UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF
REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number: 811-07381
T.
Rowe Price Health Sciences Fund, Inc.
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(Exact
name of registrant as specified in charter)
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100
East Pratt Street, Baltimore, MD 21202
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(Address of principal executive offices)
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David
Oestreicher
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100
East Pratt Street, Baltimore, MD 21202
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(Name
and address of agent for service)
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Registrants telephone number, including area
code: (410) 345-2000
Date of fiscal year end: December
31
Date of reporting period: March 31,
2013
Item 1. Schedule of
Investments
Health Sciences Fund
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March 31,
2013
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T.
R
OWE
P
RICE
H
EALTH
S
CIENCES
F
UND
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Unaudited
The accompanying notes are an
integral part of this Portfolio of Investments.
T. Rowe Price Health Sciences Fund
Unaudited
Notes To
Portfolio of
Investments
T. Rowe Price Health Sciences Fund,
Inc. (the fund), is registered under the Investment Company Act of 1940 (the
1940 Act) as a diversified, open-end management investment company. The fund
seeks long-term capital appreciation.
NOTE 1 - SIGNIFICANT ACCOUNTING
POLICIES
Basis of
Preparation
The accompanying
Portfolio of Investments was prepared in accordance with accounting principles
generally accepted in the United States of America (GAAP), which require the use
of estimates made by management. Management believes that estimates and
valuations are appropriate; however, actual results may differ from those
estimates, and the valuations reflected in the Portfolio of Investments may
differ from the values ultimately realized upon sale or maturity.
Investment
Transactions
Investment transactions
are accounted for on the trade date.
Currency
Translation
Assets, including
investments, and liabilities denominated in foreign currencies are translated
into U.S. dollar values each day at the prevailing exchange rate, using the mean
of the bid and asked prices of such currencies against U.S. dollars as quoted by
a major bank. Purchases and sales of securities are translated into U.S. dollars
at the prevailing exchange rate on the date of the transaction.
New Accounting
Guidance
In December 2011, the
Financial Accounting Standards Board issued amended guidance requiring an entity
to disclose information about offsetting and related arrangements to enable
users of its financial statements to understand the effect of those arrangements
on its financial position. The guidance is effective for fiscal years and
interim periods beginning on or after January 1, 2013. Adoption will have no
effect on the funds net assets or results of operations.
NOTE 2 VALUATION
The funds financial instruments are
valued and its net asset value (NAV) per share is computed at the close of the
New York Stock Exchange (NYSE), normally 4 p.m. ET, each day the NYSE is open
for business.
Fair Value
The funds financial instruments are reported at fair
value, which GAAP defines as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The T. Rowe Price Valuation Committee (the
Valuation Committee) has been established by the funds Board of Directors (the
Board) to ensure that financial instruments are appropriately priced at fair
value in accordance with GAAP and the 1940 Act. Subject to oversight by the
Board, the Valuation Committee develops and oversees pricing-related policies
and procedures and approves all fair value determinations. Specifically, the
Valuation Committee establishes procedures to value securities; determines
pricing techniques, sources, and persons eligible to effect fair value pricing
actions; oversees the selection, services, and performance of pricing vendors;
oversees valuation-related business continuity practices; and provides guidance
on internal controls and valuation-related matters. The Valuation Committee
reports to the funds Board; is chaired by the funds treasurer; and has
representation from legal, portfolio management and trading, operations, and
risk management.
