ANNUAL REPORT
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Science and Technology Fund
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December 31, 1996
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Report Highlights
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Report Highlights
o After an exuberant 1995, the stock market had another good year in 1996,
rising more than 20%.
o Despite a difficult environment and midyear correction, science and
technology stocks provided good returns, though not as lofty as the broad
market.
o Your fund returned 7.96% and 14.23% for the 6- and 12-month periods ended
December 31, trailing similar funds and the overall market.
<PAGE>
o Over the last six months, we increased fund exposure to electronic
technology and data services companies, while trimming positions in media
and telecommunications as well as life sciences and health care.
o Technology stocks should benefit from strong industry product cycles and
earnings in 1997, and we are positive over the intermediate term.
Fellow Shareholders
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Despite a difficult environment for science and technology stocks earlier
in the year and a midyear correction, your fund delivered strong absolute
results in 1996, generating positive returns each quarter and rising 14.23% for
the year. While the fund held its own during the first half, it lagged both the
unmanaged Standard & Poor's 500 Stock Index and the Lipper index of similar
funds over the last six months. Consequently, for the first time since 1988, the
fund trailed both benchmarks for the calendar year.
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Performance Comparison
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Periods Ended 12/31/96 6 Months 12 Months
- --------------------------------------------------------------------------------
Science & Technology Fund 7.96% 14.23%
S&P 500 11.68 22.96
Lipper Science & Technology Fund Index 12.62 16.91
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As always, we remind shareholders that while the fund may be quite volatile
over the short run, it has the potential for superior capital appreciation over
the long haul. Our commitment to building long-term value is evidenced by the
fund's cumulative return of 203% for the five-year period ended December 31,
1996, an annualized average of 24.86%. We will work diligently to continue this
record.
CAPITAL GAIN DISTRIBUTION
Your fund's Board of Directors declared a total capital gain distribution
of $3.60 per share for 1996. This distribution, payable December 30 to
shareholders of record on December 26, reflected a short-term capital gain of
$0.92 and a long-term capital gain of $2.68. Your check or statement confirming
the distribution was mailed in early January, and Form 1099-DIV, with complete
tax information, was mailed later in the month.
<PAGE>
MARKET ENVIRONMENT
On the heels of an exhilarating 1995, the overall U.S. stock market enjoyed
another outstanding year in 1996, bringing its two-year advance to 69%, one of
the greatest in history. The market shrugged off an array of concerns last year,
including fears over inflation and rising interest rates, midyear corporate
earnings disappointments, a flood lower-quality initial public offerings,
national election anxiety, and steadily increasing market valuations. Equity
markets rose to record levels, buoyed by a favorable economy and unprecedented
cash flows into domestic equity mutual funds.
Bigger was definitely better in 1996 as investors sought the relative
safety of larger-capitalization, blue chip companies. As shown in the table, the
30 corporate giants that compose the Dow Jones Industrial Average significantly
outpaced small-company stocks as represented by the Russell 2000 Index. The move
into blue chips was fueled by concern over slowing corporate earnings growth, a
record year for mergers and acquisitions (including several megadeals in the
telecommunications and pharmaceutical industries), and a consistent flight to
quality.
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Market Performance
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Major Stock Market Indices 1996 Return
- --------------------------------------------------------------------------------
Dow Jones Industrial Average 28.88%
S&P 500 Index 22.96
Nasdaq Composite * 22.71
S&P 400 MidCap Index 19.20
Russell 2000 16.49
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*Principal only
================================================================================
Science and technology stocks languished during the first half of the year
due to several factors: eroding fundamentals in the semiconductor and
semiconductor capital equipment segments, modestly disappointing unit growth in
personal computers, slowing subscriber growth and profitability in the wireless
arena, and the negative translation effects of a stronger U.S. dollar.
Disappointing financial results became more common, especially in the
semiconductor, consumer software, and wireless communications segments.
