<PAGE>
Annual Report
HEALTH
SCIENCES
FUND
-----------------
DECEMBER 31, 1999
-----------------
[LOGO OF T. ROWE PRICE]
<PAGE>
REPORT HIGHLIGHTS
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Health Sciences Fund
. High-growth biotechnology stocks surged, but many other health care
companies struggled.
. The fund returned 8.65% for the six months and 7.97% for the year,
modestly trailing its Lipper benchmark.
. Biotechnology stocks increased as a percentage of assets, while
pharmaceuticals, service companies, and product and devices stocks
declined.
. We believe the pace of biological discovery is accelerating, creating
numerous opportunities for health care investors.
UPDATES AVAILABLE
For updates on T. Rowe Price funds following the end of each calendar quarter,
please see our Web site at www.troweprice.com.
<PAGE>
FELLOW SHAREHOLDERS
On the whole, 1999 was below average for the majority of health care
investments. As the economy advanced strongly and interest rates rose, only a
select group of high-growth technology and cyclical stocks truly excelled, while
most other stocks were considerably weaker. Within the health care sector,
investors were drawn to biotechnology stocks with potential for accelerating
growth but spurned the more traditional, steady-growth companies in the
pharmaceutical and service areas.
Particularly striking was the weakness among pharmaceutical stocks, a group that
had four years of exceptional performance prior to 1999, particularly compared
with the standout results of biotechnology stocks. The biotech index gained an
impressive 112% for the year, while the pharmaceutical index actually declined
10%. Your fund's total returns reflected these trends. The fund produced an
8.65% second-half total return, which outpaced the 7.71% total return for the
Standard & Poor's 500 Stock Index during the same period but modestly lagged the
9.51% results of the Lipper Health/Biotechnology Fund Index. For the full year,
your fund was up 7.97%, compared with a 10.35% return for the Lipper peer group
and a strong 21.04% advance for the broad market.
- ----------------------
PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
Periods Ended 12/31/99 6 Months 12 Months
- --------------------------------------------------------------------------------
Health Sciences Fund 8.65% 7.97%
S&P 500 7.71 21.04
Lipper Health/Biotechnology 9.51 10.35
Fund Index
DIVIDEND DISTRIBUTION
On December 14, 1999, your Board of Directors declared a short-term capital gain
distribution of $0.33 per share and a long-term capital gain distribution of
$0.93 per share to shareholders of record on that date. This was paid on
December 16. You should already have received your check or statement reflecting
this distribution, as well as Form 1099-DIV summarizing this information for
1999 tax purposes.
1
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MARKET ENVIRONMENT
The U.S. equity markets were extremely active in 1999 and once again positively
surprised investors. Fueled by Internet mania and an insatiable thirst for all
things technological, the Nasdaq posted an astonishing 86% 12-month gain, while
both the Dow Jones and S&P 500 enjoyed their fifth consecutive years of double-
digit returns. All three indexes closed the year at record levels. The amount of
capital raised in initial public offerings during 1999 was a record $69 billion,
far surpassing the prior record of $50 billion in 1996. Merger and acquisition
activity in 1999 climbed 7% to $1.75 trillion in the U.S. and doubled in Europe
to $1.23 trillion.
In contrast, bonds experienced their worst year since 1994. With both U.S. and
overseas economies growing strongly, the Federal Reserve hiked the federal funds
target rate three times to defuse inflationary pressure, and interest rates
overall rose sharply. In addition, fixed income markets faced competition for
capital from the surging equity markets and concerns about Y2K-related
disruptions. The bellwether 30-year Treasury posted a 15% price decline for
1999, and many other fixed income securities followed suit.
