Semiannual Report
Health Sciences Fund
June 30, 1996
T. Rowe Price
Report Highlights
o Despite rising interest rates, stocks advanced to new highs, fueled by a
strengthening economy and unprecedented inflows of money into equity
mutual funds.
o In the first six months since its inception, during a bull market for
health care stocks, your fund performed particularly well, surpassing
the returns of the overall market as well as the average for similar
funds.
o The fund achieved good gains from its holdings in home health care
providers and information services companies. However, its HMO holdings
were a drag on performance.
o Although we are concerned in the short run about the rapid runup in
health care valuations, we remain bullish on these stocks over the long
haul.
Fellow Shareholders
Successful birth, healthy childhood, and challenging entry into adolescence
characterize the first six months of the Health Sciences Fund. Against a
backdrop of a strengthening economy, moderate inflation, rising long-term
interest rates, a stronger U.S. dollar, and a bull market for emerging health
care stocks, your fund performed particularly well, surpassing the returns of
both the broad market and the Lipper Health/Biotechnology Fund Index.
Performance Comparison
Periods Ended 6/30/96 6 Months
Health Sciences Fund 20.20%
Lipper Health/Biotechnology Fund Index 7.59
S&P 500 10.10
Strong relative and absolute performance in the first quarter of 1996 was
followed by respectable but not outstanding results during a tougher
investment environment in the second quarter. The fund's assets grew
significantly, and we want to thank all new shareholders for the confidence
they have placed in us from the outset. We will work diligently on your behalf
to build shareholder net asset value over the long term.
Investment Environment
Since many segments of health care are not sensitive to the economy, health
care stocks tend to provide a relatively consistent, growing stream of
earnings and cash flow through both good and bad times. Investors who engage
in sector rotation strategies are therefore more likely to rotate into health
care investments when they believe the economy is weakening and rotate out
when they feel they will receive higher relative earnings growth from cyclical
companies. The first half of 1996 witnessed considerable investor uncertainty
about the direction and strength of the U.S. economy, which caused health care
stocks to move in and out of favor. This increased the volatility of the
health care investment universe and your fund.
These stocks tend to be more sensitive to interest rate movements than their
cyclical counterparts. Although the yield on 30-year U.S. Treasury bonds
increased by more than one percentage point in the first six months of 1996,
the runup had less of an impact on health care stocks than we would have
expected.
Multinational pharmaceutical and medical device companies form the majority of
the market capitalization of the health care investment universe, and the
global operations of these companies are sensitive to currency fluctuations.
For U.S. companies, the strength of the dollar relative to the Japanese yen
and some European currencies generally slowed revenue growth and discouraged
investment in U.S. pharmaceutical stocks. Some European pharmaceutical
companies may benefit from the strength of the U.S. dollar, but an unhedged
U.S. investor such as your fund will lose some of this advantage when the
foreign market value of the investment is converted back into a strong U.S.
dollar. The bottom line is that currency translation was a modest negative for
health care stocks in recent months.
Portfolio Review
During the first half of 1996, your fund's broad strategy, favorable stock
selection, and efforts to diversify geographically as well as across sectors
of the health sciences universe helped keep us ahead of our peers. We monitor
more than 800 companies across 18 sectors of the health sciences universe to
identify the most promising investment candidates. At the end of the first
half, our top 10 positions (shown in the table following this letter)
accounted for 25% of fund assets, while the top 25 positions accounted for 48%
of assets.
The fund's prospectus permits us to invest up to 35% of total assets in
foreign securities. Investment in international markets provides important
diversification, while providing exposure to well-positioned companies with
unique products and services that may be less well followed by investors than
their U.S. counterparts. As of June 30, international holdings accounted for
just under 11% of fund assets.
Three of the top contributors to net asset value per share over the last six
months were foreign companies. Swiss drug company Ciba-Geigy agreed to merge
with Basel neighbor Sandoz AG to create Novartis, which will become the
second-largest drug company in the world with dominant positions in crop
protection and animal health. Investors began to recognize the value in U.K.
biopharmaceutical company Xenova Group's natural products chemistry efforts,
which have led to clinical candidates for cancer and thrombosis. Finally, ESC
Medical Systems, based in Israel, created considerable excitement with its
pulsed light treatment for varicose veins and other dermatological disorders.