Various valuation techniques and
inputs are used to determine the fair value of financial instruments. GAAP
establishes the following fair value hierarchy that categorizes the inputs used
to measure fair value:
Level 1 quoted prices (unadjusted)
in active markets for identical financial instruments that the fund can access
at the reporting date
Level 2 inputs other than Level 1
quoted prices that are observable, either directly or indirectly (including, but
not limited to, quoted prices for similar financial instruments in active
markets, quoted prices for identical or similar financial instruments in
inactive markets, interest rates and yield curves, implied volatilities, and
credit spreads)
Level 3 unobservable inputs
Observable inputs are developed using
market data, such as publicly available information about actual events or
transactions, and reflect the assumptions that market participants would use to
price the financial instrument. Unobservable inputs are those for which market
data are not available and are developed using the best information available
about the assumptions that market participants would use to price the financial
instrument. GAAP requires valuation techniques to maximize the use of relevant
observable inputs and minimize the use of unobservable inputs. When multiple
inputs are used to derive fair value, the financial instrument is assigned to
the level within the fair value hierarchy based on the lowest-level input that
is significant to the fair value of the financial instrument. Input levels are
not necessarily an indication of the risk or liquidity associated with financial
instruments at that level but rather the degree of judgment used in determining
those values.
Valuation
Techniques
Equity securities listed
or regularly traded on a securities exchange or in the over-the-counter (OTC)
market are valued at the last quoted sale price or, for certain markets, the
official closing price at the time the valuations are made. OTC Bulletin Board
securities are valued at the mean of the closing bid and asked prices. A
security that is listed or traded on more than one exchange is valued at the
quotation on the exchange determined to be the primary market for such security.
Listed securities not traded on a particular day are valued at the mean of the
closing bid and asked prices for domestic securities and the last quoted sale or
closing price for international securities.
For valuation purposes, the last
quoted prices of non-U.S. equity securities may be adjusted to reflect the fair
value of such securities at the close of the NYSE. If the fund determines that
developments between the close of a foreign market and the close of the NYSE
will, in its judgment, materially affect the value of some or all of its
portfolio securities, the fund will adjust the previous quoted prices to reflect
what it believes to be the fair value of the securities as of the close of the
NYSE. In deciding whether it is necessary to adjust quoted prices to reflect
fair value, the fund reviews a variety of factors, including developments in
foreign markets, the performance of U.S. securities markets, and the performance
of instruments trading in U.S. markets that represent foreign securities and
baskets of foreign securities. The fund may also fair value securities in other
situations, such as when a particular foreign market is closed but the fund is
open. The fund uses outside pricing services to provide it with quoted prices
and information to evaluate and/or adjust those prices. The fund cannot predict
how often it will use quoted prices and how often it will determine it necessary
to adjust those prices to reflect fair value. As a means of evaluating its
security valuation process, the fund routinely compares quoted prices, the next
days opening prices in the same markets, and adjusted prices.
Actively traded domestic equity
securities generally are categorized in Level 1 of the fair value hierarchy.
Non-U.S. equity securities generally are categorized in Level 2 of the fair
value hierarchy despite the availability of quoted prices because, as described
above, the fund evaluates and determines whether those quoted prices reflect
fair value at the close of the NYSE or require adjustment. OTC Bulletin Board
securities, certain preferred securities, and equity securities traded in
inactive markets generally are categorized in Level 2 of the fair value
hierarchy.
Debt securities generally are traded
in the OTC market. Securities with remaining maturities of one year or more at
the time of acquisition are valued at prices furnished by dealers who make
markets in such securities or by an independent pricing service, which considers
the yield or price of bonds of comparable quality,
coupon, maturity, and type, as well as prices quoted by dealers who make
markets in such securities. Generally, debt securities are categorized in Level
2 of the fair value hierarchy; however, to the extent the valuations include
significant unobservable inputs, the securities would be categorized in Level 3.
Investments in mutual funds are
valued at the mutual funds closing net asset value per share on the day of
valuation and are categorized in Level 1 of the fair value hierarchy. Listed
options, and OTC options with a listed equivalent, are valued at the mean of the
closing bid and asked prices and generally are categorized in Level 2 of the
fair value hierarchy.
Assets and liabilities other than
financial instruments, including short-term receivables and payables, are
carried at cost, or estimated realizable value, if less, which approximates fair
value.
