Item 1. Report to Shareholders
T. Rowe Price Health Sciences Fund
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June 30, 2004
Certified Semiannual Report
This report is certified under the Sarbanes-Oxley Act of 2002, which requires
that public companies, including mutual funds, affirm that the information
provided in their annual and semiannual shareholder reports fully and fairly
represents their financial position.
T. Rowe Price Health Sciences Fund
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Certified Semiannual Report (Unaudited)
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
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6 Months Year
Ended Ended
6/30/04 12/31/03 12/31/02 12/31/01 12/31/00 12/31/99
NET ASSET VALUE
Beginning
of period $ 19.95 $ 14.51 $ 20.08 $ 21.70 $ 15.93 $ 16.01
Investment
activities
Net investment
income (loss) (0.06) (0.11) (0.11) (0.11) (0.03) (0.04)
Net realized
and unrealized
gain (loss) 2.28 5.55 (5.46) (1.20) 8.28 1.22
Total from
investment
activities 2.22 5.44 (5.57) (1.31) 8.25 1.18
Distributions
Net realized
gain - - - (0.31) (2.48) (1.26)
NET ASSET VALUE
End of period $ 22.17 $ 19.95 $ 14.51 $ 20.08 $ 21.70 $ 15.93
---------------------------------------------------------------
Ratios/Supplemental
Data
Total return^ 11.13% 37.49% (27.74)% (5.97)% 52.19% 7.97%
Ratio of total
expenses to
average net
assets 0.92%! 1.00% 1.04% 1.02% 0.98% 1.11%
Ratio of net
investment
income (loss)
to average
net assets (0.57)%! (0.64)% (0.64)% (0.60)% (0.22)% (0.25)%
Portfolio
turnover rate 36.7%! 44.8% 62.7% 74.6% 110.6% 81.9%
Net assets,
end of period
(in millions) $ 1,310 $ 1,027 $ 678 $ 961 $ 972 $ 303
^ Total return reflects the rate that an investor would have earned on an
investment in the fund during each period, assuming reinvestment of all
distributions.
! Annualized
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Health Sciences Fund
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Certified Semiannual Report (Unaudited) June 30, 2004
Portfolio of Investments (1) Shares/$ Par Value
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(Cost and value in $ 000s)
COMMON STOCKS AND WARRANTS 97.8%
BIOTECHNOLOGY 39.7%
Other Biotechnology 6.4%
Alexion Pharmaceutical *^ 200,000 3,720
Amylin Pharmaceuticals * 235,000 5,358
BioCryst Pharmaceuticals * 525,000 3,622
Cubist Pharmaceuticals * 925,000 10,267
Cytogen * 250,000 3,975
deCODE GENETICS * 450,000 3,825
Diversa * 300,000 3,039
Encysive Pharmaceuticals * 325,000 2,763
Exelixis * 750,000 7,567
Insmed, Warrants, 5/31/05 *!!@ 250,048 0
Inspire Phamaceuticals * 200,000 3,344
Keryx Biopharmaceuticals * 250,000 3,165
Ligand Pharmaceuticals, Class B * 75,000 1,304
Myriad Genetics * 350,000 5,222
Nektar Therapeutics * 200,000 3,992
NeoRx * 175,000 438
NeoRx, Warrants, 12/31/08 *!!@ 18,000 0
ONYX Pharmaceuticals * 420,000 17,791
Rigel Pharmaceuticals * 150,000 2,132
ViroLogic * 125,000 306
ViroPharma * 200,000 358
XOMA * 450,000 2,016
84,204
Major Biotechnology 33.3%
Abgenix * 625,000 7,325
Alkermes * 1,100,000 14,960
Amgen *^ 757,500 41,337
Atherogenics * 70,000 1,332
Biogen Idec * 480,000 30,360
Celgene *^ 190,000 10,879
Cephalon * 765,000 41,310
CV Therapeutics *^ 200,000 3,352
Eyetech Pharmaceuticals * 60,000 2,575
Genentech *^ 425,000 23,885
Gilead Sciences *^ 900,000 60,300
Human Genome Sciences * 400,000 4,652
ICOS * 100,000 2,984