Technology stocks bottomed in July after sustaining their sharpest
correction since the spring of 1994. On a positive note, the severity of the
correction helped shake some of the speculative ownership out of the sector. The
sector recovered sharply in the second half of the year, boosted by an
improvement in the broader market, strong cash flows into domestic equity funds,
hopes for a cyclical recovery in the semiconductor segment, anticipation of the
normal seasonal pickup in personal computer sales, and particularly strong
performance from the major pharmaceutical companies. Many segments of the
technology sector advanced more than 40% from their July lows.
<PAGE>
The technology sector can look forward to strong industry product cycles in
1997. Intel should be increasing shipments of its next- generation
microprocessor, the PentiumPro, while Microsoft should be rolling out new
versions of its key product families and further leveraging its leadership
position in the software industry.
==============================
The technology sector can look
forward to strong industry
product cycles in 1997.
- ------------------------------
As the role of the personal computer continues to shift from data device to
communications tool, demand will continue to grow for high-speed networking and
remote/on-line access, portending continued strength in the data networking
segment. While the availability of personal communications services and digital
cellular technology should usher in a period of increased infrastructure
spending and a focus on subscriber growth in the wireless arena,
telecommunications reform remains a source of uncertainty for most wireline
providers.
Information services companies should benefit from the corporate drive
toward outsourcing nonstrategic administrative activities, and well-positioned
life sciences and health care companies continue to benefit from the needs of an
aging population, the shift toward managed care, and the promotion of health at
home and at work.
Although this improved environment has already been reflected somewhat in
the sharp recovery of technology stocks in recent months, we remain enthusiastic
about the sector over the intermediate term.
PORTFOLIO REVIEW
Our investments in semiconductor, networking, and business software
companies had the biggest positive impact on fund performance. In fact, the
fund's top 10 performers for the year came from these three segments. Enterprise
software vendor BMC Software, Intel, data networking leader 3Com, Microsoft,
networking giant Cisco Systems, and semiconductor manufacturer Analog Devices
all were outstanding contributors for the year. Our holdings in the information
services and life sciences and health care arena also boosted performance.
United States Surgical and Boston Scientific, both pioneers in less invasive
surgery; National Data, a leading transaction processor; and America Online
generated sizable gains over the course of the year.
<PAGE>
[Edgar description: A pie chart showing industry diversification on
12/31/96, Business and Consumer Software, 29%; Semiconductor-Related, 14%;
Networking, 23%; Hardware/Peripherals, 4%; Life Sciences/Health Care, 6%; Media,
6%; Data Services, 16%; Reserves, 2%.]
In contrast, our investments in media and telecommunications services,
biotechnology, and consumer software hampered performance. Broderbund Software,
Intuit, and Glenayre Technologies were notable underachievers. Broderbund and
Intuit suffered from the general malaise in the consumer software segment as
well as the cancellation of new product launches. As an equipment supplier to
the paging industry, Glenayre Technologies was hurt by the spillover effect of
that industry's deteriorating profitability and by the transition to
next-generation technologies. On balance, the fund's diversification buoyed
returns during the first half of the year but dampened results during the second
half.
Nevertheless, we remain comfortable with our strategy of running a
diversified, yet concentrated, portfolio of science and technology stocks. At
year-end, your fund consisted of approximately 80 individual holdings spread
among several rapidly growing industry segments. Electronic technology the blue
sections of the pie chart - remains the largest commitment, accounting for 70%
of fund assets, up from 60% last June. During the year, we broadened our
holdings in data services, increasing our exposure from 9% to 16%. Media and
telecommunications services and life sciences/health care equally split the
balance of fund assets. As of December 31, our top 10 positions accounted for
approximately 37% of fund assets, while cash represented 2%.
We are pursuing opportunities along the following long-term investment
themes: the personal computer as a communications tool, the insatiable demand
for high-speed connectivity, the growth in digital wireless communications, the
trend toward corporations outsourcing nonstrategic administrative functions, and
the continuing shift toward managed and otherwise cost-conscious health care. A
word on each:
o The personal computer is evolving from a computational device to a
multimedia communications tool. Users no longer want to "compute it
faster"; they want to get connected and have access -- to databases,
information sources, and each other. Accordingly, the value added in a
desktop configuration is spreading into the network of servers,
communications software, and networking equipment.
o The industry's continuing transition to open, networked client-server
computing platforms is the most significant trend in the commercial
computing marketplace. This trend is driving application development away
from centralized mainframes and proprietary minicomputers into networks of
widely distributed desktop workstations. In addition, remote access and
telecommuting are becoming accepted practices in the workplace.