With many U.S. health care stocks reaching full valuations, we will continue
to look abroad for relative value.
Chart 1 - Sector Diversification pie
As the pie chart indicates, your fund is well diversified across the health
care universe. In allocating assets across the 18 broad sectors and 90
subsectors that we monitor, we combine fundamental, bottom-up research on
individual companies with several enduring themes that appear to transcend
changes in regulatory, legislative, and market conditions.
Three enduring themes in the delivery of health care services are:
o the unrelenting trend toward managed care, in which each of us will be
placed in an environment where physicians and patients are given
incentives by payers to contain costs;
o the movement of patient care to less costly clinic and home care
settings outside the hospital environment; and
o the promotion of health and wellness at home and at work.
The fund's higher-than-benchmark weighting in health maintenance organizations
(HMOs) hurt investment performance during the first half of 1996, with
significant declines in United HealthCare and PacifiCare Health Systems. We
took advantage of the weakness to buy more shares in these two well-positioned
companies. In our view, despite near-term pressure on its profit margins,
United HealthCare is the best-managed HMO, with substantial cost savings and
membership growth opportunities from its recent acquisition of MetraHealth.
PacifiCare, a highly successful Medicare HMO, stands to benefit from the
"privatization" of the Medicare system, which will likely force many of the 27
million Medicare beneficiaries into HMOs.
Offsetting declines in HMOs were strong performances by Apria Healthcare
Group, one of two dominant home health care providers in the U.S., and Renal
Care Group, a high-quality, kidney dialysis provider. One of our top
contributors was OccuSystems, a leading provider of occupational medicine and
workers' compensation cost containment. We increased our holdings when the
stock weakened on news that terrible winter weather on the East Coast had
reduced the number of visits to OccuSystems centers.
_____________________________________________________________________________
TO MANAGE CARE, YOU MUST . . . MEASURE IT
Another enduring health care theme is the role that abundant data successfully
converted into useful information will play in cost-effective service. In
short, to manage care, you must first be able to measure it. While we have
struggled with the valuations (typically 40 times forward earnings) and
business models (typically lumpy sales with varying revenue recognition
practices) of many information companies, the wind is at their backs because
health care providers only spend about 3% of revenues on information systems,
less than half as much as banks. That percentage will likely increase in
coming years.
Two of your fund's top contributors were information companies in disguise:
National Data is a leading provider of pharmacy transaction and other health
care information systems and services. The company's business is based on a
recurring revenue stream rather than one-time software license fees. While
traditionally viewed as a drug distributor, Cardinal Health is making an
important transition into a strategic information manager and will use its
unique position in the distribution channel to capture information that will
move market share and boost operating margins. Again, Cardinal Health's
business is predicated on recurring revenues, rather than one-time, lumpy
license fees.
Outlook
Rapid advances in health sciences, medicine, and health care delivery offer
substantial opportunities for superior long-term capital appreciation. We
remain bullish on the intermediate and long-term outlook for these stocks.
However, we are concerned in the near term about the strong recovery in
valuations in the health care sector since the bottom reached in the spring of
1994, when it became clear that Clinton health care reform efforts were
doomed.
With higher interest rates, a stronger U.S. dollar, and recent employment data
suggesting a stronger economy, investors seeking the absolute highest relative
earnings growth could move from health care stocks to more economically
sensitive issues. While we expect a Republican-controlled Congress to mute any
health care reform efforts by a second Clinton Administration, we could be
surprised by a recapture of the House of Representatives by Democrats and
possibly a reprise of reform efforts by a lame-duck President. In any event,
health care stocks could come under pressure from continued efforts to reform
the Medicare system and from managed care redoubling its cost containment
efforts during the dark side of the insurance cycle.
Having lived through the ups and downs of health care for a number of years, I
have reached two conclusions: first, with high returns on invested capital,
abundant free cash flow, favorable demographics, and patent-protected
technology addressing voids in therapy, the health care sector is an
attractive place for investment; and second, health care investing has its own
cycle governed by fear (typically regulatory or legislative threats) and greed
(valuations that can stretch well beyond the imaginable only to contract in an
instant). Investors should remember, especially after an exhilarating period
such as the last six months, that these stocks can be extremely volatile,
particularly over the short run.