ImClone Systems *^ 885,000 75,924
Martek Biosciences * 75,000 4,213
Medicines Company * 663,500 20,243
MedImmune * 450,000 10,530
Millennium Pharmaceuticals * 200,000 2,760
Nabi * 80,000 1,138
Neurocrine Biosciences *^ 300,000 15,555
NPS Pharmaceuticals *^ 465,000 9,765
OSI Pharmaceuticals *^ 150,000 10,566
Protein Design Labs *^ 500,000 9,565
Seattle Genetics, Warrants, 12/31/11 *!!@ 50,000 0
Sepracor *^ 260,000 13,754
Transkaryotic Therapies * 100,000 1,496
Trimeris * 516,000 7,446
United Therapeutics * 100,000 2,565
Vertex Pharmaceuticals * 475,000 5,149
435,920
Total Biotechnology 520,124
LIFE SCIENCES 5.2%
Life Sciences 5.2%
Fisher Scientific * 320,000 18,480
Gen-Probe * 125,000 5,915
Invitrogen * 345,000 24,837
Molecular Devices * 110,000 1,956
Serologicals * 65,000 1,299
Symyx Technologies * 450,000 10,854
Waters Corporation * 100,000 4,778
Total Life Sciences 68,119
PHARMACEUTICALS 18.8%
Major- Pharmaceutical 18.8%
Able Laboratories * 391,000 8,039
Alcon 48,700 3,830
Allergan 55,000 4,924
Andrx * 50,000 1,396
Barr Pharmaceuticals * 25,000 843
Biocon 144A (INR) * 82,800 904
Elan ADR *^ 425,000 10,514
Eli Lilly ^ 235,000 16,429
Forest Laboratories *^ 300,000 16,989
Indevus Pharmaceuticals * 200,000 1,230
IVAX * 425,000 10,196
Johnson & Johnson 225,000 12,532
Medicis Pharmaceutical, Class A 25,000 999
Merck 52,500 2,494
MGI Pharma *^ 750,000 20,257
Novartis ADR 25,000 1,113
Noven Pharmaceuticals * 50,000 1,101
Novo Nordisk, Series B (DKK) 25,000 1,289
Penwest Pharmaceuticals * 100,000 1,281
Pfizer ^ 1,202,100 41,208
Roche Holding (CHF) 14,000 1,387
Salix Pharmaceuticals * 85,000 2,801
Sanofi-Synthelabo (EUR) 100,000 6,346
Schering-Plough 285,000 5,267
Shire Pharmaceuticals ADR * 95,000 2,540
Taro Pharmaceuticals, Class A *^ 150,000 6,525
Teva Pharmaceutical ADR 250,000 16,822
Valeant Pharmaceuticals International 401,700 8,034
Watson Pharmaceuticals * 225,000 6,052
Wyeth ^ 700,000 25,312
Yamanouchi Pharmaceutical (JPY) 225,000 7,552
Total Pharmaceuticals 246,206
PRODUCTS & DEVICES 10.8%
Implants 10.8%
Angiotech Pharmaceuticals * 300,000 6,045
Aspect Medical Systems * 425,000 7,850
Biomet 150,000 6,666
BioSphere Medical * 550,000 1,760
Boston Scientific *^ 400,000 17,120
C. R. Bard 175,000 9,914
Edwards Lifesciences * 120,000 4,182
Endologix * 375,000 1,834
EPIX Medical * 120,000 2,532
Fischer Imaging *! 590,000 1,357
Guidant 195,000 10,897
Haemonetics * 150,000 4,447
Integra LifeServices Holdings * 75,000 2,645
Kinetic Concepts * 255,000 12,724
Medtronic ^ 150,000 7,308
Regeneration Technologies * 275,000 2,951
St. Jude Medical * 180,000 13,617
STAAR * 375,000 2,925
Stryker 200,000 11,000
Synthes (CHF) 30,000 3,421
Wilson Greatbatch Technologies * 231,000 6,456
Zimmer Holdings * 50,000 4,410
Total Products & Devices 142,061
SERVICES 20.3%
Distribution 5.2%
AmerisourceBergen ^ 160,000 9,565
Cardinal Health ^ 100,000 7,005
Caremark RX * 575,000 18,940
Henry Schein * 25,000 1,579
NeighborCare * 200,000 6,266
Omnicare ^ 575,000 24,616
67,971
Information 0.2%
WebMD * 280,000 2,610
2,610
Other Services 1.1%
LabOne * 150,000 4,767
Laboratory Corporation of America * 25,000 992
Quest Diagnostics 100,000 8,495
14,254
Payors 10.1%
Anthem *^ 725,000 64,931
UnitedHealth Group ^ 1,000,000 62,250
WellPoint Health Networks * 50,000 5,600
132,781
Providers 3.7%
Community Health System * 225,000 6,023
HCA 300,000 12,477
