 245,000 15,343
Wellpoint Health Networks * 80,000 6,790
------------
31,077
------------
Providers 2.4%
Total Renal Care Holdings * 470,000 7,314
------------
7,314
------------
Information 3.5%
IMS Health 150,000 4,687
National Data 140,000 5,985
------------
10,672
------------
Distribution 2.9%
Cardinal Health 140,000 8,978
------------
8,978
------------
Total Services 58,041
------------
PRODUCTS & DEVICES 10.5%
Supply 2.4%
Waters * 139,600 7,416
------------
7,416
------------
Implants 8.1%
Becton, Dickinson 100,000 3,000
Boston Scientific * 198,900 8,739
Guidant 65,000 3,344
Medtronic 80,000 6,230
Mentor 200,000 3,750
------------
25,063
------------
Total Products & Devices 32,479
------------
PHARMACEUTICALS 53.2%
U.S. Major - Pharmaceutical 42.7%
American Home Products 255,000 14,662
10
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T. ROWE PRICE HEALTH SCIENCES FUND
- -------------------------------------------------------------------------------
Shares Value
- ------------------------------------------------------------------------------
In thousands
Bristol-Myers Squibb 305,000 $ 21,483
Eli Lilly 100,000 7,163
Johnson & Johnson 137,800 13,504
Merck 175,000 12,950
Pfizer 137,000 15,036
Pharmacia & Upjohn 250,000 14,203
Schering-Plough 300,000 15,900
Warner-Lambert 236,894 16,435
------------
131,336
------------
European Major - Pharmaceuticals 3.7%
AstraZeneca Group ADR 64,200 2,516
Glaxo Wellcome ADR 75,000 4,247
Roche Holdings (CHF) 250 2,569
Zeneca Group (GBP) 50,000 1,939
------------
11,271
------------
Generic & Drug Delivery 6.8%
Alkermes * 92,200 2,121
ALZA * 65,000 3,307
Elan ADR * 100,000 2,775
Inhale Therapeutic Systems * 108,950 2,604
Shire Pharmaceuticals ADR * 148,500 3,842
Teva Pharmaceutical Industries ADR 125,000 6,172
------------
20,821
------------
Total Pharmaceuticals 163,428
-----------
BIOTECHNOLOGY 13.8%
U.S. Major - Biotechnology 11.9%
Amgen * 196,000 11,926
Biogen * 209,200 13,461
Gilead Sciences * 50,000 2,609
MedImmune * 42,000 2,852
QLT Phototherapeutics * 103,000 5,655
------------
36,503
------------
Other Biotechnology 1.9%
Magainin Pharmaceuticals, Warrants, 8/6/01 *++ 84,325 0
Millennium Pharmaceuticals * 30,000 1,079
Serologicals * 116,000 950
11
<PAGE>
T. ROWE PRICE HEALTH SCIENCES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Triangle Pharmaceuticals * 150,000 $ 2,690
Zonagen * 118,200 1,101
------------------------------------------------------------------------------
5,820
------------
Total Biotechnology 42,323
------------
Miscellaneous Common Stocks 1.6% 4,955
------------
Total Common Stocks (Cost $247,413) 301,226
------------
SHORT-TERM INVESTMENTS 2.0%
Money Market Funds 2.0%
Reserve Investment Fund, 5.05% # 6,169,047 6,169
------------------------------------------------------------------------------
Total Short-Term Investments (Cost $6,169) 6,169
------------
Total Investments in Securities
100.0% of Net Assets (Cost $253,582) $ 307,395
Other Assets Less Liabilities (98)
------------
NET ASSETS $ 307,297
------------
Net Assets Consist of:
Accumulated net investment income - net of distributions $ (376)
Accumulated net realized gain/loss - net of distributions 18,778
Net unrealized gain (loss) 53,813
Paid-in-capital applicable to 19,311,141 shares of $0.0001 par
value capital stock outstanding; 1,000,000,000 shares authorized 235,082
------------
NET ASSETS $ 307,297
------------
NET ASSET VALUE PER SHARE $ 15.91
------------
</TABLE>
# Seven-day yield
* Non-income producing
++ Securities contain some restrictions as to public resale--total of
such securities at period-end amounts to 0.0% of net assets.
ADR American Depository Receipt
CHF Swiss franc
GBP British sterling
The accompanying notes are an integral part of these financial
statements.