The overall gain for health care stocks in the second half of 1999 masked a
difficult environment for most segments of our market. Pharmaceutical stocks,
which had been the locomotive driving the sector, ran out of steam for three key
reasons: fundamental weakness at a few leading drug companies, looming patent
expirations for several popular branded drugs, and early rumblings from
presidential candidates about health care reform. In addition, drug stocks were
troubled by merger and acquisition activity late in the year, as Pfizer sought
to wrest Warner-Lambert away from a proposed merger with American Home Products,
and Pharmacia & Upjohn announced a proposed merger with Monsanto. Where
investors once reacted to such news with near-euphoria, these transactions were
looked upon unfavorably. The market seemed to think that Pfizer's action was a
sign of corporate weakness, and that Pharmacia & Upjohn's proposed transaction
was too complex and would dilute its long-term growth prospects.
The services and products and devices sectors did not fare much better. Products
and devices stocks were largely mixed, but sentiment toward the services segment
turned strongly negative. The segment was damaged by questionable execution at
some companies and threats of class-action lawsuits against the managed care
industry. Government activity also concerned investors in health services, who
feared potentially
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<PAGE>
harmful legislation and budget cuts. Biotechnology stocks provided a lone but
brilliant light over a gloomy landscape. Particularly in the past six months,
investors were drawn to sectors with the potential for high or accelerating
growth, biotech included. A popular move by Roche Holdings to spin off a piece
of biotech subsidiary Genentech, as well as strong fundamental performances by a
number of biotechnology companies, also helped spur enthusiasm for the sector.
PORTFOLIO REVIEW
As shown in the Sector Diversification table, the fund's sector mix changed in
the second half, primarily because of strong relative performance by the
biotechnology sector. Our efforts to respond to changes in individual company
prospects and fluctuations in investor sentiment also affected the portfolio's
exposures. The percentage of assets in pharmaceuticals declined from 53% to 42%
over the six-month period because we trimmed several positions and because the
sector underperformed relative to other holdings. We felt that drug company
valuations would come under pressure from slowing earnings growth rates,
election rhetoric, concerns about patent expirations, and unpopular corporate
transactions.
- ----------------------
SECTOR DIVERSIFICATION
- --------------------------------------------------------------------------------
6/30/99 12/31/99
- --------------------------------------------------------------------------------
Pharmaceuticals 53% 42%
Biotechnology 15 32
Health Care Services 19 13
Products and Devices 11 7
Reserves 2 6
Total 100% 100%
We eliminated our small weighting in European drug stocks, including Glaxo
Wellcome and AstraZeneca Group, because their valuation and growth prospects
became less attractive relative to U.S. competitors. We also reduced positions
in Bristol-Myers Squibb, Pfizer, and American Home Products. Our positions in
both American Home Products and Pharmacia & Upjohn suffered from negative
reaction to their merger announcements, and Schering-Plough was a laggard due to
patent expiration concerns.
Despite overall weakness, some of our holdings in the sector made significant
contributions to second-half performance. These included Johnson & Johnson,
Warner-Lambert, and Teva Pharmaceutical Industries. We also initiated a position
in generic-drug manufacturer Mylan Laboratories to capitalize on the pending
wave of name-brand
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<PAGE>
drug patent expirations. We still consider the pharmaceutical industry to
be a cornerstone of the portfolio.
In the services segment, we trimmed several holdings and eliminated others.
For example, we sold our position in leading drug-distribution company
Cardinal Health due to concerns about business fundamentals. Cardinal also
struggled with declining sentiment toward all businesses related to
pharmaceuticals and was the fund's major laggard for the year. Aetna, which
is no longer in the portfolio, also suffered a large loss. CareInsite, an
Internet-based health care information systems provider, was the sole
services holding that made a major positive contribution to performance. We
did initiate some positions in this sector. For example, hysteria
surrounding the potential for class-action lawsuits significantly reduced
valuations among managed care companies. We attempted to capitalize by
increasing our holdings in managed-care firm Wellpoint Health Networks. We
also established a position in Drugstore.com, an emerging on-line pharmacy
services company.
In the products and devices segment, we took profits on some successful
holdings and cut exposure to others. Concerns about aging products
convinced us to eliminate positions in Guidant and Medtronic, two leaders
in the cardiovascular device area. Boston Scientific was the major laggard
in the sector, while implant manufacturer Mentor performed comparatively
well.