Mariner Health Care * 480,000 12,924
Sunrise Senior Living * 175,000 6,850
Triad Hospitals * 50,000 1,862
Universal Health Services 25,000 1,147
Vencor 275,000 6,421
47,704
Total Services 265,320
Total Miscellaneous Common Stocks 3.0% 38,842
Total Common Stocks and Warrants (Cost $1,004,030) 1,280,672
CONVERTIBLE PREFERRED STOCKS 0.4%
Control Delivery Systems, 8.00%, Series A *!!@ 37,216 1,000
Corus Pharma, 8.00%, Series C *!!@ 1,742,138 1,944
NeoRx, Series B *!!@ 45 225
Seattle Genetics, Series A *!!@ 40,000 2,390
Total Convertible Preferred Stocks (Cost $5,450) 5,559
PREFERRED STOCKS 0.2%
Theravance, Series D1 !!@ 264,454 2,380
Total Preferred Stocks (Cost $2,380) 2,380
CORPORATE BONDS 0.8%
Morgan Stanley, 144A, 6.00%, 6/1/05 250,000 10,713
Total Corporate Bonds (Cost $10,728) 10,713
OPTIONS PURCHASED 0.0%
Taro Pharmaceuticals, Put, 7/17/04 @ $45.00 * 37,800 110
Total Options Purchased (Cost $53) 110
OPTIONS WRITTEN (1.7%)
Alexion Pharmaceuticals, Call, 11/20/04 @ $25.00 * (125,000) (119)
Alkermes, Put, 2/19/05 @ $15.00 * (25,000) (84)
Amerisourcebergen, Call, 11/20/04 @ $65.00 * (50,000) (63)
Amgen
Call
1/22/05 @ $60.00 * (100,000) (177)
10/16/04 @ $60.00 * (25,000) (19)
Put
1/22/05 @ $60.00 * (35,000) (234)
10/16/04 @ $60.00 * (30,000) (179)
7/17/04 @ $60.00 * (22,500) (122)
Amylin Pharmaceuticals, Put, 1/22/05 @ $22.50 * (45,000) (134)
Andrx, Put, 1/22/05 @ $30.00 * (60,000) (267)
Angiotech Pharmaceuticals, Put, 9/15/04 @ $25.00 * (55,000) (283)
Anthem
Call, 9/18/04 @ $100.00 * (50,000) (39)
Put
1/22/05 @ $90.00 * (50,000) (337)
9/18/04 @ $90.00 * (60,000) (255)
Becton Dickinson, Put, 9/18/04 @ $55.00 * (50,000) (198)
Biomet, Put, 1/22/05 @ $50.00 * (20,000) (131)
Boston Scientific
Call, 11/20/04 @ $45.00 * (100,000) (250)
Put, 1/22/05 @ $45.00 * (50,000) (245)
Cardinal Health, Call, 9/18/04 @ $70.00 * (75,000) (219)
Caremark Rx, Put, 1/22/05 @ $40.00 * (50,000) (372)
Celgene
Put
1/22/05 @ $45.00 * (50,000) (117)
1/22/05 @ $50.00 * (35,000) (131)
Cephalon
Call, 1/22/05 @ $70.00 * (100,000) (60)
Put, 11/20/04 @ $50.00 * (20,000) (44)
CV Therapeutics, Call, 7/17/04 @ $17.50 * (25,300) (4)
Dade Behring, Call, 8/21/04 @ $50.00 * (75,000) (111)
Elan
Call, 10/16/04 @ $30.00 * (100,000) (103)
Put
1/21/06 @ $25.00 * (35,000) (199)
1/22/05 @ $25.00 * (40,000) (156)
Eli Lilly, Call, 10/16/04 @ $80.00 * (100,000) (55)
Fisher Scientific, Put, 9/18/04 @ $55.00 * (50,000) (113)
Forest Laboratories
Call, 1/22/05 @ $70.00 * (50,000) (55)
Put, 1/22/05 @ $55.00 * (30,000) (122)
Genentech
Call, 9/18/04 @ $60.00 * (75,000) (126)
Put, 1/22/05 @ $62.50 * (60,000) (534)
Gilead Sciences
Call
11/20/04 @ $70.00 * (100,000) (455)
8/21/04 @ $70.00 * (75,000) (174)
Guidant
Put
1/22/05 @ $55.00 * (35,000) (158)
1/22/05 @ $60.00 * (25,000) (180)
HCA, Put, 1/22/05 @ $40.00 * (40,000) (90)
ImClone Systems
Call
1/22/05 @ $100.00 * (75,000) (465)
1/22/05 @ $95.00 * (25,000) (194)
11/20/04 @ $75.00 * (100,000) (1,585)
11/20/04 @ $90.00 * (100,000) (775)
7/17/04 @ $85.00 * (150,000) (435)
8/21/04 @ $45.00 * (50,000) (2,040)
8/21/04 @ $80.00 * (75,000) (690)
8/21/04 @ $85.00 * (200,000) (1,250)
Put
1/22/05 @ $55.00 * (30,000) (46)
1/22/05 @ $60.00 * (40,000) (91)
11/20/04 @ $65.00 * (40,000) (86)
11/20/04 @ $70.00 * (25,000) (81)
11/20/04 @ $75.00 * (10,000) (46)
8/21/04 @ $70.00 * (25,000) (26)
Invitrogen, Put, 1/22/05 @ $70.00 * (45,000) (268)
King Pharmaceuticals, Put, 1/22/05 @ $25.00 * (23,200) (314)
