Semiannual Report
Health Sciences Fund
June 30, 1997
T. Rowe Price
Report Highlights
Health Sciences Fund
o The broad stock market surged to another double-digit gain
over the last six months, led by large, blue chip
companies.
o The Health Sciences Fund posted a robust gain in the first
half of 1997 but trailed both its peer group index and the
S&P 500 due to its heavier exposure to smaller companies.
o The fund benefited from its pharmaceutical stocks but was
hampered by holdings of smaller biotech and medical device
companies and some health care service providers.
o We remain bullish for the long term but are concerned in
the near term about high valuations, especially among blue
chip drug and medical device companies.
Fellow Shareholders
With inflation and interest rates under control, economic
growth, and strong cash flows into equity funds, the broad stock
market delivered strong gains in the first half of 1997 despite
already high valuations. Your fund posted solid, double-digit
gains over the last six and 12 months. However, because
larger-capitalization, blue chip stocks outperformed small-caps,
the fund's higher-than-benchmark exposure to smaller medical
device and biotechnology companies held back performance
relative to its peer group and the unmanaged Standard & Poor's
500 Index.
Performance Comparison
Periods Ended 6/30/97 6 Months 12 Months
_____________________________________________________
Health Sciences Fund 11.65% 17.74%
S&P 500 20.61 34.70
Lipper Health/Biotechnology
Fund Index 12.71 19.03
While our 11.65% first half return may be acceptable from an
absolute standpoint, we were disappointed that we failed to
surpass our Lipper benchmark. Nevertheless, the fund's 41.53%
return between its inception on December 31, 1995, and June 30,
1997, ranked third out of 22 funds in the Lipper
Health/Biotechnology Fund universe, according to Lipper
Analytical Services. For the one-year period ended June 30, the
fund ranked fourteenth out of 25 funds. Of course, these past
returns do not guarantee future results.
INVESTMENT PHILOSOPHY
Similar to a weight watcher reaffirming a diet and exercise
program after putting on a few pounds, we have assessed and
reaffirmed our investment program following the recent pause in
the fund's early outperformance. We remain committed to a
fundamental strategy of investing in innovative health care
products and services without limitation by geography or market
capitalization. We strongly believe that differentiated,
cost-effective products and services driven by innovative
technology will achieve attractive unit growth and pricing
power.
We balance this fundamental "invest in innovation" strategy with
a strongly held belief that some of the inherent risk in
smaller, emerging biotechnology and medical device companies can
be managed through diversification into larger-capitalization
companies. While this balance helps reduce risk in a portfolio,
it may depress absolute returns over shorter periods relative to
funds that by luck or by design happen to have all their eggs in
the one basket that is outperforming at a particular time.
Through intensive, timely, hands-on research emphasizing company
visits, medical conferences, physician interviews, and detailed
financial analysis, we attempt to gain unique insights into the
ever-changing health care world before they are reflected in
stock prices. The Health Sciences Fund's analytical effort is
multifaceted, organized both by industry and by types of
diseases. We also recently added a surgeon with a Ph.D in
molecular biology and a corporate development professional from
the medical device industry to your investment team. We believe
that we have the strategy and resources in place to deliver
strong, risk-adjusted investment returns over the long term.
PORTFOLIO REVIEW
An analysis of contributions to net asset value per share over
the past 12 months (shown in the table following this letter)
reveals that some of the best performance was achieved by
larger, blue chip drug and device stocks. Three of your fund's
largest holdings were pharmaceutical companies that had
spectacular returns. Warner-Lambert (up 66% since December 31,
1996, and 126% since June 30, 1996) has successfully launched
two blockbuster products for diabetes and cholesterol lowering
that will dramatically improve the growth and profitability of
the company's Parke-Davis pharmaceutical operation.
Novartis, formed by the merger of Swiss pharmaceutical giants
Ciba-Geigy and Sandoz, has successfully cut costs and now
promises revenue growth from its research and development
pipeline (the fund currently owns Sandoz Capital convertible
debentures). Altana AG appreciated after investors came to terms
with the almost inevitable consolidation of smaller
pharmaceutical companies and also realized that Altana's product
pipeline could capture market share from the two largest drugs
on the market today, the ulcer medications Losec/Prilosec and
Zantac. These three pharmaceutical companies were among your
fund's top 10 holdings during the last year. Even so, we would
have performed better if we had held a larger percentage of
assets in these stocks. The fund's overall weighting in
pharmaceutical stocks has averaged around 24% of total assets,
versus 40% to 45% for the Lipper Health/Biotechnology benchmark.
