Fellow Shareholders
Nineteen ninety-three closed on a satisfying note for the OTC Fund, as its
gain in the final quarter outperformed the unmanaged Nasdaq Composite,
Russell 2000 Index, and S&P 500. Indeed, the final quarter's strong
performance left the OTC Fund handily ahead of the Nasdaq and S&P 500 and
only narrowly behind the Russell 2000 for the year.
Performance Comparison
Periods Ended 12/31/93
3 Months 12 Months
OTC Fund <F1> 4.3% 18.4%
Nasdaq Composite <F2> 1.8 14.7
Russell 2000 2.6 18.9
S&P 500 2.3 10.1
<F1> T. Rowe Price Associates became the investment manager of the
Fund on September 2, 1992.
<F2> Principal only
As you can see in the next table, 1993 marked the third straight year that
small-cap stocks decisively outperformed their larger-cap brethren. As
we'll comment on later in our outlook, we believe this trend will remain
intact for 1994.
Small-Cap vs. Large-Cap Performance
1991 1992 1993
Nasdaq Composite <F1> 56.8% 15.5% 14.7%
Russell 2000 46.1 18.4 18.9
S&P 500 30.4 7.6 10.1
<F1> Principal only
Year-End Distributions
On December 21, 1993, your Board of Directors declared a long-term capital
gain of $1.17 per share and a short-term capital gain of $0.41 per share.
The $1.58 total distribution was paid on December 31 to shareholders of
record on the 21st. You should already have received a check or statement
as well as your 1099-DIV reflecting these distributions.
Investment Review
PartnerRe, a new Bermuda-based reinsurer, was the largest purchase for the
Fund during the fourth quarter. The company is a formidable new force in
the reinsurance market, with nearly one billion in capital and the
sponsorship of Swiss Re, one of the world's largest reinsurers. One area
within the property and casualty business where capacity has been short and
pricing has firmed is catastrophic reinsurance (or, in layman's terms, the
insurance which covers insurance companies when a major disaster like
hurricane Andrew hits). PartnerRe focuses exclusively on this highly
profitable niche. We believe PartnerRe can earn $5.00 a share or more over
the next 12 months if the "winds don't blow" this year. Therefore, priced
at $20 a share, or 1.1 times book value, and with a 2% yield, we found the
stock too attractive to pass up.
For the past several quarters, we've written of our belief that a
stronger economy was just around the corner. Fortunately, our weightings in
economically sensitive stocks enabled us to participate fully in this
group's rally during the just-completed quarter. Three of the top five
performing sectors in the Russell 2000 _ auto and transport, material and
process industries, and producer durable goods _ were cyclicals, all areas
of focus for your portfolio.
Based on our projection that the economy will gradually accelerate in
1994, we have enhanced the position in cyclicals by adding to the
industrial holdings through the purchase of two recent initial public
offerings. Early in the fourth quarter, we bought a position in Holophane,
a niche manufacturer of industrial, commercial, and outdoor lighting. We
also added Flair Corp., a manufacturer of industrial filtration systems.
Both companies should benefit from the pickup in industrial production now
occurring.
Correspondingly, we believe consumers will continue to respond to the
rebounding economy in 1994. Thus, to play a resurgence in consumer
confidence, we added several retailers, including department store Carson
Pirie Scott and specialty retailer Charming Shoppes. Similarly, we
purchased Tommy Hilfiger, an exceptionally well-positioned apparel company
with what, in our opinion, is perhaps the strongest management in the
business.
We have also further built the portfolio weighting in technology
stocks. During the fourth quarter, we initiated a position in Electronic
Information Systems (EISI), which produces computerized telephone call
processing systems. These systems automatically dial numbers from a
database, then connect the call to a sales agent when a voice is detected
on the other end. EISI possesses many of the attributes we seek in our
quest for well-positioned investments with capital appreciation potential.
Such characteristics include growing market share, attractive operating
margins, management ownership, as well as attractive but unrecognized,
undiscounted earnings growth.