Medicines, Put, 10/16/04 @ $35.00 * (20,000) (118)
Medtronic
Call, 8/21/04 @ $47.50 * (75,000) (163)
Put, 1/22/05 @ $50.00 * (15,000) (53)
Merck, Put, 1/22/05 @ $55.00 * (25,000) (205)
MGI Pharma
Call
1/22/05 @ $32.50 * (150,000) (274)
8/21/04 @ $30.00 * (33,500) (28)
8/21/04 @ $35.00 * (50,000) (6)
Put, 1/22/05 @ $32.50 * (120,000) (846)
Nektar Therapeutics
Put
11/20/04 @ $25.00 * (35,000) (229)
8/21/04 @ $22.50 * (30,000) (105)
8/21/04 @ $25.00 * (30,000) (167)
Neurocrine Biosciences
Call
11/20/04 @ $60.00 * (100,000) (237)
11/20/04 @ $65.00 * (75,000) (105)
2/19/05 @ $65.00 * (75,000) (165)
8/21/04 @ $60.00 * (50,000) (35)
NPS Pharmaceuticals
Call
11/20/04 @ $35.00 * (100,000) (20)
8/21/04 @ $25.00 * (75,000) (24)
Omnicare, Call, 12/18/04 @ $45.00 * (12,500) (26)
ONYX Pharmaceuticals
Call
1/22/05 @ $60.00 * (50,000) (86)
7/17/04 @ $45.00 * (17,500) (7)
8/21/04 @ $45.00 * (100,000) (160)
8/21/04 @ $50.00 * (17,500) (10)
OSI Pharmaceuticals
Call
1/22/05 @ $90.00 * (50,000) (233)
10/16/04 @ $90.00 * (75,000) (159)
Put, 1/22/05 @ $80.00 * (55,000) (885)
Pfizer
Call
1/22/05 @ $37.50 * (150,000) (112)
9/18/04 @ $37.50 * (100,000) (23)
Put, 1/22/05 @ $37.50 * (60,000) (240)
Protein Design Labs
Call, 8/21/04 @ $22.50 * (50,000) (16)
Put, 8/21/04 @ $22.50 * (30,000) (111)
Sepracor
Call
10/16/04 @ $60.00 * (75,000) (167)
7/17/04 @ $55.00 * (75,000) (101)
Put
1/21/06 @ $55.00 * (25,000) (243)
1/22/05 @ $50.00 * (55,000) (267)
1/22/05 @ $55.00 * (75,000) (547)
St. Jude Medical
Put
1/22/05 @ $75.00 * (20,000) (114)
10/16/04 @ $70.00 * (25,000) (59)
Taro Pharmaceuticals
Call
10/16/04 @ $45.00 * (50,000) (173)
10/16/04 @ $50.00 * (100,000) (172)
Teva Pharmaceutical, Put, 12/18/04 @ $70.00 * (15,000) (82)
Triad Hospitals, Put, 1/22/05 @ $40.00 * (25,000) (115)
Trimeris, Call, 7/17/04 @ $15.00 * (75,000) (15)
Unitedhealth Group
Call, 9/18/04 @ $70.00 * (25,000) (9)
Put, 9/18/04 @ $65.00 * (25,000) (104)
Waters Corporation, Put, 11/20/04 @ $40.00 * (25,000) (11)
Wyeth
Call
1/22/05 @ $40.00 * (200,000) (215)
10/16/04 @ $40.00 * (100,000) (45)
Put, 1/22/05 @ $35.00 * (20,000) (43)
Total Options Written (Cost $(22,075)) (22,436)
SHORT-TERM INVESTMENTS 2.9%
Money Market Fund 2.9%
T. Rowe Price Reserve Investment Fund, 1.16% # 37,741,196 37,741
Total Short-Term Investments (Cost $37,741) 37,741
Total Investments in Securities
100.4% of Net Assets (Cost $1,038,307) $1,314,739
----------
(1) Denominated in U.S. dollar unless otherwise noted
# Seven-day yield
* Non-income producing
^ All or a portion of this security is pledged to cover written call options
at June 30, 2004.
! Affiliated company - See Note 2.
!! Security contains restrictions as to public resale pursuant to the
Securities Act of 1933 and related rules - total value of such securities
at period-end amounts to $7,939 and represents 0.7% of net assets
@ Valued by the T. Rowe Price Valuation Committee, established by the fund's
Board of Directors
144A Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be resold in transactions exempt from registration only to
qualified institutional buyers - total value of such securities at
period-end amounts to $11,617 and represents 0.9% of net assets
ADR American Depository Receipts
CHF Swiss franc
DKK Danish krone
EUR Euro
INR Indian rupee
JPY Japanese yen
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Health Sciences Fund