Nevertheless, I strongly believe that these stocks are attractive over the
long term. A good approach to investing in this fund, in my opinion, is to
dollar cost average, committing an equal amount of money each week or month
through good times and bad. Thanks for your support.
Respectfully submitted,
Joseph Klein III
Executive Vice President and
Chairman of the Investment Advisory Committee
July 19, 1996
T. Rowe Price Health Sciences Fund
Portfolio Highlights
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
6/30/96
United HealthCare 4.4%
Boston Scientific 2.8
American Home Products 2.4
Ciba-Geigy 2.4
Dentsply International 2.4
Apria Healthcare 2.3
Watson Pharmaceuticals 2.1
PacifiCare Health Systems 2.1
Warner-Lambert 2.0
Eli Lilly 2.0
Columbia/HCA Healthcare 2.0
Quorum Health Group 1.9
Biogen 1.7
St. Jude Medical 1.7
Life Technologies 1.6
Resound 1.6
VIVUS 1.5
Zeneca Group 1.5
Olsten 1.5
Vencor 1.4
Amgen 1.4
Pfizer 1.4
United Insurance 1.4
Pharmacia & Upjohn 1.4
Fresenius USA 1.3
Total 48.2%
T. Rowe Price Health Sciences Fund
Portfolio Highlights
CONTRIBUTIONS TO THE CHANGE IN NET ASSET VALUE PER SHARE
6 Months Ended 6/30/96
Ten Best Contributors
National Data * 16(cents)
Apria Healthcare * 14
Xenova Group * 14
Ciba-Geigy * 13
OccuSystems * 11
Neurobiological Technology ** 10
Cardinal Health * 9
Renal Care Group * 9
ESC Medical Systems ** 8
InterCardia ** 8
Total 112(cents)
Ten Worst Contributors
Physicians Health Service * - 14(cents)
Immulogic Pharmaceutical * 8
Cell Genesys * 7
IVAX ** 6
United HealthCare * 5
Biomet ** 4
Utah Medical Products * 4
Watson Pharmaceuticals * 4
Biogen * 4
Novoste * 4
Total - 60(cents)
* Position added
** Position eliminated
T. Rowe Price Health Sciences Fund
Performance Comparison
This chart shows the value of a hypothetical $10,000 investment in the fund
over the past 10 fiscal year periods or since inception (for funds lacking
10-year records). The result is compared with a broad-based average or index.
The index return does not reflect expenses, which have been deducted from the
fund's return.
Chart 2 - SEC graph
T. Rowe Price Health Sciences Fund
Unaudited
Financial Highlights For a share outstanding throughout each period
12/31/95
to
6/30/96
NET ASSET VALUE
Beginning of period $ 10.00
Investment activities
Net investment income 0.00*
Net realized and
unrealized gain (loss) 2.02
Total from
investment activities 2.02
NET ASSET VALUE
End of period $ 12.02
Ratio/Supplemental Data
Total return 20.20%*
Ratio of expenses to
average net assets 1.35%!*
Ratio of net investment
income to average
net assets 0.12%!*
Portfolio turnover rate 55.6%!
Average commission rate paid $ 0.2283
Net assets, end of period
(in thousands) $ 161,642
* 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.