Outlook
So, will it be three years in, and over two years to go? We're referring,
of course, to the average period of outperformance by the small-cap market
sector. Typically, small-cap stock cycles have run from four to seven
years, with an average of over five years, so we could be halfway through
this cycle. All our indicators (relative price to earnings multiples, price
to book, price to sales) tell us small-cap stocks remain attractively
priced relative to larger-cap stocks. However, the party rarely goes on
uninterrupted. History has also shown each cycle to be laced with 10% to
15% "midterm" corrections. Thus, as we've said for the past two quarters,
we believe the environment for small-cap stocks will prove rewarding in
1994 even though the market may be vulnerable to an interim correction.
We appreciate your support and hope the new year will be healthy and
profitable for you.
Respectfully submitted,
(signature)
Greg McCrickard
President and Chairman of the
Investment Advisory Committee
January 21, 1994
Twenty-Five Largest Holdings
December 31, 1993
Percent of
Company Net Assets
Selective Insurance 2.5 %
SEI 1.6
Enterra 1.5
Werner Enterprises 1.5
Glacier Bancorp 1.4
CSS Industries 1.4
Collective Bancorp 1.3
Monk-Austin 1.3
PartnerRe Holdings 1.3
Transnational Re 1.3
Maxim Integrated Products 1.3
United Federal Bancorp 1.3
Watts Industries 1.2
Stewart Enterprises 1.2
Cragin Financial 1.1
Linear Technology 1.1
M.S. Carriers 1.1
Analogic 1.1
Harleysville Group 1.0
Zenith Laboratories 1.0
Isomedix 1.0
TPI Enterprises 1.0
Pulitzer Publishing 1.0
Liqui-Box 1.0
Mariner Health Group 1.0
Total 31.5%
Major Portfolio Changes
Three Months Ended December 31, 1993
Ten Largest Purchases
Cost (000)
PartnerRe Holdings <F1> $2,500
Transnational Re <F1> 2,208
Flair <F1> 1,648
Holophane <F1> 1,499
Carson Pirie Scott <F1> 1,420
Tommy Hilfiger <F1> 1,403
Pittston Minerals <F1> 1,376
Charming Shoppes <F1> 1,229
St. Jude Medical <F1> 988
Electronic Information Systems <F1> 970
Ten Largest Sales
Proceeds (000)
Merisel<F2> $2,252
Allmerica Property & Casuality<F2> 1,802
BISYS Group<F2> 1,612
Amplicon 1,406
Roper Industries 1,143
Culp 1,007
Scios Nova<F2> 988
Linear Technology 982
Salick Health Care<F2> 940
Hollywood Park Pfd.<F2> 890
<F1> Position added
<F2> Position eliminated
Performance Comparison Chart (see Appendix)
Total Return Performance<F1>
Periods Ended December 31, 1993
1 Year 5 Years<F2> 10 years<F2>
18.40 % 12.11 % 10.53 %
<F1> Until September 2, 1992, the Fund was managed by USF&G
Review Management.