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Certified Semiannual Report (Unaudited) June 30, 2004
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
(In thousands except shares and per share amounts)
Assets
Investments in securities, at value (cost $1,038,307) $ 1,314,739
Other assets 2,252
Total assets 1,316,991
Liabilities
Total liabilities 6,966
NET ASSETS $ 1,310,025
-------------
Net Assets Consist of:
Undistributed net investment income (loss) $ (3,372)
Undistributed net realized gain (loss) (40,047)
Net unrealized gain (loss) 276,432
Paid-in-capital applicable to 59,079,646 shares of
$0.0001 par value capital stock outstanding;
1,000,000,000 shares authorized 1,077,012
NET ASSETS $ 1,310,025
-------------
NET ASSET VALUE PER SHARE $ 22.17
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The accompanying notes are an integral part of these financial statements.
T. Rowe Price Health Sciences Fund
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Certified Semiannual Report (Unaudited)
STATEMENT OF OPERATIONS
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($ 000s)
6 Months
Ended
6/30/04
Investment Income (Loss)
Income
Dividend $ 2,093
Interest 1
Total income 2,094
Expenses
Investment management 3,939
Shareholder servicing 1,309
Custody and accounting 105
Prospectus and shareholder reports 67
Registration 25
Legal and audit 16
Directors 4
Miscellaneous 1
Total expenses 5,466
Net investment income (loss) (3,372)
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 35,661
Written options 11,532
Foreign currency transactions (44)
Net realized gain (loss) 47,149
Change in net unrealized gain (loss)
Securities 77,444
Written options (4,759)
Other assets and liabilities
denominated in foreign currencies (1)
Change in net unrealized gain (loss) 72,684
Net realized and unrealized gain (loss) 119,833
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 116,461
-------------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Health Sciences Fund
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Certified Semiannual Report (Unaudited)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
($ 000s)
6 Months Year
Ended Ended
6/30/04 12/31/03
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ (3,372) $ (5,438)
Net realized gain (loss) 47,149 3,119
Change in net unrealized gain (loss) 72,684 266,737
Increase (decrease) in net assets from operations 116,461 264,418
Capital share transactions *
Shares sold 260,790 238,878
Shares redeemed (94,593) (153,885)
Increase (decrease) in net assets from capital
share transactions 166,197 84,993
Net Assets
Increase (decrease) during period 282,658 349,411
Beginning of period 1,027,367 677,956
End of period $ 1,310,025 $ 1,027,367
----------- -----------
(Including undistributed net investment
income (loss) of $(3,372) at 6/30/04
and $0 at 12/31/03)
*Share information
Shares sold 11,981 13,705
Shares redeemed (4,398) (8,931)
Increase (decrease) in shares outstanding 7,583 4,774
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Health Sciences Fund
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Certified Semiannual Report (Unaudited) June 30, 2004
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 (the 1940 Act) as a diversified, open-end
management investment company and commenced operations on December 29, 1995. The
fund seeks long-term capital appreciation.