Sector Diversification
12/31/95 6/30/96 12/31/96 6/30/97
______________________________________________________________
Pharmaceuticals 33% 24% 19% 28%
Biotechnology 13 20 23 21
Hospital Supply and Medical
Device Technology 12 19 18 18
Physician Practice Management 2 2 6 7
Laboratory Supplies and
Equipment 5 3 4 4
Managed Care: Specialty
Cost Containment - 1 2 3
Health Care Information
Systems 4 2 4 2
Alternate Site Health Care
Delivery - 6 8 2
Reserves and Other 31 23 16 15
The fund's second largest contributor to NAV over the last 12
months was American Oncology Resources, a physician practice
management company specializing in oncology (the treatment of
cancer). The Focus section later in this report discusses
physician practice management firms, and their growing
attractiveness for the fund, in more detail.
Our bias toward smaller-capitalization growth companies, as
evidenced by the fund's median market capitalization of $640
million, was at odds with the market's preference for
larger-capitalization, blue chip companies. Indeed, eight of the
10 worst contributors over the past 12 months were companies
with market capitalizations less than $200 million, typically in
the biotechnology and medical device fields. We found smaller
companies to be more attractive because of what we perceived to
be rich valuations for larger pharmaceutical and medical device
stocks.
These biotech companies, in our opinion, still represent more
research bang for the market capitalization buck, as pointed out
in our last annual report. For instance, Collagen, the fund's
second-largest holding, has been a disappointment to date, yet
still represents excellent value: the company's stake in Boston
Scientific is worth $80 million, it has cash and marketable
securities of $40 million, and its venture investment portfolio
is conservatively worth another $20 million. Therefore,
Collagen's current $140 million total market capitalization
assumes little value for its $70 million (revenues) plastic
surgery business. For this reason, we recently purchased more of
the stock after it dipped below our initial purchase price.
The largest negative sector was the health care services arena.
While mergers and acquisitions have benefited fund holdings in
drug and device companies, such as Boston Scientific and
Novartis, home health care provider Apria Healthcare and
California-based Medicare HMO PacifiCare Health Systems have
both had significant problems integrating acquisitions. In the
HMO arena, we made two errors-first, in estimating how quickly
health plans would be able to adjust pricing to reflect
higher-than-expected cost trends, and second, in assessing how
quickly investors would accord high valuations to HMO stocks,
which are essentially cyclical growth insurance companies.
On June 30, 1997, our top 25 positions accounted for 47.8% of
assets (as shown in the table following this letter) compared
with 48.2% last December 31. The median market cap of the fund
was $640 million on June 30, compared with $570 million in
December, with larger-cap companies accounting for 48.2% of
assets (versus 41.3%), emerging growth companies accounting for
22.4% of assets (versus 27.8%), and development-stage companies
accounting for 25.2% of assets (versus 27.6%). The remaining
4.2% was in cash reserves (versus 3.3%).
FOCUS ON PHYSICIAN PRACTICE MANAGEMENT
Over the past year, we have overweighted the physician practice
management (PPM) sector to 7% of assets based on a belief that
physicians will recapture the practice of medicine from
insurance companies if they successfully organize to demonstrate
cost-effective outcomes.
Our investments in this area sprang from our recognition of the
powerful forces of change that are transforming the physician
market from a fragmented, cottage activity into an industry
composed of larger, more sophisticated organizations. Over the
past decade, individual physicians have faced mounting
reimbursement pressures due to the advent of managed care.
Today, many PPM companies are growing rapidly as physicians
respond to these pressures by affiliating with larger entities
to improve their negotiating leverage with health insurers and
increase their scale, efficiency, and capabilities.
Although the PPM sector is early in its evolution and subject to
above-average stock price volatility, we believe it offers great
potential. PPM companies are addressing a large, fragmented
physician market that is rapidly consolidating. The physician
services market in 1997 is estimated at $220 billion, yet less
than 10% of all physicians are affiliated with publicly traded
PPMs which are expected to grow in excess of 30% per year.