Thinly traded financial instruments
and those for which the above valuation procedures are inappropriate or are
deemed not to reflect fair value are stated at fair value as determined in good
faith by the Valuation Committee. The objective of any fair value pricing
determination is to arrive at a price that could reasonably be expected from a
current sale. Financial instruments fair valued by the Valuation Committee are
primarily private placements, restricted securities, warrants, rights, and other
securities that are not publicly traded.
Subject to oversight by the Board,
the Valuation Committee regularly makes good faith judgments to establish and
adjust the fair valuations of certain securities as events occur and
circumstances warrant. For instance, in determining the fair value of an equity
investment with limited market activity, such as a private placement or a thinly
traded public company stock, the Valuation Committee considers a variety of
factors, which may include, but are not limited to, the issuers business
prospects, its financial standing and performance, recent investment
transactions in the issuer, new rounds of financing, negotiated transactions of
significant size between other investors in the company, relevant market
valuations of peer companies, strategic events affecting the company, market
liquidity for the issuer, and general economic conditions and events. In
consultation with the investment and pricing teams, the Valuation Committee will
determine an appropriate valuation technique based on available information,
which may include both observable and unobservable inputs. The Valuation
Committee typically will afford greatest weight to actual prices in arms length
transactions, to the extent they represent orderly transactions between market
participants; transaction information can be reliably obtained; and prices are
deemed representative of fair value. However, the Valuation Committee may also
consider other valuation methods such as market-based valuation multiples; a
discount or premium from market value of a similar, freely traded security of
the same issuer; or some combination. Fair value determinations are reviewed on
a regular basis and updated as information becomes available, including actual
purchase and sale transactions of the issue. Because any fair value
determination involves a significant amount of judgment, there is a degree of
subjectivity inherent in such pricing decisions and fair value prices determined
by the Valuation Committee could differ from those of other market participants.
Depending on the relative significance of unobservable inputs, including the
valuation technique(s) used, fair valued securities may be categorized in Level
2 or 3 of the fair value hierarchy.
Valuation
Inputs
The following table summarizes
the funds financial instruments, based on the inputs used to determine their
fair values on March 31, 2013:
There were no material transfers
between Levels 1 and 2 during the period.
Following is a reconciliation of the
funds Level 3 holdings for the period ended March 31, 2013. Gain (loss)
reflects both realized and change in unrealized gain/loss on Level 3 holdings
during the period, if any. The change in unrealized gain/loss on Level 3
instruments held at March 31, 2013, totaled $204,000 for the period ended March
31, 2013.
NOTE 3 - DERIVATIVE INSTRUMENTS
The fund may invest in derivative
instruments. As defined by GAAP
,
a derivative is a financial instrument
whose value is derived from an underlying security price, foreign exchange rate,
interest rate, index of prices or rates, or other variable; it requires little
or no initial investment and permits or requires net settlement. The fund
invests in derivatives only if the expected risks and rewards are consistent
with its investment objectives, policies, and overall risk profile, as described
in its prospectus and Statement of Additional Information. The fund may use
derivatives for a variety of purposes, such as seeking to hedge against declines
in principal value, increase yield, invest in an asset with greater efficiency
and at a lower cost than is possible through direct investment, or to adjust
credit exposure. The risks associated with the use of derivatives are different
from, and potentially much greater than, the risks associated with investing
directly in the instruments on which the derivatives are based. Investments in
derivatives can magnify returns positively or negatively; however, the fund at
all times maintains sufficient cash reserves, liquid assets, or other
SEC-permitted asset types to cover the settlement obligations under its open
derivative contracts.
The fund values its derivatives at
fair value, as described below and in Note 2, and recognizes changes in fair
value currently in its results of operations. Accordingly, the fund does not
follow hedge accounting, even for derivatives employed as economic hedges. The
fund does not offset the fair value of derivative instruments against the right
to reclaim or obligation to return collateral.