Biotechnology was by far the strongest segment in health care and provided
seven of the top 10 contributors in the second half of 1999. Holdings
increased significantly from 15% to 32% during that period due to the
sector's vastly superior relative performance and because of additional
investments. Significant purchases included Genentech, MedImmune, and
Affymetrix. Genentech has outstanding growth prospects over the next
several years based largely on its potential to deliver breakthrough cancer
products; it made the largest contribution to fund performance. Affymetrix,
an innovative company that successfully combines genetic research with chip
technology in a search for new drugs, experienced explosive growth. We
decreased positions in industry stalwarts Biogen and Amgen to fund these
purchases and believe that the net effect was to increase exposure to
faster-growing companies. We are optimistic about the growth prospects
within the biotechnology industry and look to this sector as a substantial
growth engine for the fund.
4
<PAGE>
OUTLOOK
We believe that the health sciences sector will continue to be a dynamic
growth area driven by demographic changes, scientific advancements, and the
willingness of wealthy and developing nations to finance health care
expenditures. Despite the negative sentiment overhanging many health care
sectors, we are encouraged by the number of growth opportunities. We have
entered a golden era of biology in which the pace of discovery is clearly
accelerating. The human genome project is an example of research that will
affect society for years to come by exponentially increasing our knowledge
of human physiology in a way that will result in valuable medical
improvements.
In short, we seek to invest in companies with the ability to introduce new
drugs or medical devices that materially improve the human condition. We
are focused on drug/biotechnology and medical device companies because we
believe these products have the greatest potential to revolutionize health
care delivery, and in turn offer an investor the greatest potential for
wealth creation. There are a growing number of companies that dramatically
illustrate how a single drug or medical device can transform a small or
mid-size company into a large company, and in the process provide an
investor with a substantial return. Examples include MedImmune, which has
increased six-fold in value over the past 18 months due to the success of
Synagis, its new drug for the prevention of RSV disease in infants. Biogen
has tripled over the past 18 months due to the success of Avonex, the most
frequently prescribed therapy for slowing the progression of multiple
sclerosis. There are several other companies today poised to undergo
similar dramatic transformations, and we are committed to capturing this
opportunity for your fund.
THERE ARE A GROWING NUMBER OF COMPANIES THAT DRAMATICALLY ILLUSTRATE HOW A
SINGLE DRUG OR MEDICAL DEVICE CAN . . . PROVIDE A SUBSTANTIAL RETURN.
While our bullishness on our sector for the long term should be apparent,
we anticipate the coming year will be challenging for two reasons. First, a
core segment of the portfolio, biotechnology stocks, is coming off an
outstanding year of price appreciation and their valuations are sensitive
to disappointment. We remain confident that this sector's long-term growth
will offset its current high valuations, but short-term volatility is a
possibility. Second, another core segment of our investments, the
pharmaceutical stocks, are at the center of the political vortex
surrounding
5
<PAGE>
plans for a Medicare prescription drug benefit. We realize that the
pharmaceutical industry will be targeted by those seeking political
advantage, but we believe that good public policy will ultimately prevail
over sound-bite politics. The clear challenge is to provide more people
with affordable drugs without destroying the world-class innovation that is
the foundation of our nation's pharmaceutical industry.
In closing, we remain resolute in our faith that wealth-creating
opportunities lay ahead and are committed to realizing these for you. We
sincerely appreciate your support in this endeavor.
Respectfully submitted,
/s/ John H. Laporte
John H. Laporte
President
/s/ Kris H. Jenner
Kris H. Jenner
Chairman of the Investment Advisory Committee
January 24, 2000
- --------------------------------------------------------------------------------
Effective January 14, 2000, Kris H. Jenner, who holds an M.D. from Johns
Hopkins, became the funds new Chairman of the Investment Advisory Committee and
assumed day-to-day responsibility for managing the fund. Brian D. Stansky
stepped down as Chairman to pursue interests outside of T. Rowe Price, and we
wish him well in his new endeavors. Dr. Jenner has been a pharmaceutical and
biotechnology analyst with T. Rowe Price and a member of the funds Advisory
Committee, working closely with Mr. Stansky, since 1997. For two years prior to
that, Dr. Jenner engaged in medical research for Harvard Medical School.