Furthermore, on-line access and use of the public Internet are "must-have"
applications in the consumer market. All of these forces are driving
exponential demand for high-speed connectivity.
<PAGE>
o Digital technologies are just now beginning to meaningfully affect the
wireless communications industry. Whether it's in the guise of
cellular-like voice services, paging, or satellite video services, wireless
communications are making a rapid shift toward digital technologies. Our
focus continues to be on companies with significant international presences
and those that play critical roles in the deployment of next-generation
services.
o By concentrating on their core value added, while outsourcing noncritical
administrative functions, corporations can reduce costs and risk and remain
more responsive to customers. In this area, we are concentrating on leading
companies that possess economies of scale, a high level of recurring
revenues, and potential operating leverage.
o As the link between the patient and the medical bill payor tightens,
managed care and other forms of cost-effective health care will gain in
popularity. Despite the tougher pricing environment this scenario suggests,
companies that provide lower-cost treatment or that help measure and
competitively analyze treatment outcomes stand to benefit.
OUTLOOK
After a challenging 1996, science and technology stocks should benefit from
strong industry product cycles this year. Our bullishness is tempered only by
the near-perfect conditions currently underlying the broader financial markets:
modest inflation and benign interest rates, steady corporate earnings growth,
strong cash flows into domestic equity mutual funds, and relative world peace.
Any sudden change in any of these could undermine the stock market in general
and the more volatile science and technology sector in particular.
While the sharp recovery in both stock prices and investor sentiment during
the fall has somewhat anticipated an improved environment in 1997, our
enthusiasm about the long-term potential of the science and technology sector
remains undiminished.
Respectfully submitted,
[Signature]
Charles A. Morris
President and Chairman of the Investment Advisory Committee
January 17, 1997
<PAGE>
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Sticking To Your Game Plan
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[An 8-bar chart showing best and worst annualized total returns of stocks
for various rolling time periods between 1950 and 1996]
In our report to you one year ago, we mentioned the possibility of a modest
decline in stock prices. In fact, from May to July 1996, the broad market (as
measured by the Standard & Poor's 500 Stock Index) fell around 7%. However, the
bull market resumed its charge to post a robust 23% gain for the year.
Some believe the market is poised for a significant downturn. We do not
expect a major drop in stock prices in 1997, although another modest pullback is
possible. On balance, we expect stocks to advance at a much slower pace.
How should you prepare for a potential market pullback? As always, our
advice is to diversify your investments and focus on the long term. If you've
implemented a sound investment strategy, stay the course. Stocks have
historically overcome periods of volatility to provide better returns than most
other investments. Market corrections can even have a silver lining because they
result in good buying opportunities.
Furthermore, the volatility of stock market returns has diminished
significantly over longer time frames. The chart shows the best and worst
annualized returns on stocks over various rolling time periods between 1950 and
1996. (For instance, there were 37 rolling 10-year periods: 1950-1960,
1951-1961, etc.) Investors who held stocks for only one year could have had as
much as a 52.6% gain, or as little as a 26.5% loss -- a spread of 79 percentage
points. However, investors who held stocks for 10-year periods or longer always
overcame interim volatility to post gains for the entire period.
In addition, a well-diversified portfolio can weather volatility better than a
more concentrated portfolio over the long term and particularly during market
corrections. For example, during last summer's correction, small-company stocks
fell nearly 16% while large-company issues dropped 7.3%. However, a portfolio
diversified among large U.S. companies (30% of assets), small U.S. companies
(15%), foreign companies (15%), intermediate-term Treasury bonds (30%), and
Treasury bills (10%) would have lost a smaller 5.2% of its value. {1}
Above all, remember that investing is a long-distance race, not a
sprint.