Physicians influence an estimated 80% of all health care
expenditures, suggesting that the potential market for PPMs is
much larger than $220 billion. Since physicians are key to most
health care purchasing decisions, PPMs are well positioned to
capture ancillary revenues and participate in profits from
managing medical risk. We believe that PPMs will capture market
share from less organized health care providers. PPMs that
achieve dominant positions in local and regional markets,
entrench themselves in partnerships with managed care plans, and
develop infrastructures to deliver superior medical care,
customer service, and cost-efficiency should achieve significant
market share gains in coming years.
We believe that Physician Practice Management Companies will
capture market share from less organized health care providers.
Our enthusiasm is tempered somewhat by the realization that most
PPM businesses are still early in their development and are not
compelling due to their low margins, limited operating leverage,
extensive working capital requirements, and dependence on
acquisitions and external financing. These characteristics
contrast with the high returns on invested capital and abundant
free cash flow that are common in many other areas of health
care. A further complication for PPMs is that physicians are
often difficult to manage given their independent and
entrepreneurial natures. Therefore, we believe that quality of
management and business model will be points of significant
differentiation among PPMs. Successful PPMs will be those led by
management teams that have navigated through the evolution of
this sector and have learned how to effectively manage and
empower physicians.
Stock selection is complicated by the sheer variety of PPM
companies as well as myriad legal and economic relationships
they forge with physicians. Major publicly traded PPMs exist in
the primary care and multi-specialty group practice areas as
well as in several specialties, including cardiology, emergency
medicine, occupational medicine, neonatology, oncology, and
orthopedics. Among private companies, venture capitalists are
incubating emerging PPMs for almost every conceivable physician
specialty, and many of these will eventually reach the public
markets. Some PPMs split physician practice operating profits
with physicians, others receive a management fee based on a
portion of practice revenues, while still others directly employ
physicians.
Recognizing the complexity of these businesses and the
challenges they face, we focus extensively on management
quality, the outlook for particular physician segments, and the
sustainability of each PPM's economic model. These factors are
then balanced against current valuation parameters to identify
potential holdings. In addition to American Oncology Resources,
we have also made investments in PhyCor, the premier
consolidator and operator in the multi-specialty group practice
segment, and OccuSystems, a successful PPM in the occupational
medicine field.
OUTLOOK
We remain bullish on the long-term outlook for health care
stocks since rapid advances in health sciences, medicine, and
health care delivery offer substantial opportunities for
superior capital appreciation. Strong underlying demand,
proprietary technology-driven innovation, and high returns on
invested capital all encourage continued, long-term investment
in health science companies. However, we remain 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 the Clinton Administration's health care
reform efforts were doomed. Valuations are especially full among
the larger-cap, blue chip pharmaceutical and medical device
companies.
Valuations are especially full among the larger- cap, blue chip
pharmaceutical and medical device companies.
With an almost perfect economic environment of consistent
growth, subdued inflation, and stable interest rates, valuations
of blue chip growth companies may well continue to expand. So
far, most large domestic drug and device companies have managed
to contend with a stronger U.S. dollar, and investors have
tended to focus on growth in local currencies. The regulatory
and legislative environment is relatively benign for most drug
and product companies, while select health care service
companies could feel the impact of efforts to balance the budget
by cutting back on Medicare and Medicaid entitlements.
During the past year, managed care companies have attributed
increases in medical costs to rising drug prices. This could
well serve as a harbinger of future pressures for the large
pharmaceutical companies, yet drugs remain one of the most
cost-effective forms of health maintenance for patients of all
ages, and utilization is likely to increase as global
populations age here and abroad. One protection against the
ability of managed care to put pressure on pricing and
utilization is to offer differentiated, cost-effective products
and services that uniquely address voids in existing therapies.
Your fund is diligently trying to uncover companies that are
developing these products and services.
We believe we have an appropriate strategy and the necessary
resources to deliver good long-term returns. As a shareholder,
I continue to invest in the fund on a regular basis. I believe
that dollar cost averaging, while it does not assure a profit or
protect against loss in declining markets, is still an excellent
way to gradually participate in the growth of the dynamic health
sciences field. Thank you for your continued support.