The accompanying financial statements were prepared in accordance with
accounting principles generally accepted in the United States of America, which
require the use of estimates made by fund management.
Valuation
The fund values its investments and computes its net asset value per share at
the close of the New York Stock Exchange (NYSE), normally 4 p.m. ET, each day
that the NYSE is open for business. Equity securities listed or regularly traded
on a securities exchange or in the over-the-counter market are valued at the
last quoted sale price or, for certain markets, the official closing price at
the time the valuations are made, except for OTC Bulletin Board securities,
which are valued at the mean of the latest bid and asked prices. A security that
is listed or traded on more than one exchange is valued at the quotation on the
exchange determined to be the primary market for such security. Listed
securities not traded on a particular day are valued at the mean of the latest
bid and asked prices for domestic securities and the last quoted sale price for
international securities.
Debt securities are generally traded in the over-the-counter market. Securities
with original maturities of one year or more are valued at prices furnished by
dealers who make markets in such securities or by an independent pricing
service, which considers yield or price of bonds of comparable quality, coupon,
maturity, and type, as well as prices quoted by dealers who make markets in such
securities. Securities with original maturities of less than one year are valued
at amortized cost in local currency, which approximates fair value when combined
with accrued interest.
Investments in mutual funds are valued at the mutual fund's closing net asset
value per share on the day of valuation. Purchased and written options are
valued at the mean of the closing bid and asked prices.
Other investments and those for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair value
as determined in good faith by the T. Rowe Price Valuation Committee,
established by the fund's Board of Directors.
Most foreign markets close before the close of trading on the NYSE. If the fund
determines that developments between the close of a foreign market and the close
of the NYSE will, in its judgment, materially affect the value of some or all of
its portfolio securities, which in turn will affect the fund's share price, the
fund will adjust the previous closing prices to reflect the fair value of the
securities as of the close of the NYSE, as determined in good faith by the T.
Rowe Price Valuation Committee, established by the fund's Board of Directors. A
fund may also fair value securities in other situations, such as when a
particular foreign market is closed but the fund is open. In deciding whether to
make fair value adjustments, the fund reviews a variety of factors, including
developments in foreign markets, the performance of U.S. securities markets, and
the performance of instruments trading in U.S. markets that represent foreign
securities and baskets of foreign securities. The fund uses outside pricing
services to provide it with closing market prices and information used for
adjusting those prices. The fund cannot predict how often it will use closing
prices and how often it will adjust those prices. As a means of evaluating its
fair value process, the fund routinely compares closing market prices, the next
day's opening prices in the same markets, and adjusted prices.
Currency Translation
Assets, including investments, and liabilities denominated in foreign currencies
are translated into U.S. dollar values each day at the prevailing exchange rate,
using the mean of the bid and asked prices of such currencies against U.S.
dollars as quoted by a major bank. Purchases and sales of securities, income,
and expenses are translated into U.S. dollars at the prevailing exchange rate on
the date of the transaction. The effect of changes in foreign currency exchange
rates on realized and unrealized security gains and losses is reflected as a
component of security gains and losses.