{1} Ned Davis Research.
<PAGE>
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Portfolio Highlights
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TWENTY-FIVE LARGEST HOLDINGS
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Percent of
Net Assets
12/31/96
- --------------------------------------------------------------------------------
BMC Software 5.1%
3Com 5.0
Oracle 4.4
Cisco Systems 3.9
Intel 3.2
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Analog Devices 3.1
America Online 3.0
Microsoft 3.0
Maxim Integrated Products 3.0
First Data 2.8
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Xilinx 2.6
Synopsys 2.4
Electronic Data Systems 2.0
ADC Telecommunications 1.9
Ascend Communications 1.9
- --------------------------------------------------------------------------------
Network General 1.7
Linear Technology 1.7
Boston Scientific 1.5
FORE Systems 1.5
Shiva 1.5
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COMPAQ Computer 1.5
Newbridge Networks 1.5
Glenayre Technologies 1.3
Automatic Data Processing 1.3
PanAmSat 1.3
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Total 62.1%
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<PAGE>
================================================================================
Portfolio Highlights
- --------------------------------------------------------------------------------
CONTRIBUTIONS TO THE CHANGE IN NET ASSET VALUE PER SHARE
- --------------------------------------------------------------------------------
6 Months Ended December 31, 1996
Ten Best Contributors
- --------------------------------------------------------------------------------
3Com 65(cent)
Intel 61
Maxim Integrated Products 47
BMC Software 40
Analog Devices 30
Microsoft 28
Linear Technology 23
Boston Scientific 15
Altera ** 15
Xilinx 14
- --------------------------------------------------------------------------------
Total 338(cent)
================================================================================
Ten Worst Contributors
- --------------------------------------------------------------------------------
Glenayre Technologies -41(cent)
Shiva 22
Intuit 21
Sybase ** 14
Omnipoint 9
First Data 8
Newbridge Networks * 8
ADC Telecommunications * 7
Hewlett-Packard ** 6
Broderbund Software ** 6
Total -142(cent)
================================================================================
<PAGE>
================================================================================
12 Months Ended December 31, 1996
Ten Best Contributors
- --------------------------------------------------------------------------------
BMC Software 96(cent)
Intel * 82
3Com 71
Cisco Systems 46
Microsoft * 43
Analog Devices 37
Xilinx 33
PeopleSoft 29
Ascend Communications 28
Cascade Communications 25
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Total 490(cent)
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Ten Worst Contributors
- --------------------------------------------------------------------------------
Intuit -55(cent)
Adobe Systems 45
Broderbund Software ** 42
Glenayre Technologies * 40
Bay Networks ** 33
Sybase ** 31
Quantum ** 22
Mobile Telecom. Technologies ** 18
Cephalon ** 12
Seagate Technology ** 10
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Total -308(cent)
* Position added
** Position eliminated
================================================================================
<PAGE>
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.
[SEC Chart for Science and Technology Fund]
Average Annual Compound Total Return
This table shows how the fund would have performed each year if its actual
(or cumulative) returns for the periods shown had been earned at a constant
rate.