This updates the Health Sciences Fund prospectus dated May 1, 1999.
6
<PAGE>
T. ROWE PRICE HEALTH SCIENCES FUND
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PORTFOLIO HIGHLIGHTS
- --------------------------------------------------------------------------------
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
12/31/99
- --------------------------------------------------------------------------------
Genentech 6.6%
Warner-Lambert 6.2
MedImmune 4.7
Johnson & Johnson 4.6
Amgen 4.4
------------------------------------------------------------------------------
Waters 4.0
Bristol-Myers Squibb 3.8
Schering-Plough 3.5
QLT PhotoTherapeutics 3.5
Pharmacia & Upjohn 3.4
------------------------------------------------------------------------------
Wellpoint Health Networks 3.2
Teva Pharmaceutical Industries 3.0
United HealthCare 2.8
Merck 2.8
Biogen 2.8
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American Home Products 2.7
Pfizer 2.6
Affymetrix 2.2
Mylan Laboratories 2.1
Eli Lilly 2.0
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IMS Health 1.8
Boston Scientific 1.6
Inhale Therapeutic Systems 1.5
CVS 1.5
Alkermes 1.2
- --------------------------------------------------------------------------------
Total 78.5%
Note: Table excludes reserves.
7
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T. ROWE PRICE HEALTH SCIENCES FUND
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- --------------------
PORTFOLIO HIGHLIGHTS
- --------------------------------------------------------------------------------
CONTRIBUTIONS TO THE CHANGE IN NET ASSET VALUE PER SHARE
6 Months Ended December 31, 1999
Ten Best Contributors Ten Worst Contributors
- --------------------------------------------------------------------------------
Genentech * 65c Boston Scientific -23c
Amgen 45 American Home Products 23
MedImmune 42 Total Renal Care Holdings 20
QLT PhotoTherapeutics 27 Cardinal Health ** 18
Johnson & Johnson 20 Centocor *** 17
Warner-Lambert 16 Schering-Plough 15
Biogen 15 Pharmacia & Upjohn 15
Teva Pharmaceutical Industries 15 Aetna ** 15
Affymetrix * 15 TLC Laser Eye Center ** 10
Alkermes 12 United HealthCare 9
- -------------------------------------- --------------------------------------
Total 272c Total -165c
12 Months Ended December 31, 1999
Ten Best Contributors Ten Worst Contributors
- --------------------------------------------------------------------------------
Genentech * 67c Cardinal Health ** -26c
Amgen 56 American Home Products 23
MedImmune 46 Total Renal Care Holdings 23
QLT PhotoTherapeutics * 39 Boston Scientific * 19
Biogen 37 Schering-Plough 18
Johnson & Johnson 29 IDX Systems ** 18
Teva Pharmaceutical Industries 21 Pharmacia & Upjohn 16
Alkermes 18 Pfizer 15
Affymetrix * 15 Eli Lilly 13
CareInsite * 13 Centocor *** 10
- -------------------------------------- --------------------------------------
Total 341c Total -181c
* Position added
** Position eliminated
*** Acquired by another company
8
<PAGE>
T. ROWE PRICE HEALTH SCIENCES FUND
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- ----------------------
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 benchmarks, which may include
a broad-based market index and a peer group average or index. Market
indexes do not include expenses, which are deducted from fund returns as
well as mutual fund averages and indexes.