T. Rowe Price Health Sciences Fund
Unaudited June 30, 1996
Statement of Net Assets Shares/Par Value
In thousands
Common Stocks 97.9%
ALTERNATE SITE HEALTH CARE DELIVERY 6.0%
Dialysis 1.0%
Renal Care Group * 52,000 $ 1,674
1,674
Home Health Care 3.8%
Apria Healthcare * 120,000 3,765
Olsten 80,000 2,350
6,115
Specialized Home Health 1.2%
Raytel Medical * 140,000 1,837
1,837
Total Alternate Site Health Care Delivery 9,626
BIOTECHNOLOGY 18.4%
U.S. Major - Biotechnology 4.1%
Amgen * 43,000 2,317
Biogen * 50,000 2,734
Genzyme * 20,000 1,007
Immunex * 37,000 509
6,567
Antibodies 0.5%
Cell Genesys * 110,000 825
825
Antisense 1.3%
Gilead Sciences * 80,000 2,010
Ribozyme Pharmaceuticals * 11,600 149
2,159
Biomaterials 1.1%
Collagen 90,000 1,721
1,721
Genomics 0.4%
Affymetrix * 10,800 163
Genome Therapeutics 30,000 266
Millennium Pharmaceuticals * 15,000 227
656
Neuroscience 2.5%
Guilford Pharmaceuticals * 58,000 $ 1,363
Neurex * 70,000 1,536
NeuroSearch (DKK) 30,000 1,152
4,051
Rational Drug Design 2.4%
Arris Pharmaceutical * 23,000 271
Oncogene Science * 177,000 1,792
Synaptic Pharmaceutical * 138,200 1,883
3,946
Vaccines 1.2%
Immulogic Pharmaceuticals * 220,000 1,966
1,966
Other Biotechnology 4.9%
Bone Care International * 100,000 663
Magainin Pharmaceuticals * 100,000 1,044
Microcide Pharmaceutical * 57,500 747
NPS Pharmaceuticals * 133,400 1,801
PathoGensis * 58,000 895
PerSeptive Biosystems * 100,000 925
Sequus Pharmaceuticals * 40,000 797
Xenova Group ADR * 172,500 1,057
7,929
Total Biotechnology 29,820
HEALTH CARE AND LIFE SCIENCE
DISTRIBUTION 3.6%
Drug Distribution 1.2%
Cardinal Health 27,097 1,954
1,954
Dental Distribution 2.4%
Dentsply International 90,000 3,808
3,808
Total Health Care and Life Science Distribution 5,762
HEALTH CARE INFORMATION SYSTEMS 1.2%
Hospital Information Systems 0.7%
Cerner * 51,800 1,114
1,114
Physician Information Systems 0.5%
Medic Computer Systems * 10,000 $ 812
812
Total Health Care Information Systems 1,926
HEALTH CARE REITS 2.0%
Healthcare REITS 2.0%
American Health Properties 90,000 1,991
Nationwide Health Properties 57,800 1,221
Total Health Care REITS 3,212
HOSPITAL MANAGEMENT 3.9%
Acute Care 3.9%
Columbia/HCA Healthcare 60,000 3,203
Quorum Health Group * 115,000 3,033
Total Hospital Management 6,236
HOSPITAL SUPPLY AND MEDICAL DEVICE
TECHNOLOGY 17.3%
Medical Devices/Consumables 17.3%
Arrow International 59,100 1,647
Boston Scientific * 100,000 4,500
CardioThoracic Systems * 45,600 607
Cytyc * 40,000 1,045
Fresenius USA * 100,000 2,150
Incontrol * 50,000 575
Medtronic 30,000 1,680
Novoste * 149,000 1,443
Resound *! 223,256 2,549
St. Jude Medical * 80,000 2,670
Steris * 50,000 1,597
Stryker 60,000 1,361
Sybron International * 48,000 1,200
Tecnol Medical Products * 41,000 782
Utah Medical Products * 140,000 1,759
VIVUS * 75,000 2,466
Total Hospital Supply and Medical Device Technology 28,031
LABORATORY SUPPLIES AND EQUIPMENT 2.4%
Consumables 2.0%
Cholestech * 120,000 $ 600
Life Technologies 80,000 2,570
3,170
Separation Technology 0.4%
Visible Genetics * 70,000 696
696
Total Laboratory Supplies and Equipment 3,866
LONG-TERM AND SUB-ACUTE CARE 2.6%
Nursing Homes/Custodial 2.6%