================================================================================
Since Inception
Periods Ended 12/31/96 1 Year 3 Years 5 Years Inception Date
Science & Technology Fund 14.23% 27.18% 24.86% 21.72% 9/30/87
- --------------------------------------------------------------------------------
Investment return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
================================================================================
<PAGE>
<TABLE>
For a share outstanding throughout each period
====================================================================================================================================
Financial Highlights
<CAPTION>
Year
Ended
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period ..................... $ 29.12 $ 21.64 $ 18.95 $ 17.33 $ 15.57
Investment activities
Net investment income ............... (0.09) (0.03) (0.09) (0.05)* (0.10)*
Net realized and
unrealized gain (loss) .............. 4.28 12.05 3.08 4.18 2.98
Total from
investment activities ............... 4.19 12.02 2.99 4.13 2.88
Distributions
Net realized gain ................... (3.60) (4.54) (0.30) (2.51) (1.12)
NET ASSET VALUE
End of period ........................... $ 29.71 $ 29.12 $ 21.64 $ 18.95 $ 17.33
Ratios/Supplemental Data
Total return ............................ 14.23% 55.53% 15.79% 24.25%* 18.76%*
Ratio of expenses to
average net assets ...................... 0.97% 1.01% 1.11% 1.25%* 1.25%*
Ratio of net investment
income to average
net assets .............................. (0.33)% (0.15)% (0.58)% (0.68)%* (0.81)%*
Portfolio turnover rate ................. 125.6% 130.3% 113.3% 163.4% 144.3%
Average commission
rate paid ............................... $ 0.0537 -- -- -- --
Net assets, end of period
(in millions) ........................... $ 3,292 $ 2,285 $ 915 $ 501 $ 281
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
* Excludes expenses in excess of a 1.25% voluntary expense limitation in effect
through 12/31/93.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
Statement of Net Assets
- --------------------------------------------------------------------------------
Shares/Par Value
In thousands
Common Stocks 98.0%
ELECTRONIC TECHNOLOGY 68.7%
Business Software 22.2%
Aurum Software * ............................. 125,000 $ 2,883
BMC Software * ............................... 4,000,000 166,250
Citrix Systems * ............................. 500,000 19,531
Cognos * ..................................... 706,500 19,782
Informix * ................................... 1,000,000 20,437
INSO * ....................................... 500,000 19,688
Microsoft * .................................. 1,200,000 99,225
Netscape Communications * .................... 400,000 22,750
Oracle * ..................................... 3,500,000 145,906
PeopleSoft * ................................. 750,000 35,953
PLATINUM technology * + ...................... 3,000,000 40,687
Pure Atria * ................................. 1,300,000 31,931
Rational Software * .......................... 500,000 19,781
Remedy * ..................................... 325,000 17,388
SELECT Software Tools ADR * .................. 290,500 5,175
Sterling Software ............................ 1,206,000 38,140
Vantive * .................................... 781,400 24,321
729,828
Consumer Multimedia and Technical 5.8%
Adobe Systems ............................... 750,000 28,078
Cadence Design Systems * .................... 800,000 31,800
EPIC * + .................................... 750,000 18,750
Intuit * .................................... 1,000,000 31,750
Synopsys * .................................. 1,750,000 80,500
190,878
Semiconductor 14.3%
ANADIGICS * .................................. 50,000 1,975
Analog Devices * ............................. 3,000,000 101,625
DSP Communications * ......................... 1,257,900 24,293
Intel ........................................ 800,000 104,750
Linear Technology ............................ 1,250,000 54,844
Maxim Integrated Products * .................. 2,250,000 97,453
Xilinx * ..................................... 2,350,000 86,510
471,450
<PAGE>
Networking 22.2%
3Com * ........................................ 2,250,000 $164,953
ADC Telecommunications * ...................... 2,000,000 62,250
Ascend Communications * ....................... 1,000,000 62,125
Cascade Communications * ...................... 500,000 27,625
Cisco Systems * ............................... 2,000,000 127,375
FORE Systems * ................................ 1,500,000 49,406
Glenayre Technologies * ....................... 2,000,000 43,125
Network General * ............................. 1,825,000 55,092
Newbridge Networks * .......................... 1,700,000 48,025
Premisys Communications * ..................... 404,000 13,635
Security Dynamics Technologies * .............. 771,200 24,245
Shiva * ....................................... 1,400,000 48,650
Summa Four * .................................. 150,000 1,266
Verilink * .................................... 100,000 3,262
731,034
Hardware/Peripherals 4.2%
Adaptec * ................................ 600,000 24,038
COMPAQ Computer * ........................ 650,000 48,262
Dell Computer * .......................... 745,800 39,667
Sun Microsystems * ....................... 1,000,000 25,688
137,655
Total Electronic Technology 2,260,845
LIFE SCIENCES AND HEALTH CARE 6.1%
Pharmaceuticals 1.0%
ALZA (Class A) * ........................ 187,800 4,859
Amgen * ................................. 500,000 27,219
32,078
Medical Devices 3.9%
Boston Scientific * ...................... 850,000 51,000
Stryker .................................. 1,200,000 35,925