12
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T. ROWE PRICE HEALTH SCIENCES FUND
- --------------------------------------------------------------------------------
Unaudited
- -----------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
In thousands
6 Months
Ended
6/30/99
Investment Income
Income
Dividend $ 1,017
Interest 360
------------
Total income 1,377
------------
Expenses
Investment management 1,036
Shareholder servicing 583
Prospectus and shareholder reports 57
Custody and accounting 51
Registration 13
Legal and audit 6
Directors 3
Miscellaneous 4
------------
Total expenses 1,753
------------
Net investment income (376)
------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 9,512
Foreign currency transactions (41)
------------
Net realized gain (loss) 9,471
Change in net unrealized gain or loss on securities (11,294)
------------
Net realized and unrealized gain (loss) (1,823)
------------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ (2,199)
------------
The accompanying notes are an integral part of these financial statements.
13
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T. ROWE PRICE HEALTH SCIENCES FUND
- -------------------------------------------------------------------------------
Unaudited
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
In thousand
6 Months Year
Ended Ended
6/30/99 12/31/98
Increase (Decrease) in Net Assets
Operations
Net investment income $ (376) $ (723)
Net realized gain (loss) 9,471 14,931
Change in net unrealized gain or loss (11,294) 43,907
-------------------------
Increase (decrease) in net assets from operations (2,199) 58,115
-------------------------
Distributions to shareholders
Net realized gain - (12,484)
-------------------------
Capital share transactions*
Shares sold 59,289 103,398
Distributions reinvested - 12,130
Shares redeemed (66,366) (115,937)
-------------------------
Increase (decrease) in net assets from capital
share transactions (7,077) (409)
-------------------------
Net Assets
Increase (decrease) during period (9,276) 45,222
Beginning of period 316,573 271,351
-------------------------
End of period $ 307,297 $ 316,573
-------------------------
*Share information
Shares sold 3,766 7,046
Distributions reinvested - 811
Shares redeemed (4,226) (7,954)
-------------------------
Increase (decrease) in shares outstanding (460) (97)
The accompanying notes are an integral part of these financial statements.
14
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T. ROWE PRICE HEALTH SCIENCES FUND
- -------------------------------------------------------------------------------
Unaudited June 30, 1999
NOTES TO FINANCIAL STATEMENTS
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 29, 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.
Investments in mutual funds are valued at 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.
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.
15
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T. ROWE PRICE HEALTH SCIENCES FUND
- -------------------------------------------------------------------------------
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. Credits earned on
daily, uninvested cash balances at the custodian are used to reduce the
fund's custody charges.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $156,850,000 and $154,794,000, respectively, for the
six months ended June 30, 1999.
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, 1999, the cost of investments for federal income tax purposes
was substantially the same as for financial reporting and totaled
$253,582,000. Net unrealized gain aggregated $53,813,000 at period-end, of
which $59,953,000 related to appreciated investments and $6,140,000 to
depreciated investments.
NOTE 4 - RELATED PARTY TRANSACTIONS
The investment management agreement between the fund and the manager
provides for an annual investment management fee, of which $163,000 was
payable at June 30, 1999. 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 Price Associates (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, 1999, 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.
16
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T. ROWE PRICE HEALTH SCIENCES FUND
- -------------------------------------------------------------------------------
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 $487,000 for the six months ended June 30, 1999, of which
$108,000 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, 1999, totaled $358,000 and are reflected as interest income in the
accompanying Statement of Operations.
17
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T. ROWE PRICE SHAREHOLDER SERVICES
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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
Brokerage services*
Individual Investments Stocks, bonds, options, precious metals, and other
securities at a savings over full-service 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.
* T. Rowe Price Brokerage is a division of T. Rowe Price Investment
Services, Inc., Member NASD/SIPC.
** Based on a January 1999 survey for representative-assisted stock
trades. Services vary by firm, and commissions may vary depending on
size of order.