Rebates and Credits
Subject to best execution, the fund may direct certain security trades to
brokers who have agreed to rebate a portion of the related brokerage commission
to the fund in cash. Commission rebates are included in realized gain on
securities in the accompanying financial statements and totaled $43,000 for the
six months ended June 30, 2004. Additionally, the fund earns credits on
temporarily uninvested cash balances at the custodian that reduce the fund's
custody charges. Custody expense in the accompanying financial statements is
presented before reduction for credits.
Investment Transactions, Investment Income, and Distributions
Income and expenses are recorded on the accrual basis. Premiums and discounts on
debt securities are amortized for financial reporting purposes. Dividends
received
from mutual fund investments are reflected as dividend income; capital gain
distributions are reflected as realized gain/loss. Dividend income and capital
gain distributions are recorded on the ex-dividend date. Investment transactions
are accounted for on the trade date. Realized gains and losses are reported on
the identified cost basis. Distributions to shareholders are recorded on the
ex-dividend date. Income distributions are declared and paid on an annual basis.
Capital gain distributions, if any, are declared and paid by the fund, typically
on an annual basis.
Other
In the normal course of business, the fund enters into contracts that provide
general indemnifications. The fund's maximum exposure under these arrangements
is dependent on claims that may be made against the fund in the future and,
therefore, cannot be estimated; however, based on experience, the risk of
material loss from such claims is considered remote.
NOTE 2 - INVESTMENT TRANSACTIONS
Consistent with its investment objective, the fund engages in the following
practices to manage exposure to certain risks or enhance performance. The
investment objective, policies, program, and risk factors of the fund are
described more fully in the fund's prospectus and Statement of Additional
Information.
Options
Call and put options give the holder the right to purchase or sell,
respectively, a security at a specified price on a certain date. Risks arise
from possible illiquidity of the options market and from movements in security
values. Options are reflected in the accompanying Portfolio of Investments at
market value. Transactions in options written and related premiums received
during the six months ended June 30, 2004, were as follows:
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Number of
Contracts Premiums
Outstanding at beginning of period 55,000 $ 16,641,000
Written 115,000 39,443,000
Exercised (2,000) (614,000)
Expired (12,000) (1,894,000)
Closed (96,000) (31,501,000)
Outstanding at end of period 60,000 $ 22,075,000
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Affiliated Companies
The fund may invest in certain securities that are considered affiliated
companies. As defined by the 1940 Act, an affiliated company is one in which the
fund owns 5% or more of the outstanding voting securities. At June 30, 2004, the
value of affiliated companies totaled $1,357,000, representing 0.1% of the value
of the fund's investments in securities.
Other
Purchases and sales of portfolio securities, other than short-term securities,
aggregated $380,755,000 and $216,501,000, respectively, for the six months ended
June 30, 2004.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company under Subchapter M of the
Internal Revenue Code and distribute to shareholders all of its taxable income
and gains. Federal income tax regulations differ from generally accepted
accounting principles; therefore, distributions determined in accordance with
tax regulations may differ in amount or character from net investment income and
realized gains for financial reporting purposes. Financial reporting records are
adjusted for permanent book/tax differences to reflect tax character. Financial
records are not adjusted for temporary differences. The amount and character of
tax-basis distributions and composition of net assets are finalized at fiscal
year-end; accordingly, tax-basis balances have not been determined as of June
30, 2004.
The fund intends to retain realized gains to the extent of available capital
loss carryforwards. As of December 31, 2003, the fund had $86,373,000 of unused
capital loss carryforwards, of which $9,998,000 expire in 2009, $65,226,000
expire in 2010, and $11,149,000 expire in 2011.
At June 30, 2004, the cost of investments for federal income tax purposes was
$1,038,307,000. Net unrealized gain aggregated $276,432,000 at period-end, of
which $359,604,000 related to appreciated investments and $83,172,000 related to
depreciated investments.
NOTE 4 - RELATED PARTY TRANSACTIONS
The fund is managed by T. Rowe Price Associates, Inc. (the manager or Price
Associates), a wholly owned subsidiary of T. Rowe Price Group, Inc. The
investment management agreement between the fund and the manager provides
for an annual investment management fee, which is computed daily and paid
monthly. The fee consists of an individual fund fee, equal to 0.35 % of the
fund's average daily net assets, and the fund's pro-rata share of a group fee.