United States Surgical ................... 1,054,500 41,521
128,446
Health Care Services 1.2%
Medic Computer Systems * .................. 1,000,000 40,312
40,312
Total Life Sciences and Health Care 200,836
<PAGE>
INFORMATION SERVICES 15.0%
Data Services 15.0%
America Online * ............................. 3,000,000 $99,750
Automatic Data Processing .................... 1,000,000 42,875
Cambridge Technology Partners * .............. 500,000 16,781
Checkfree * .................................. 1,471,700 25,111
CUC International * .......................... 1,250,000 29,688
Electronic Data Systems ...................... 1,500,000 64,875
First Data ................................... 2,500,000 91,250
Gartner Group * .............................. 424,800 16,541
ITG * ........................................ 800,000 15,200
National Data ................................ 700,000 30,450
Renaissance Solutions * ...................... 58,500 2,654
Sterling Commerce * .......................... 500,000 17,625
SunGard Data Systems * ....................... 1,000,000 39,875
Total Information Services ................... 492,675
MEDIA/TELECOMMUNICATIONS SERVICES 5.2%
Media/Telecom Services 5.2%
AirTouch Communications * ............................. 1,250,000 31,563
EchoStar Communications (Class A) * ................... 500,000 11,188
Millicom International Cellular * ..................... 526,700 16,887
Omnipoint * ........................................... 2,000,000 38,375
PanAmSat * ............................................ 1,500,000 42,187
Vodafone ADR .......................................... 800,000 33,100
Total Media/Telecommunications Services 173,300
Miscellaneous Common Stocks 3.0% 98,293
Total Common Stocks (Cost $2,670,750) 3,225,949
Short-Term Investments 3.6%
Federal Home Loan Mortgage Discount Notes
5.21%, 1/2/97 ................. 20,000,000 19,997
5.23%, 1/3/97 ................. 25,000,000 24,993
5.24%, 1/14/97 ................ 20,000,000 19,962
Federal National Mortgage Association Discount Notes
5.27%, 1/10 - 2/18/97 ................... 45,000,000 $44,827
<PAGE>
Investments in Repurchase Agreements through a joint account
6.52%, 1/2/97 .......................... 7,929,752 7,930
Total Short-Term Investments (Cost $117,709) 117,709
Total Investments in Securities
101.6% of Net Assets (Cost $2,788,459) $ 3,343,658
Other Assets Less Liabilities (51,861)
NET ASSETS $ 3,291,797
Net Assets Consist of:
Accumulated net realized gain/loss -
net of distributions $ 14,106
Net unrealized gain (loss) 555,199
Paid-in-capital applicable to 110,798,733
shares of $0.01 par value capital stock
outstanding; 1,000,000,000 shares authorized 2,722,492
NET ASSETS $ 3,291,797
NET ASSET VALUE PER SHARE $ 29.71
* Non-income producing
+ Affiliated company
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
Year
Ended
12/31/96
- --------------------------------------------------------------------------------
Investment Income
Income
Interest ................................................... $ 13,943
Dividend (net of foreign taxes of $ 336) ................... 4,699
Total income ............................................... 18,642
Expenses
Investment management ...................................... 19,792
Shareholder servicing ...................................... 7,309
Registration ............................................... 449
Prospectus and shareholder reports ......................... 437
Custody and accounting ..................................... 242
Directors .................................................. 29
Legal and audit ............................................ 27
Miscellaneous .............................................. 31
Total expenses ............................................. 28,316
Net investment income .......................................... (9,674)
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on
Securities ................................................. 274,413
Foreign currency transactions .............................. (244)
Net realized gain (loss) ................................... 274,169
Change in net unrealized gain or loss on securities ........ 104,193
Net realized and unrealized gain (loss) ........................ 378,362
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS ......................................... $ 368,688
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
================================================================================
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
Year
Ended
12/31/96 12/31/95
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
Operations
Net investment income ................... $ (9,674) $ (2,531)
Net realized gain (loss) ................ 274,169 389,644
Change in net unrealized gain or loss ... 104,193 293,586
Increase (decrease) in net assets
from operations ......................... 368,688 680,699
Distributions to shareholders
Net realized gain ....................... (356,162) (308,443)
Capital share transactions *
Shares sold ............................. 1,604,115 1,486,892
Distributions reinvested ................ 346,237 300,634
Shares redeemed ......................... (956,344) (789,571)
Increase (decrease) in net assets
from capitalshare transactions ......... 994,008 997,955
Net Assets
Increase (decrease) during period ........... 1,006,534 1,370,211
Beginning of period ......................... 2,285,263 915,052
End of period ............................... $ 3,291,797 $ 2,285,263
*Share information
Shares sold ............................. 51,910 53,440
Distributions reinvested ................ 11,502 10,317
Shares redeemed ......................... (31,097) (27,563)