Respectfully submitted,
Joseph Klein III
Executive Vice President and
Chairman of the Investment Advisory Committee
July 18, 1997
T. Rowe Price Health Sciences Fund
Portfolio Highlights
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
6/30/97
_______________________________________
Warner-Lambert 3.9%
Collagen 3.1
SmithKline Beecham 2.7
Altana AG 2.5
MedImmune 2.4
_______________________________________
OccuSystems 2.2
Sandoz Capital 2.1
Omnicare 1.9
Smith & Nephew 1.9
Dentsply International 1.9
_______________________________________
Bristol-Myers Squibb 1.9
Medtronic 1.9
Pfizer 1.9
Nationwide Health Properties 1.7
Eli Lilly 1.7
_______________________________________
Vencor 1.6
Takeda Chemical Industries 1.6
Physician Reliance Network 1.4
Sybron International 1.4
PacifiCare Health Systems 1.4
_______________________________________
Banyu Pharmaceutical 1.4
Stryker 1.4
Diagnostic Products 1.3
PhyCor 1.3
American Oncology Resources 1.3
_______________________________________
Total 47.8%
T. Rowe Price Health Sciences Fund
Portfolio Highlights
CONTRIBUTIONS TO THE CHANGE IN NET ASSET VALUE PER SHARE
6 Months Ended 6/30/97
Ten Best Contributors
Warner-Lambert 23(cents)
Altana AG 13
American Oncology Resources 9
Bristol-Myers Squibb 9
Xenova Group ADR 8
Eli Lilly 8
SmithKline Beecham ADR * 8
Pfizer 8
Sandoz Capital Cv. Bond * 7
Takeda Chemical Industries * 7
Total 100(cents)
Ten Worst Contributors
PacifiCare Health Systems - 6(cents)
Utah Medical Products 6
Stericycle 6
Pharmacopeia 5
Medic Computer Systems 5
Global Pharmaceutical 4
GalaGen 4
Immulogic Pharmaceuticals 4
Vital Signs 3
Cell Genesys 3
Total - 46(cents)
12 Months Ended 6/30/97
Ten Best Contributors
Warner-Lambert 37(cents)
American Oncology Resources * 16
Altana AG * 12
Boston Scientific 11
Bristol-Myers Squibb 11
Stryker 11
Pfizer 10
Medtronic 9
PathoGenesis 9
Quorum Health Group 8
Total 134(cents)
Ten Worst Contributors
Apria Healthcare - 18(cents)
United HealthCare ** 12
ReSound ** 10
Global Pharmaceutical 9
GalaGen 8
Immulogic Pharmaceuticals 7
Pharmacopeia * 5
Oncogene Science 5
Collagen 4
Utah Medical Products 4
Total - 82(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.
Health Sciences Fund
As of 6/30/97
<TABLE>
<CAPTION>
S&P 500 Health Sciences Stock IndexFund
<S> <C> <C>
12/31/95 $ 10,000 $ 10,000
6/96 11,010 12,020
6/97 14,830 14,153
</TABLE>
Average Annual Compound Total Return
This table shows how the fund would have performed each year if
its actual (or cumulative) returns for the periods shown had
been earned at a constant rate.
Since Inception
Periods Ended 6/30/97 1 Year Inception Date
_____________________________________________________________
Health Sciences Fund 17.74% 26.00% 12/31/95
Investment return and principal value represent past performance
and will vary. Shares may be worth more or less at redemption
than at original purchase.