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T. ROWE PRICE MUTUAL FUNDS
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<TABLE>
<CAPTION>
STOCK FUNDS BOND FUNDS
- ----------------------------------- --------------------------------- --------------------------
<S> <C> <C>
Domestic Domestic Taxable International/Global
Blue Chip Growth Corporate Income Emerging Markets Bond
Capital Appreciation GNMA Global Bond
Capital Opportunity High Yield International Bond
Diversified Small-Cap Growth New Income
Dividend Growth Short-Term Bond MONEY MARKET FUNDS+
Equity Income Short-Term U.S. Government ----------------------------
Equity Index 500 Spectrum Income Taxable
Extended Equity Market Index Summit GNMA
Financial Services Summit Limited-Term Bond Prime Reserve
Growth & Income U.S. Treasury Intermediate Summit Cash Reserves
Growth Stock U.S. Treasury Long-Term U.S. Treasury Money
Health Sciences
Media & Telecommunications Domestic Tax-Free Tax-Free
Mid-Cap Growth
Mid-Cap Value California Tax-Free Bond California Tax-Free Money
New America Growth Florida Intermediate Tax-Free** New York Tax-Free Money
New Era Georgia Tax-Free Bond Summit Municipal
New Horizons* Maryland Short-Term Money Market
Real Estate Tax-Free Bond Tax-Exempt Money
Science & Technology Maryland Tax-Free Bond
Small-Cap Stock New Jersey Tax-Free Bond BLENDED ASSET FUNDS
Small-Cap Value New York Tax-Free Bond
Spectrum Growth Summit Municipal Income Balanced
Total Equity Market Index Summit Municipal Intermediate Personal Strategy Balanced
Value Tax-Free High Yield Personal Strategy Growth
Tax-Free Income Personal Strategy Income
International/Global Tax-Free Intermediate Bond*** Tax-Efficient Balanced
Tax-Free Short-Intermediate
Emerging Markets Stock Virginia Short-Term T. ROWE PRICE NO-LOAD
European Stock Tax-Free Bond VARIABLE ANNUITY
Global Stock Virginia Tax-Free Bond ----------------------------
International Discovery
International Growth & Income Equity Income Portfolio
International Stock International Stock Portfolio
Japan Limited-Term Bond Portfolio
Latin America Mid-Cap Growth Portfolio
New Asia New America Growth Portfolio
Spectrum International Personal Strategy Balanced
Portfolio
Prime Reserve Portfolio
</TABLE>
* Closed to new investors. ** Formerly named Florida Insured Intermediate
Tax-Free. ***Formerly named Tax-Free Insured Intermediate Bond.
+ Investments in the funds are not insured or guaranteed by the FDIC or any
other government agency. Although the funds seek to preserve the value of
your investment at $1.00 per share, it is possible to lose money by
investing in the funds.
Please call for a prospectus. Read it carefully before investing.
The T. Rowe Price No-Load Variable Annuity [#V6021] is issued by Security
Benefit Life Insurance Company. In New York, it [#FSB201(11-96)] is issued by
First Security Benefit Life Insurance Company of New York, White Plains, NY. T.
Rowe Price refers to the underlying portfolios' investment managers and the
distributors, T. Rowe Price Investment Services, Inc.; T. Rowe Price Insurance
Agency, Inc.; and T. Rowe Price Insurance Agency of Texas, Inc. The Security
Benefit Group of Companies and the T. Rowe Price companies are not affiliated.
The variable annuity may not be available in all states. The contract has
limitations. Call a representative for costs and complete details of the
coverage.
19
<PAGE>
T. ROWE PRICE RETIREMENT PLANS AND RESOURCES
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RETIREMENT PLANS AND RESOURCES
We recognize that saving for retirement is the number one investment
goal for most Americans. We can help you meet your retirement needs,
whether you are starting an IRA or designing a retirement program for
your employees. T. Rowe Price offers an assortment of retirement plans
for individuals, the self-employed, small businesses, corporations, and
nonprofit organizations. We provide recordkeeping, communications, and
investment management services, as well as a variety of educational
materials, self-help planning guides, and software tools to help you
choose and implement a retirement plan appropriate for you. For
information or to request literature, call us at 1-800-638-5660.