Increase (decrease) in shares outstanding 32,315 36,194
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
================================================================================
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
T. Rowe Price Science & Technology 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 September 30, 1987.
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 not traded on a particular day and securities regularly traded
in the over-the-counter market are valued at the mean of the latest bid and
asked prices. Other equity securities are valued at a price within the limits of
the latest bid and asked prices deemed by the Board of Directors, or by persons
delegated by the Board, best to reflect fair value.
Short-term debt securities are valued at their amortized cost which, when
combined with accrued interest, approximates fair value.
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.
<PAGE>
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
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Repurchase Agreements
The fund, and other affiliated funds, may transfer uninvested cash into a
joint account, the daily aggregate balance of which is invested in one or more
overnight repurchase agreements collaterallized by U.S. government securities.
Collateral is in the possession of the fund's custodian and is evaluated daily
by the fund to ensure that its market value exceeds the delivery value of the
repurchase agreements at maturity. All repurchase agreements 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 $4,149,298,000 and $3,331,750,000, respectively, for the
year ended December 31, 1996.
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.
================================================================================
Undistributed net investment income $ ..................... 9,674,000
Undistributed net realized gain ........................... (9,674,000)
- --------------------------------------------------------------------------------
<PAGE>
In order for the fund's capital accounts and distributions to shareholders
to reflect the tax character of certain transactions, the following
reclassifications were made during the year ended December 31, 1996. The results
of operations and net assets were not affected by the reclassifications.
For federal income tax purposes the Fund paid distributions from net
long-term capitial gains of $266,462,713 ($2.69 per share) to shareholders of
record on December 26, 1996. This amount may differ from that cited elsewhere in
this report due to differences in the calculation for financial reporting and
federal income tax purposes.
At December 31, 1996, the aggregate cost of investments for federal income
tax and financial reporting purposes was $2,788,459,000, and net unrealized gain
aggregated $555,199,000, of which $680,913,000 related to appreciated
investments and $125,714,000 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 $1,944,000 was payable at December 31, 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
December 31, 1996, and for the year 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.
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. (TRPS) 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 $5,692,000 for the year ended
December 31, 1996, of which $616,000 was payable at period-end.
<PAGE>
================================================================================
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of T. Rowe Price
Science & Technology Fund, Inc.
We have audited the accompanying statement of net assets of T. Rowe Price
Science & Technology Fund, Inc. as of December 31, 1996, and the related
statement of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended and the financial
highlights for each of the five years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of T.
Rowe Price Science & Technology Fund, Inc. as of December 31, 1996, the results
of its operations, the changes in its net assets and financial highlights for
each of the respective periods stated in the first paragraph, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
January 20, 1997
<PAGE>
For yield, price, last transaction,
current balance, or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access(R):
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
To open a Discount Brokerage
account or obtain information,
call: 1-800-638-5660 toll free
Internet address:
http://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 Science & Technology Fund.
Investor Centers:
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
<PAGE>
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
T. Rowe Price Investment Services, Inc., Distributor.
RPRTSTF 12/31/96