T. Rowe Price Health Sciences Fund
Unaudited
Financial Highlights
For a share outstanding throughout each period
6 Months 12/31/95
Ended Through
6/30/97 12/31/96
NET ASSET VALUE
Beginning of period $ 12.27 $ 10.00
Investment activities
Net investment income (0.02) (0.03)*
Net realized and
unrealized gain (loss) 1.45 2.70
Total from investment
activities 1.43 2.67
Distributions
Net realized gain - (0.40)
NET ASSET VALUE
End of period $ 13.70 $ 12.27
Ratios/Supplemental Data
Total return 11.65% 26.75%
*
Ratio of expenses to
average net assets 1.29%! 1.35%*
Ratio of net investment
income to average
net assets (0.37)%! (0.32)%*
Portfolio turnover rate 102.5%! 133.1%
Average commission rate paid $ 0.0435 $0.0603
Net assets, end of period
(in thousands) $ 257,963 $193,958
* 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, 1997
Statement of Net Assets Shares/Par Value
In thousands
Common Stocks & Warrants 91.6%
AGRICULTURE & ANIMAL HEALTH 1.0%
Veterinary Products 1.0%
IDEXX Laboratories * 213,600 $ 2,650
Total Agriculture & Animal Health 2,650
ALTERNATE SITE HEALTH CARE
DELIVERY 2.0%
Dialysis 1.0%
Renal Care Group * 60,000 2,505
2,505
Home Health Care 1.0%
Apria Healthcare * 146,300 2,597
2,597
Total Alternate Site Health Care Delivery 5,102
BIOTECHNOLOGY 20.4%
U.S. Major - Biotechnology 1.1%
Amgen 20,000 1,162
Genzyme * 60,000 1,661
2,823
Antibodies 0.3%
Cell Genesys * 150,000 731
731
Antisense 0.9%
Gilead Sciences * 80,000 2,215
2,215
Biomaterials 3.1%
Collagen 452,900 7,926
7,926
Combinatorial Chemistry 0.7%
Pharmacopeia * 150,000 1,950
1,950
Genomics 0.4%
Millennium Pharmaceuticals * 60,000 $ 977
977
Neuroscience 1.1%
Cephalon* 100,000 1,153
Neurocrine Biosciences * 200,000 1,775
2,928
Rational Drug Design 1.1%
Oncogene Science * 177,000 940
Synaptic Pharmaceutical * 140,000 1,873
2,813
Vaccines 0.8%
Immulogic Pharmaceuticals * 150,000 469
Vical * 120,000 1,545
2,014
Biotech/Cardiovascular 0.4%
COR Therapeutics * 100,000 1,075
1,075
Other Biotechnology 10.5%
Alkermes * 86,300 1,262
Aquila Biopharmaceuticals * 13 0
Bone Care International * 77,000 1,040
Corvas International * 100,000 638
GalaGen ! * 425,000 1,142
Ligand Pharmaceuticals * 125,000 1,602
Magainin Pharmaceuticals * 40,600 299
Magainin Pharmaceuticals * # 129,730 846
Magainin Pharmaceuticals,
Warrants, 8/6/01 * 84,325 0
MedImmune * 331,300 6,212
MGI PHARMA * 500,000 1,812
NPS Pharmaceuticals * 255,000 2,454
PathoGenesis * 80,000 2,325
Protein Design Labs * 50,000 1,413
Scios Nova * 150,000 938
Shaman Pharmaceuticals * 330,000 1,928
Xenova Group (GBP) * 363,000 1,965
Xenova Group ADR * 250,000 1,328
27,204
Total Biotechnology 52,656
ENVIRONMENTAL PRODUCTS
& SERVICES 1.0%
Waste Management 1.0%
Stericycle * 325,000 $ 2,620
Total Environmental
Products & Services 2,620
HEALTH CARE AND LIFE SCIENCE
DISTRIBUTION 0.9%
Drug Distribution 0.9%
Cardinal Health 40,000 2,290
Total Health Care and
Life Science Distribution 2,290
HEALTH CARE INFORMATION SYSTEMS 2.2%
Patient Information and Education 0.1%
Access Health Marketing * 8,000 197
197
Physician Information Systems 2.1%
IDX Systems * 70,000 2,424
Medic Computer Systems * 50,000 1,114
Medical Manager * 125,000 1,867
5,405
Total Health Care
Information Systems 5,602
HEALTH CARE REITS 3.4%
Health Care REITS 3.4%
American Health Properties 110,000 2,764
Nationwide Health Properties 200,000 4,400
Omega Healthcare Investors 50,000 1,634
Total Health Care REITS 8,798
HOSPITAL MANAGEMENT 1.0%
Acute Care 1.0%
Quorum Health Group * 70,000 2,494
Total Hospital Management 2,494