Health Care and Retirement * 80,000 1,900
Vencor * 76,000 2,318
Total Long-Term and Sub-Acute Care 4,218
MANAGED CARE: HMOS 8.0%
California 2.3%
Health Systems International * 12,000 326
PacifiCare Health Systems * 10,000 662
PacifiCare Health Systems (Class B) * 40,000 2,715
3,703
Other HMOs 5.7%
Oxford Health Plans * 30,000 1,232
Physicians Health Service * 39,700 893
United HealthCare 140,000 7,070
9,195
Total Managed Care:HMOs 12,898
MANAGED CARE: SPECIALTY COST 1.0%
Dental 1.0%
United Dental Care * 40,000 1,665
Total Managed Care: Specialty Cost 1,665
PHARMACEUTICALS 24.0%
U.S. Major - Pharmaceutical 11.8%
Abbott Laboratories 33,000 $ 1,435
American Home Products 65,400 3,932
Bristol-Myers Squibb 15,000 1,350
Eli Lilly 50,000 3,250
Pfizer 32,000 2,284
Pharmacia & Upjohn 50,000 2,219
Rhone-Poulenc Rorer 20,000 1,343
Warner-Lambert 60,000 3,300
19,113
U.K. Major - Pharmaceutical 2.5%
SmithKline Beecham 30,500 1,658
Zeneca Group ADR 35,000 2,354
4,012
European Major - Pharmaceuticals 5.0%
Astra (Class B) (SEK) 29,000 1,266
Ciba-Geigy (CHF) 3,200 3,903
Huhtamaki (FIM) 11,000 368
Rhone-Poulenc (FRF) 63,000 1,657
Rhone-Poulenc (FRF)! 1,687 40
Synthelabo (FRF) 10,000 846
8,080
Drug Delivery 1.1%
R. P. Scherer * 40,000 1,815
1,815
Generics 3.6%
Global Pharmaceutical * 143,500 1,480
Perrigo * 83,000 939
Watson Pharmaceuticals * 90,000 3,409
5,828
Total Pharmaceuticals 38,848
PHYSICIAN PRACTICE MANAGEMENT 1.4%
Emergency/Primary Care 0.3%
Inphynet Medical Management * 25,000 475
475
Specialists 0.7%
OccuSystems * 30,000 $ 1,116
1,116
Other Physician Practice 0.4%
Physician Support Systems * 29,700 664
664
Total Physician Practice Management 2,255
VENDORS HEALTHCARE AND LIFE SCIENCE 1.4%
Vendors to Health Science Companies 1.4%
United Insurance * 100,000 2,269
Total Vendors Healthcare and Life Science 2,269
Miscellaneous Common Stocks 4.7% 7,544
Total Common Stocks (Cost $159,154) 158,176
Short-Term Investments 3.6%
Commercial Paper 3.6%
Caterpillar Financial Services, 5.35%, 7/9/96 $2,000,000 1,998
CPC International, 4(2), 5.30%, 8/21/96 2,000,000 1,985
Investments in Commercial Paper through a
joint account, 5.49 - 5.68%, 7/1/96 1,911,134 1,911
Total Short-Term Investments (Cost $5,894) 5,894
Total Investments in Securities
101.5% of Net Assets (Cost $165,048) $ 164,070
Other Assets Less Liabilities (2,428)
NET ASSETS $ 161,642
Net Assets Consist of:
Accumulated net investment income - net of distributions $ 47
Accumulated net realized gain/loss - net of distributions 2,470
Net unrealized gain (loss) (978)
Paid-in-capital applicable to 13,451,860 shares of
$0.0001 par value capital stock outstanding;
1,000,000,000 shares authorized 160,103
NET ASSETS $ 161,642
NET ASSET VALUE PER SHARE $ 12.02
* Non-income producing
! Securities contain some restrictions as to public resale-total of such
securities at period-end amounts to 1.6% of net assets.
REIT Real Estate Investment Trust
4(2) Commercial paper sold within terms of a private placement memorandum,
exempt from registration under section 4.2 of the Securities Act of
1933, as amended, and may be sold only to dealers in that program or
other "accredited investors."