HEALTH SCIENCES FUND
---------------------------------------------------------------------------
[GRAPH]
[PLOT POINTS TO COME]
- ------------------------------------
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 12/31/99 1 Year 3 Years Inception Date
- --------------------------------------------------------------------------------
Health Sciences Fund 7.97% 16.42% 18.89% 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
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- --------------------
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year 12/29/95
Ended Through
12/31/99 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 (loss) (0.04) (0.04) (0.03) (0.03)*
Net realized and
unrealized gain (loss) 1.22 3.05 2.39 2.70
Total from
investment activities 1.18 3.01 2.36 2.67
Distributions
Net realized gain (1.26) (0.66) (0.97) (0.40)
NET ASSET VALUE
End of period $ 15.93 $ 16.01 $ 13.66 $ 12.27
=============================================
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
<S> <C> <C> <C> <C>
Total return+ 7.97% 22.37% 19.41% 26.75%*
Ratio of total expenses to
average net assets 1.11% 1.16% 1.18% 1.35%*
Ratio of net investment
income (loss) to average
net assets (0.25)% (0.25)% (0.21)% (0.32)%*
Portfolio turnover rate 81.9% 85.7% 104.4% 133.1%
Net assets, end of period
(in thousands) $302,510 $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
The accompanying notes are an integral part of these financial statements.
10
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T. ROWE PRICE HEALTH SCIENCES FUND
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December 31, 1999
- -----------------------
STATEMENT OF NET ASSETS Shares Value
- --------------------------------------------------------------------------------
In thousands
COMMON STOCKS AND WARRANTS 94.5%
SERVICES 13.1%
Payors 6.0%
United HealthCare 161,000 $ 8,553
Wellpoint Health Networks * 145,100 9,568
-------------
18,121
-------------
Providers 0.9%
Total Renal Care Holdings * 419,300 2,804
-------------
2,804
-------------
Information 4.0%
CareInsite * 42,000 3,382
IMS Health 200,000 5,438
National Data 98,500 3,343
-------------
12,163
-------------
Distribution 2.2%
CVS 110,000 4,393
Drugstore.com * 60,000 2,192
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6,585
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Total Services 39,673
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PRODUCTS & DEVICES 7.2%
Supply 4.0%
Waters * 230,000 12,190
-------------
12,190
-------------
Implants 3.2%
Boston Scientific * 223,900 4,898
Mentor 140,000 3,631
Wesley Jessen VisionCare * 30,300 1,144
-------------
9,673
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Total Products & Devices 21,863
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PHARMACEUTICALS 41.1%
U.S. Major - Pharmaceutical 31.7%
American Home Products 209,500 8,262
Bristol-Myers Squibb 180,000 11,554
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T. ROWE PRICE HEALTH SCIENCES FUND
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Shares Value
- --------------------------------------------------------------------------------
In thousands
Eli Lilly 90,000 $ 5,985
Johnson & Johnson 149,730 13,943
Merck 127,500 8,550
Pfizer 241,500 7,834
Pharmacia & Upjohn 230,000 10,350
Schering-Plough 250,000 10,547
Warner-Lambert 230,000 18,846
-------------
95,871
-------------
Generic & Drug Delivery 9.4%
Alkermes * 75,000 3,680
Inhale Therapeutic Systems * 108,950 4,641
King Pharmaceuticals * 24,100 1,350
Mylan Laboratories 250,000 6,297
Shire Pharmaceuticals ADR * 123,800 3,582
Teva Pharmaceutical
Industries ADR 125,000 8,949
-------------
28,499
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Total Pharmaceuticals 124,370
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BIOTECHNOLOGY 28.8%
U.S. Major - Biotechnology 26.9%
Affymetrix * 40,000 6,786
Amgen * 223,000 13,387
Biogen * 100,000 8,447
Genentech * 147,500 19,839
Gilead Sciences * 50,000 2,703
IDEC Pharmaceuticals* 15,500 1,521
Immunex * 12,700 1,390
MedImmune * 85,000 14,094
QLT PhotoTherapeutics * 178,300 10,453
Sepracor * 26,000 2,584
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81,204
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Other Biotechnology 1.9%
Magainin Pharmaceuticals, Warrants, 8/6/01++ 84,325 0
NPS Pharmaceuticals * 282,600 3,541
Serologicals * 116,000 707
Triangle Pharmaceuticals * 115,000 1,470
-------------
5,718
-------------
12
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T. ROWE PRICE HEALTH SCIENCES FUND
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Shares Value
- --------------------------------------------------------------------------------
In thousands
Total Biotechnology $ 86,922
-------------
Miscellaneous Common Stocks 4.3% 12,946
-------------