HOSPITAL SUPPLY AND MEDICAL DEVICE
TECHNOLOGY 17.9%
Dental 1.9%
Dentsply International 100,000 $ 4,894
4,894
Capital Equipment 0.1%
Autonomous Technologies * 73,300 288
288
Medical Device Technology 15.9%
Analogic 53,800 1,846
Boston Scientific * 50,000 3,072
Cardiac Pathways * 100,000 912
CardioGenesis * 81,000 805
Cholestech * 120,000 683
Diagnostic Products 110,000 3,472
Haemonetics * 90,000 1,721
Incontrol * 200,000 1,800
Medtronic 60,000 4,860
Mentor 40,000 1,186
Novoste * 110,000 1,829
Rochester Medical * 42,900 601
Smith & Nephew (GBP) * 1,800,000 5,006
St. Jude Medical * 60,000 2,340
Stryker 100,000 3,503
United States Surgical 80,000 2,980
Utah Medical Products * 188,200 1,482
Ventana Medical Systems * 140,000 1,750
Vital Signs 70,000 1,203
41,051
Total Hospital Supply and
Medical Device Technology 46,233
LABORATORY SUPPLIES AND
EQUIPMENT 3.4%
Capital Equipment 1.0%
NeoPath * 130,000 2,462
2,462
Consumables 2.2%
Life Technologies 80,000 2,220
Sybron International * 90,000 3,589
5,809
Separation Technology 0.2%
Visible Genetics * 70,000 415
415
Total Laboratory Supplies
and Equipment 8,686
LONG-TERM AND SUB-ACUTE CARE 1.6%
Nursing Homes/Sub Acute 1.6%
Vencor * 100,000 4,225
Total Long-Term and Sub-Acute Care 4,225
MANAGED CARE: HMOS 1.4%
California 1.4%
PacifiCare Health Systems (Class A) * 12,800 776
PacifiCare Health Systems (Class B) * 43,800 2,796
Total Managed Care: HMOs 3,572
MANAGED CARE: SPECIALTY COST
CONTAINMENT 2.0%
Pharmacy Benefit Management 2.0%
Omnicare 160,000 5,020
Total Managed Care:
Specialty Cost Containment 5,020
PHARMACEUTICALS 26.4%
U.S. Major - Pharmaceutical 11.6%
Allergan 100,000 3,181
Bristol-Myers Squibb 60,000 4,860
Eli Lilly 40,000 4,373
Pfizer 40,000 4,780
Pharmacia & Upjohn 80,000 2,780
Warner-Lambert 80,000 9,940
29,914
Japanese Major - Pharmaceutical 4.3%
Banyu Pharmaceutical (JPY) 200,000 3,507
Sankyo (JPY) 100,000 3,359
Takeda Chemical Industries (JPY) 150,000 4,214
11,080
U.K. Major - Pharmaceutical 4.0%
SmithKline Beecham ADR 75,000 6,872
Zeneca Group (GBP) 100,000 3,307
10,179
European Major - Pharmaceuticals 2.5%
Altana AG (DEM) 6,000 6,399
6,399
Contract Research Organizations 1.5%
Covance * 150,000 2,897
Pharmaceutical Product Development * 50,000 1,087
3,984
Drug Delivery 1.5%
Inhale Therapeutic Systems * # 81,250 1,782
R. P. Scherer * 40,000 2,065
3,847
Generics 1.0%
Global Pharmaceutical ! * 239,400 943
NaPro BioTherapeutics * 238,800 1,746
2,689
Total Pharmaceuticals 68,092
PHYSICIAN PRACTICE MANAGEMENT 5.3%
Primary Care 1.8%
PhyCor * 100,000 3,440
ProMedCo * 150,000 1,294
4,734
Specialists 3.5%
American Oncology Resources * 200,000 3,363
OccuSystems * 67,700 1,965
Physician Reliance Network * 400,000 3,713
9,041
Total Physician Practice Management 13,775
VENDORS HEALTH CARE AND LIFE
SCIENCE 1.1%
Vendors to Health
Science Companies 1.1%
UICI * 100,000 2,944
Total Vendors Health Care
and Life Science 2,944
Miscellaneous Common Stocks 0.6% 1,595
Total Common Stocks
and Warrants (Cost $215,093) 236,354
Convertible Bonds 4.2%
OccuSystems, 6.00%, 12/15/01 3,130,000 3,700
Sandoz Capital, 2.00%, 10/6/02 3,500,000 5,373
Synetic, 5.00%, 2/15/07 2,000,000 1,758
Total Convertible Bonds
(Cost $9,453) 10,831
Short-Term Investments 4.1%
Certificates of Deposit 0.4%
Union Bank of
California, 5.55%, 7/11/97 1,000,000 1,000
1,000
Commercial Paper 3.7%
Asset Securitization
Cooperative, 4(2), 5.53%, 7/21/97 1,000,000 997
Banque Nationale
de Paris, 5.55%, 7/14/97 1,000,000 998
Beta Finance, 4(2), 5.56%, 8/8/97 1,000,000 994