CHF Swiss franc
DKK Danish krone
FIM Finnish mark
FRF French franc
SEK Swedish krona
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Health Sciences Fund
Unaudited
Statement of Operations
In thousands
12/31/95
to
6/30/96
Investment Income
Income
Dividend (net of foreign taxes of $ 21) $ 297
Interest 271
Total income 568
Expenses
Shareholder servicing 219
Investment management 187
Custody and accounting 49
Registration 33
Prospectus and shareholder reports 19
Legal and audit 5
Directors 4
Miscellaneous 5
Total expenses 521
Net investment income 47
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 2,488
Foreign currency transactions (18)
Net realized gain (loss) 2,470
Change in net unrealized gain or loss on securities (978)
Net realized and unrealized gain (loss) 1,492
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 1,539
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Health Sciences Fund
Unaudited
Statement of Changes in Net Assets
In thousands
12/31/95
to
6/30/96
Increase (Decrease) in Net Assets
Operations
Net investment income $ 47
Net realized gain (loss) 2,470
Change in net unrealized gain or loss (978)
Increase (decrease) in net assets from operations 1,539
Capital share transactions*
Shares sold 184,687
Shares redeemed (24,684)
Increase (decrease) in net assets from capital
share transactions 160,003
Net Assets
Increase (decrease) during period 161,542
Beginning of period 100
End of period $ 161,642
*Share information
Shares sold 15,488
Shares redeemed (2,046)
Increase (decrease) in shares outstanding 13,442
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Health Sciences Fund
Unaudited June 30, 1996
Notes to Financial Statements
Note 1 - Significant Accounting Policies
T. Rowe Price Health Sciences, Inc. (the fund) is registered under the
Investment Company Act of 1940 as a diversified, open-end management
investment company and commenced operations on December 31, 1995.
Valuation Equity securities listed or regularly traded on a securities
exchange are valued at the last quoted sales price at the time 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 that are not traded on a particular day
and securities that are 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.
Short-term debt securities are valued at their cost which, when combined with
accrued interest, approximates fair value.
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.
Other Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses
are reported on the identified cost basis. Dividend income and distributions
to shareholders are recorded by the fund on the ex-dividend date. Income and
capital gain distributions are determined in accordance with federal income
tax regulations and may differ from those determined in accordance with
generally accepted accounting principles.
Note 2 - Investment Transactions
Commercial Paper Joint Account The fund, and other affiliated funds, may
transfer uninvested cash into a commercial paper joint account, the daily
aggregate balance of which is invested in high-grade commercial paper. All
securities purchased by the joint account satisfy the fund's criteria as to
quality, yield, and liquidity.
Other Purchases and sales of portfolio securities, other than short-term
securities, aggregated $175,503,000 and $20,397,000, respectively, for the
period ended June 30, 1996.
Note 3 - Federal Income Taxes
No provision for federal income taxes is required since the fund intends to
qualify as a regulated investment company and distribute all of its taxable
income.
At June 30, 1996, the aggregate cost of investments for federal income tax and
financial reporting purposes was $165,048,000, and net unrealized loss
aggregated $978,000, of which $8,271,000 related to appreciated investments
and $9,249,000 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 $57,000 was payable at June 30, 1996. The fee is computed daily
and paid monthly, and consists of an individual fund fee equal to 0.35% of
average daily net assets and a group fee. The group fee is based on the
combined assets of certain mutual funds sponsored by the manager or Rowe
Price-Fleming International, Inc. (the group). The group fee rate ranges from
0.48% for the first $1 billion of assets to 0.305% for assets in excess of $50
billion. At June 30, 1996, and for the period then ended, the effective annual
group fee rate was 0.33% and 0.34%, respectively. The fund pays a pro rata
share of the group fee based on the ratio of its net assets to those of the
group.
Under the terms of the investment management agreement, the manager is
required to bear any expenses through December 31, 1997, which would cause the
fund's ratio of expenses to average net assets to exceed 1.35%. Thereafter,
through December 31, 1999, the fund is required to reimburse the manager for
these expenses, provided that average net assets have grown or expenses have
declined sufficiently to allow reimbursement without causing the fund's ratio
of expenses to average net assets to exceed 1.35%. Pursuant to this agreement,
$74,000 of management fees were not accrued by the fund for the period ended
June 30, 1996.
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 $190,000 for the period ended
June 30, 1996, of which $12,000 was payable at period-end.
For yield, price, last transaction, and current balance, 24 hours, 7 days a
week, call:
1-800-638-2587 toll free
For assistance with your existing fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
625-6500 Baltimore area
T. Rowe Price
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for distribution only to shareholders and to others
who have received a copy of the prospectus of the T. Rowe Price Health
Sciences Fund.
T. Rowe Price Investment Services, Inc., Distributor RPRTHSF 6/30/96
CHART 1 - Pie chart showing sector diversification as of 6/30/96.
CHART 2 - line graph showing the cumulative growth of $10,000 invested in the
Health Sciences Fund from inception (12/31/95) compared with $10,000 invested
in a broad-based index over the same period.