IRAs AND QUALIFIED PLANS
Traditional IRA Money Purchase Pension
Roth IRA "Paired" Plans (Money Purchase
Rollover IRA Pension and Profit Sharing Plans)
SEP-IRA 401(k)
SIMPLE IRA 403(b)
Profit Sharing 457 Deferred Compensation
RETIREMENT RESOURCES AT T. ROWE PRICE
Planning and Informational Guides Investing for Retirement in
Your 403(b) Account
Minimum Required Distributions Guide The T. Rowe Price No-Load
Retirement Planning Kit Variable Annuity
Retirees Financial Guide Information Kit
Tax Considerations for Investors Insights Reports
Investment Kits The Challenge of Preparing
for Retirement
The IRA Investing Kit Financial Planning After
Roth IRA Conversion Kit Retirement
Rollover IRA Kit The Roth IRA: A Review
The T. Rowe Price SIMPLE IRA Plan Kit
The T. Rowe Price SEP-IRA Plan Software Packages
The Simplified Keogh Plan(R) From
T. Rowe Price T. Rowe Price Retirement
The T. Rowe Price 401(k) Century Planning AnalyzerTM
Plan(R) (for small businesses) CD-ROM or diskette $19.95.
Money Purchase Pension/Profit Sharing To order, please call
Plan Kit 1-800-541-5760. Also
available on the Internet
for $9.95.
T. Rowe Price Variable
Annuity AnalyzerTM CD-ROM
or diskette, free. To
order, please call
1-800-469-5304.
Many of these resources are also available for viewing or ordering on the
Internet at www.troweprice.com.
20
<PAGE>
T. ROWE PRICE INSIGHTS REPORTS
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THE FUNDAMENTALS OF INVESTING
Whether you are unsure how to get started or are saving for a specific
goal, such as retirement or college, the T. Rowe Price Insights series
can help you make informed investment decisions. These reports, written
in plain English about fundamental investment topics, can be useful at
every stage of your investment journey. They cover a range of topics,
from the basic, such as getting started with mutual funds, to the more
advanced, such as managing risk through diversification or buying
individual securities through a broker. To request one or more Insights,
call us at 1-800-638-5660.
INSIGHTS REPORTS
General Information Global Bond Investing
Investing in Common Stocks
The ABCs of Y2K Investing in Emerging Growth
The ABCs of Giving Stocks
Back to Basics: The ABCs Investing in Financial
of Investing Services Stocks
The Challenge of Preparing Investing in Health
for Retirement Care Stocks
Financial Planning Investing in High-Yield
After Retirement Municipal Bonds
Getting Started: Investing Investing in Money Market
With Mutual Funds Securities
The Roth IRA: A Review Investing in Mortgage-Backed
Tax Information for Mutual Securities
Fund Investors Investing in Natural
Resource Stocks
Investment Strategies Investing in Science and
Technology Stocks
Conservative Stock Investing Investing in Small-Company
Dollar Cost Averaging Stocks
Equity Index Investing Understanding Derivatives
Growth Stock Investing Understanding High-Yield
Investing for Higher Yield "Junk" Bonds
Managing Risk Through
Diversification Brokerage Insights
The Power of Compounding
Value Investing Combining Individual
Securities With Mutual Funds
Types of Securities Getting Started: An Introduction
to Individual Securities
The Basics of International What You Should Know About Bonds
Stock Investing What You Should Know About
The Basics of Tax-Free Investing Margin and Short-Selling
The Fundamentals of Fixed What You Should Know About Options
Income Investing What You Should Know About Stocks
T. Rowe Price Insights are also available for reading and downloading on
the Internet at www.troweprice.com.
21
<PAGE>
For yield, price, last transaction, Investor Centers:
current balance, or to conduct 101 East Lombard St.
transactions, 24 hours, 7 days Baltimore, MD 21202
a week, call Tele*Access(R):
1-800-638-2587 toll free T. Rowe Price
Financial Center
For assistance with your existing 10090 Red Run Blvd.
fund account, call: Owings Mills, MD 21117
Shareholder Service Center
1-800-225-5132 toll free Farragut Square
410-625-6500 Baltimore area 900 17th Street, N.W.
Washington, D.C. 20006
To open a brokerage account
or obtain information, call: 4200 West Cypress St.
1-800-638-5660 toll free 10th Floor
Tampa, FL 33607
Internet address:
www.troweprice.com 4410 ArrowsWest Drive
Colorado Springs, CO 80907
T. Rowe Price Associates
100 East Pratt Street Warner Center
Baltimore, Maryland 21202 21800 Oxnard Street, Suite 270
Woodland Hills, CA 91367
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus appropriate
to the fund or funds covered in this
report.
[LOGO FOR T. ROWE PRICE APPEARS HERE]
T. Rowe Price Investment Services, Inc., Distributor. F10-051 6/30/99