Chrysler Financial, 5.60%, 7/10/97 1,000,000 999
Delaware Funding, 4(2),
5.55%, 7/15/97 1,000,000 998
Falcon Asset Securitization,
4(2), 5.55%, 7/25/97 1,000,000 996
Island Finance of Puerto Rico,
5.60%, 9/9/97 1,000,000 989
Jefferson Pilot, 5.55%, 7/10/97 1,000,000 999
Preferred Receivables
Funding, 5.55%, 7/17/97 1,000,000 998
Investments in Commercial Paper
through a Joint Account
6.05 - 6.20%, 7/1/97 477,468 477
9,445
Total Short-Term Investments
(Cost $10,445) 10,445
Total Investments in Securities
99.9% of Net Assets (Cost $234,991) $257,630
Other Assets Less Liabilities 333
NET ASSETS $257,963
__________
Net Assets Consist of:
Accumulated net investment income
- net of distributions (432)
Accumulated net realized gain/loss
- net of distributions 7,177
Net unrealized gain (loss) 22,636
Paid-in-capital applicable to 18,832,846
shares of $0.0001 par value capital stock
outstanding; 1,000,000,000 shares authorized 228,582
NET ASSETS $257,963
_________
NET ASSET VALUE PER SHARE $ 13.70
_________
! Affiliated company
* Non-income producing
# Securities contain some restrictions as to public
resale-total of such securities at period-end amounts
to 1.02% 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."
DEM German deutschemark
GBP British sterling
JPY Japanese yen
The accompanying notes are an integral part of these financial
statements.
T. Rowe Price Health Sciences Fund
Unaudited
Statement of Operations
In thousands
6 Months
Ended
6/30/97
Investment Income
Income
Dividend $ 810
Interest 279
Total income 1,089
Expenses
Investment management 900
Shareholder servicing 500
Custody and accounting 54
Registration 28
Prospectus and shareholder reports 23
Legal and audit 5
Directors 3
Miscellaneous 8
Total expenses 1,521
Net investment income (432)
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 6,921
Foreign currency transactions (152)
Net realized gain (loss) 6,769
Change in net unrealized gain or loss
Securities 17,634
Other assets and liabilities
denominated in foreign currencies (2)
Change in net unrealized gain or loss 17,632
Net realized and unrealized gain (loss) 24,401
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 23,969
________
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
6 Months 12/31/95
Ended Through
6/30/97 12/31/96
Increase (Decrease) in Net Assets
Operations
Net investment income $ (432) $ (396)
Net realized gain (loss) 6,769 6,868
Change in net unrealized
gain or loss 17,632 5,004
Increase (decrease) in net
assets from operations 23,969 11,476
Distributions to shareholders
Net realized gain - (6,074)
Capital share transactions*
Shares sold 119,378 270,973
Distributions reinvested - 5,861
Shares redeemed (79,342) (88,378)
Increase (decrease) in net assets
from capital share transactions 40,036 188,456
Net Assets
Increase (decrease) during period 64,005 193,858
Beginning of period 193,958 100
End of period $ 257,963 $ 193,958
_____________________
*Share information
Shares sold 9,315 22,758
Distributions reinvested - 484
Shares redeemed (6,293) (7,442)
Increase (decrease) in
shares outstanding 3,022 15,800
The accompanying notes are an integral part of these financial
statements.
T. Rowe Price Health Sciences Fund
Unaudited June 30, 1997
Notes to Financial Statements
T. Rowe Price Health Sciences Fund
Note 1 - Significant Accounting Policies
T. Rowe Price Health Sciences Fund, Inc. (the fund) is
registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company and
commenced operations on December 31, 1995.