Options
The fund may use options to manage exposure to interest
rates, security prices, foreign currencies, and credit quality; as an efficient
means of adjusting exposure to all or a part of a target market; to enhance
income; as a cash management tool; and/or to adjust credit exposure. In return
for a premium paid, call and put options give the holder the right, but not the
obligation, to purchase or sell, respectively, a security and/or
currency at a
specified exercise price at any time during the period of the option. Risks
related to the use of options include possible illiquidity of the options
markets; trading restrictions imposed by an exchange; movements in underlying
security values and/or currency values; and for written options, potential
losses in excess of the funds initial investment. Options are included in net
assets at fair value.
NOTE 4 OTHER INVESTMENT
TRANSACTIONS
Consistent with its investment
objective, the fund engages in the following practices to manage exposure to
certain risks and/or to enhance performance. The investment objective, policies,
program, and risk factors of the fund are described more fully in the funds
prospectus and Statement of Additional Information.
Restricted
Securities
The fund may invest in
securities that are subject to legal or contractual restrictions on resale.
Prompt sale of such securities at an acceptable price may be difficult and may
involve substantial delays and additional costs.
Counterparty Risk and
Collateral
Counterparty risk related to exchange-traded futures and
options contracts is minimal because the exchanges clearinghouse provides
protection against counterparty defaults. Generally, for exchange-traded
derivatives such as futures and options, each broker, in its sole discretion,
may change margin requirements applicable to the fund. Securities posted by the
fund to meet margin requirements are so noted in the accompanying Portfolio of
Investments and remain in the funds assets. As of March 31, 2013, no margin had
been posted by the fund to the broker for exchange-traded derivatives.
NOTE 5 - FEDERAL INCOME
TAXES
At March 31, 2013, the cost of
investments for federal income tax purposes was $3,872,734,000. Net unrealized
gain aggregated $2,385,528,000 at period-end, of which $2,503,422,000 related to
appreciated investments and $117,894,000 related to depreciated
investments.
NOTE 6 - RELATED PARTY
TRANSACTIONS
The fund may invest in the T. Rowe
Price Reserve Investment Fund and the T. Rowe Price Government Reserve
Investment Fund (collectively, the T. Rowe Price Reserve Investment Funds),
open-end management investment companies managed by T. Rowe Price Associates,
Inc. (Price Associates) and considered affiliates of the fund. The T. Rowe Price
Reserve Investment Funds are offered as cash management options to mutual funds,
trusts, and other accounts managed by Price Associates and/or its affiliates and
are not available for direct purchase by members of the public. The T. Rowe
Price Reserve Investment Funds pay no investment management fees.
Item 2. Controls and Procedures.
(a) The registrants principal
executive officer and principal financial officer have evaluated the
registrants disclosure controls and procedures within 90 days of this filing
and have concluded that the registrants disclosure controls and procedures were
effective, as of that date, in ensuring that information required to be
disclosed by the registrant in this Form N-Q was recorded, processed,
summarized, and reported timely.
(b) The registrants principal
executive officer and principal financial officer are aware of no change in the
registrants internal control over financial reporting that occurred during the
registrants most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over
financial reporting.
Item 3. Exhibits.
Separate certifications by the
registrant's principal executive officer and principal financial officer,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and required by Rule
30a-2(a) under the Investment Company Act of 1940, are attached.
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934 and the Investment Company
Act of 1940, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
T. Rowe Price Health Sciences Fund,
Inc.
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By
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/s/ Edward C.
Bernard
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Edward C.
Bernard
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Principal
Executive Officer
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Date May 20, 2013
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Pursuant to the
requirements of the Securities Exchange Act of 1934 and the Investment Company
Act of 1940, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
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By
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/s/ Edward C.
Bernard
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Edward C.
Bernard
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Principal
Executive Officer
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Date May 20, 2013
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By
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/s/ Gregory K.
Hinkle
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Gregory K.
Hinkle
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Principal
Financial Officer
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Date May 20, 2013
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