The group fee is calculated based on the combined net assets of certain mutual
funds sponsored by Price Associates (the group) applied to a graduated fee
schedule, with rates ranging from 0.48% for the first $1 billion of assets to
0.295% for assets in excess of $120 billion. The fund's portion of the group fee
is determined by the ratio of its average daily net assets to those of the
group. At June 30, 2004, the effective annual group fee rate was 0.31%, and
investment management fee payable totaled $701,000.
In addition, the fund has entered into service agreements with Price Associates
and two wholly owned subsidiaries of Price Associates (collectively, Price).
Price Associates computes the daily share price and maintains the financial
records of the fund. T. Rowe Price Services, Inc., provides shareholder and
administrative services in its capacity as the fund's transfer and dividend
disbursing agent. T. Rowe Price Retirement Plan Services, Inc., provides
subaccounting and recordkeeping services for certain retirement accounts
invested in the fund. Expenses incurred pursuant to these service agreements
totaled $898,000 for the six months ended June 30, 2004, of which $165,000 was
payable at period-end.
Additionally, the fund is one of several mutual funds in which certain college
savings plans managed by Price Associates may invest. As approved by the fund's
Board of Directors, shareholder servicing costs associated with each college
savings plan are borne by the fund in proportion to the average daily value of
its shares owned by the college savings plan. For the six months ended June 30,
2004, the fund was charged $20,000 for shareholder servicing costs related to
the college savings plans, of which $15,000 was for services provided by Price.
At June 30, 2004, approximately 0.8% of the outstanding shares of the fund were
held by college savings plans.
The fund may invest in the T. Rowe Price Reserve Investment Fund and the T. Rowe
Price Government Reserve Investment Fund (collectively, the Reserve Funds),
open-end management investment companies managed by Price Associates. The
Reserve Funds are offered as cash management options to mutual funds, trusts,
and other accounts managed by Price Associates and/or its affiliates, and are
not available for direct purchase by members of the public. The Reserve Funds
pay no investment management fees. During the six months ended June 30, 2004,
dividend income from the Reserve Funds totaled $165,000.
T. Rowe Price Health Sciences Fund
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Certified Semiannual Report
Information on Proxy Voting
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A description of the policies and procedures that the T. Rowe Price Health
Sciences Fund uses to determine how to vote proxies relating to portfolio
securities is available, without charge, upon request by calling 1-800-225-5132.
It also appears in the fund's Statement of Additional Information (Form 485B),
which can be found on the SEC's Web site, www.sec.gov.
Item 2. Code of Ethics.
A code of ethics, as defined in Item 2 of Form N-CSR, applicable to its
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions is filed as an
exhibit to the registrant's annual Form N-CSR. No substantive amendments were
approved or waivers were granted to this code of ethics during the registrant's
most recent fiscal half-year.
Item 3. Audit Committee Financial Expert.
Disclosure required in registrant's annual Form N-CSR.
Item 4. Principal Accountant Fees and Services.
Disclosure required in registrant's annual Form N-CSR.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
Not applicable. The complete schedule of investments is included in Item 1 of
this Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 9. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 10. Controls and Procedures.
(a) The registrant's principal executive officer and principal financial officer
have evaluated the registrant's disclosure controls and procedures within 90
days of this filing and have concluded that the registrant's disclosure controls
and procedures were effective, as of that date, in ensuring that information
required to be disclosed by the registrant in this Form N-CSR was recorded,
processed, summarized, and reported timely.
(b) The registrant's principal executive officer and principal financial officer
are aware of no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 11. Exhibits.
(a)(1) The registrant's code of ethics pursuant to Item 2 of Form N-CSR is filed
with the registrant's annual Form N-CSR.
(2) Separate certifications by the registrant's principal executive officer
and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 and required by Rule 30a-2(a) under the Investment Company Act of
1940, are attached.
(3) Written solicitation to repurchase securities issued by closed-end
companies: not applicable.
(b) A certification by the registrant's principal executive officer and
principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940,
is attached.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
T. Rowe Price Health Sciences Fund, Inc.
By: /s/ James S. Riepe
James S. Riepe
Principal Executive Officer
Date: August 16, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ James S. Riepe
James S. Riepe
Principal Executive Officer
Date: August 16, 2004
By: /s/ Joseph A. Carrier
Joseph A. Carrier
Principal Financial Officer
Date: August 16, 2004