Total Common Stocks and Warrants (Cost $221,347) 285,774
-------------
SHORT-TERM INVESTMENTS 5.2%
Money Market Funds 5.2%
Reserve Investment Fund, 6.16% # 15,793,045 15,793
-------------
Total Short-Term Investments (Cost $15,793) 15,793
-------------
Total Investments in Securities
99.7% of Net Assets (Cost $237,140) $ 301,567
Other Assets Less Liabilities 943
-------------
NET ASSETS $ 302,510
=============
Net Assets Consist of:
Accumulated net realized gain/loss - net of distributions $ 9,577
Net unrealized gain (loss) 64,427
Paid-in-capital applicable to 18,994,490 shares of $0.0001 par
value capital stock outstanding; 1,000,000,000 shares authorized 228,506
-------------
NET ASSETS $ 302,510
=============
NET ASSET VALUE PER SHARE $ 15.93
=============
# 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
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
T. ROWE PRICE HEALTH SCIENCES FUND
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- -----------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
In thousands
Year
Ended
12/31/99
Investment Income (Loss)
Income
Dividend $ 1,917
Interest 713
-------------
Total income 2,630
-------------
Expenses
Investment management 2,038
Shareholder servicing 1,074
Prospectus and shareholder reports 101
Custody and accounting 100
Registration 41
Legal and audit 20
Directors 7
Miscellaneous 4
-------------
Total expenses 3,385
-------------
Net investment income (loss) (755)
-------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 23,359
Foreign currency transactions (25)
-------------
Net realized gain (loss) 23,334
Change in net unrealized gain or loss on securities (680)
-------------
Net realized and unrealized gain (loss) 22,654
-------------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 21,899
=============
The accompanying notes are an integral part of these financial statements.
14
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T. ROWE PRICE HEALTH SCIENCES FUND
- --------------------------------------------------------------------------------
- -----------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
In thousands
Year
Ended
12/31/99 12/31/98
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ (755) $ (723)
Net realized gain (loss) 23,334 14,931
Change in net unrealized gain or loss (680) 43,907
------------------------------
Increase (decrease) in net assets from
operations 21,899 58,115
------------------------------
Distributions to shareholders
Net realized gain (22,309) (12,484)
------------------------------
Capital share transactions *
Shares sold 103,079 103,398
Distributions reinvested 21,561 12,130
Shares redeemed (138,293) (115,937)
------------------------------
Increase (decrease) in net assets from capital
share transactions (13,653) (409)
------------------------------
Net Assets
Increase (decrease) during period (14,063) 45,222
Beginning of period 316,573 271,351
------------------------------
End of period $ 302,510 $ 316,573
==============================
*Share information
Shares sold 6,521 7,046
Distributions reinvested 1,457 811
Shares redeemed (8,755) (7,954)
------------------------------
Increase (decrease) in shares outstanding (777) (97)
The accompanying notes are an integral part of these financial statements.
15
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T. ROWE PRICE HEALTH SCIENCES FUND
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December 31, 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 the closing net asset value per
share of the mutual fund on the day of valuation.
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.
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
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T. ROWE PRICE HEALTH SCIENCES FUND
- --------------------------------------------------------------------------------
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 $238,831,000 and $276,690,000, respectively, for the
year ended December 31, 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.
In order for the fund's capital accounts and distributions to shareholders
to reflect the tax character of certain transactions, the following
reclassifications were made during the year ended December 31, 1999. The
results of operations and net assets were not affected by the
increases/(decreases) to these accounts.
---------------------------------------------------------------------------
Undistributed net investment income $ 755,000
Undistributed net realized gain (755,000)
At December 31, 1999, the cost of investments for federal income tax
purposes was substantially the same as for financial reporting and totaled
$237,140,000. Net unrealized gain aggregated $64,427,000 at period-end, of
which $80,455,000 related to appreciated investments and $16,028,000 to
depreciated investments.