Valuation Equity securities 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.
Debt securities are generally traded in the over-the-counter
market and are valued at a price deemed best to reflect fair
value as quoted by dealers who make markets in these securities
or by an independent pricing service. Short-term debt securities
are valued at amortized 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.
Affiliated Companies Investments in companies 5% or more of
whose outstanding voting securities are held by the fund are
defined as "Affiliated Companies" in Section 2(a)(3) of the
Investment Company Act of 1940.
Currency Translation Assets and liabilities are translated into
U.S. dollars at the prevailing exchange rate at the end of the
reporting period. Purchases and sales of securities and income
and expenses are translated into U.S. dollars at the prevailing
exchange rate on the dates of such transactions. The effect of
changes in foreign exchange rates on realized and unrealized
security gains and losses is reflected as a component of such
gains and losses.
Premiums and Discounts Premiums and discounts on debt securities
are amortized for both financial reporting and tax purposes.
Other Income and expenses are recorded on the accrual basis.
Investment transactions are accounted for on the trade date.
Realized gains and losses are reported on the identified cost
basis. Dividend income and distributions to shareholders are
recorded by the fund on the ex-dividend date. Income and capital
gain distributions are determined in accordance with federal
income tax regulations and may differ from those determined in
accordance with generally accepted accounting principles.
Note 2 - Investment Transactions
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 $151,935,000 and $116,848,000,
respectively, for the six months ended June 30, 1997.
Note 3 - Federal Income Taxes
No provision for federal income taxes is required since the fund
intends to continue to qualify as a regulated investment company
and distribute all of its taxable income.
At June 30, 1997, the aggregate cost of investments for federal
income tax and financial reporting purposes was $234,991,000,
and net unrealized gain aggregated $22,639,000, of which
$38,597,000 related to appreciated investments and $15,958,000
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 $141,000 was payable at June
30, 1997. The fee is computed daily and paid monthly, and
consists of an individual fund fee equal to 0.35% of average
daily net assets and a group fee. The group fee is based on the
combined assets of certain mutual funds sponsored by the manager
or Rowe Price-Fleming International, Inc. (the group). The group
fee rate ranges from 0.48% for the first $1 billion of assets to
0.30% for assets in excess of $80 billion. At June 30, 1997, and
for the six months then ended, the effective annual group fee
rate was 0.33%. 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, $101,000 of
unaccrued 1996 fees were repaid during the six months ended June
30, 1997.
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 $421,000 for the
six months ended June 30, 1997, of which $86,000 was payable at
period-end.
During the six months ended June 30, 1997, the fund, in the
ordinary course of business, placed security purchase and sale
orders aggregating $8,195,000 with certain affiliates of the
manager and paid commissions of $19,000 related thereto.
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(registered
trademark) and T. Rowe Price OnLine.
Discount Brokerage*
Individual Investments Stocks, bonds, options, precious metals,
and other securities at a savings over regular commission rates.
Investment Information
Combined Statement Overview of your T. Rowe Price accounts.
Shareholder Reports Fund managers' reviews of their strategies
and results.
T. Rowe Price Report Quarterly investment newsletter discussing
markets and financial strategies.
Performance Update Quarterly review of all T. Rowe Price fund
results.
Insights Educational reports on investment strategies and
financial markets.
Investment Guides Asset Mix Worksheet, College Planning Kit,
Diversifying Overseas: A Guide to International Investing,
Personal Strategy Planner, Retirees Financial Guide, and
Retirement Planning Kit.
*A division of T. Rowe Price Investment Services, Inc. Member
NASD/SIPC.
For yield, price, last transaction,
current balance, or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access(registered trademark):
1-800-638-2587 toll free
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
410-625-6500 Baltimore area
To open a Discount Brokerage
account or obtain information,
call: 1-800-638-5660 toll free
Internet address:
www.troweprice.com
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus of the
T. Rowe Price Health Sciences Fund.
Investor Centers:
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
Investment With Confidence(registered trademark)
T. Rowe Price
T. Rowe Price Investment Services, Inc., Distributor.
F10-051 6/30/97