NOTE 4 - RELATED PARTY TRANSACTIONS
The investment management agreement between the fund and T. Rowe Price
Associates, Inc. (the manager) provides for an annual investment management
fee, of which $164,000 was payable at December 31, 1999. The fee is
computed daily and paid monthly, and consists of an individual fund fee
equal to
17
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T. ROWE PRICE HEALTH SCIENCES FUND
- --------------------------------------------------------------------------------
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 0.295% for assets
in excess of $120 billion. At December 31, 1999, and for the year then
ended, the effective annual group fee rate was 0.32%. The fund pays a
pro-rata share of the group fee based on the ratio of its net assets to
those of the group.
In addition, the fund has entered into agreements with the manager and two
wholly owned subsidiaries of the manager, pursuant to which the fund
receives certain other services. The manager computes the daily share price
and maintains the financial records of the fund. T. Rowe Price Services,
Inc. is the fund's transfer and dividend disbursing agent and provides
shareholder and administrative services to the fund. T. Rowe Price
Retirement Plan Services, Inc. provides subaccounting and recordkeeping
services for certain retirement accounts invested in the fund. The fund
incurred expenses pursuant to these related party agreements totaling
approximately $911,000 for the year ended December 31, 1999, of which
$106,000 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 year ended
December 31, 1999, totaled $710,000 and are reflected as interest income in
the accompanying Statement of Operations.
18
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T. ROWE PRICE HEALTH SCIENCES FUND
- --------------------------------------------------------------------------------
- ---------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
T. Rowe Price Health Sciences Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position
of T. Rowe Price Health Sciences Fund, Inc. (the "Fund") at December 31,
1999, and the results of its operations, the changes in its net assets and
the financial highlights for each of the fiscal periods presented, in
conformity with accounting principles generally accepted in the United
States. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1999 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
January 20, 2000
19
<PAGE>
T. ROWE PRICE HEALTH SCIENCES FUND
- --------------------------------------------------------------------------------
- -----------------------------------------------------------
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED 12/31/99
- --------------------------------------------------------------------------------
We are providing this information as required by the Internal Revenue Code.
The amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The funds distributions to shareholders included:
. $5,843,000 from short-term capital gains,
. $16,466,000 from long-term capital gains, subject to the 20% rate
gains category.
For corporate shareholders, $1,719,000 of the fund's distributed income and
short-term capital gains qualified for the dividends-received deduction.
- --------------------------------------------------------------------------------
20
<PAGE>
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
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 September 1999 survey for representative-assisted stock trades.
Services vary by firm, and commissions may vary depending on size of order.
21
<PAGE>
For fund and account information Walk-In Investor Centers:
or to conduct transactions, For directions, call 1-800-225-5132
24 hours, 7 days a week or visit our Web site
By touch-tone telephone
Tele*Access 1-800-638-2587 Baltimore Area
By Account Access on the Internet Downtown
www.troweprice.com/access 101 East Lombard Street
Owings Mills
For assistance Three Financial Center
with your existing 4515 Painters Mill Road
fund account, call:
Shareholder Service Center Boston Area
1-800-225-5132 386 Washington Street
Wellesley
To open a brokerage account
or obtain information, call: Colorado Springs
1-800-638-5660 4410 ArrowsWest Drive
Internet address: Los Angeles Area
www.troweprice.com Warner Center
21800 Oxnard Street, Suite 270
Plan Account Lines for retirement Woodland Hills
plan participants:
The appropriate 800 number appears Tampa
on your retirement account statement. 4200 West Cypress Street
10th Floor
T. Rowe Price Associates
100 East Pratt Street Washington, D.C.
Baltimore, Maryland 21202 900 17th Street N.W.
Farragut Square
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 OF T. ROWE PRICE]
T. Rowe Price Investment Services, Inc., Distributor. F10-050 12/31/99