<F2> Average Annual Compound Total Return
Income return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
Statement of Net Assets (Value in thousands)
T. Rowe Price OTC Fund/December 31, 1993
Common Stocks & Warrants _ 92.9%
FINANCIAL _ 20.0%
Value
BANK & TRUST _ 10.4%
16,000 shs. Banc First $ 236
30,000 <F1> Bell Bancorp 1,410
120,000 Collective Bancorp 2,595
63,000 <F1> Cragin Financial 2,347
50,000 First Security 1,300
133,100 <F2> Glacier Bancorp 2,862
35,000 Magna Group 669
41,000 Mercantile Bancorporation 1,850
44,550 ONBANCorp 1,565
55,000 <F1> Premier Bancorp 969
60,500 <F1> Silicon Valley Bancshares 597
80,000 United Federal Bancorp 2,580
90,000 <F1> United Financial of South Carolina 1,665
52,500 Vallicorp Holdings 643
21,288
FINANCIAL SERVICES _ 0.2%
20,000 Pioneer Group 508
INSURANCE _ 9.4%
35,000 Foremost 1,190
70,000 Harleysville Group 2,091
103,000 Intercargo 1,210
34,050 <F1> Navigators Group 1,158
156,200 <F1> Pac Rim Holding 410
125,000 <F1> PartnerRe Holdings 2,688
100,200 <F1> Philadelphia Consolidated Holding 1,202
171,400 Selective Insurance 5,185
100,000 <F1> Transnational Re 2,663
42,500 W. R. Berkley 1,466
19,263
Total Financial 41,059
CONSUMER NONDURABLES _ 15.0%
BEVERAGES _ 0.3%
79,100 <F1> Chalone 489
FOOD PROCESSING _ 2.2%
190,000 <F1> Foodmaker 1,852
164 Makepeace 902
60,500 <F1> Seneca Foods 1,180
25,000 Thorn Apple Valley 575
4,509
HOSPITAL SUPPLIES/HOSPITAL MANAGEMENT _ 1.0%
25,000 shs. <F1> Pacificare Health Systems $941
35,000 St. Jude Medical 923
1,864
PHARMACEUTICALS _ 2.4%
25,000 <F1> Immunex 403
60,000 Life Technologies 1,087
65,000 <F1> Marsam Pharmaceuticals 1,373
87,000 <F1> Zenith Laboratories 2,055
4,918
HEALTH CARE SERVICES _ 3.6%
32,000 <F1> Abbey Healthcare 896
76,000 <F1> Advantage Health 1,168
29,000 <F1> Intergroup Healthcare 1,385
90,000 <F1> Mariner Health 1,958
108,700 <F1> Multicare 1,957
7,364
MISCELLANEOUS CONSUMER PRODUCTS _ 5.5%
61,500 Boston Acoustics 1,015
94,225 <F1> CIMCO 660
34,500 <F1><F2> Crown City Plating 224
74,375 Culp 1,864
21,900 <F1> Cygne Designs 422
53,400 Liqui-Box 1,976
171,300 Monk-Austin 2,741
90,000 Stewart Enterprises (Class A) 2,396
11,298
Total Consumer Nondurables 30,442
CONSUMER SERVICES _ 10.2%
GENERAL MERCHANDISERS _ 1.6%
43,500 <F1> Brookstone 674
100,000 <F1> Carson Pirie Scott 1,419
15,000 <F1> Cosmetic Center (Class A) 279
50,000 <F1> Cosmetic Center (Class B) 919
3,291
SPECIALTY MERCHANDISERS _ 3.6%
95,000 Charming Shoppes 1,122
138,000 <F1> CSS Industries 2,846
50,000 <F1> Shoe Carnival 613
46,400 <F1> Tommy Hilfiger 1,450
161,200 <F1> Vans 826
40,000 Wolohan Lumber 705
7,562
ENTERTAINMENT & LEISURE _ 1.5%
55,000 <F1> Carmike Cinemas (Class A) 990
200,000 <F1> TPI Enterprises 2,000
2,990
MEDIA & COMMUNICATIONS _ 3.5%
50,000 shs. <F1> Associated Communication (Class B) $1,406
48,978 <F2> Cowles Media 1,139
3,836 Fisher Companies 700
78,000 Gray Communications Systems 1,151
30,000 <F1> Mobile Telecommunication Technologies 731
55,500 Pulitzer Publishing 1,991
7,118
Total Consumer Services 20,961
CONSUMER CYCLICALS _ 4.8%
AUTOMOBILES & RELATED _ 0.6%
7,506 Adrian Steel 1,257
BUILDING & REAL ESTATE _ 0.9%
1,882 <F1> Boston Sand & Gravel 259
13,384 <F1> First Republic of America 589
1,650 J. C. Nichols 949
1,797
MISCELLANEOUS CONSUMER DURABLES _ 3.3%
20,970 wts. Craftmatic Contour, 12/31/02 0
55,000 shs. Juno Lighting 1,127
187,500 LADD Furniture 1,898
60,000 <F1> Scotts (Class A) 1,192
60,000 <F1> Vallen 758
150,000 <F1> Winston Furniture 1,744
6,719
Total Consumer Cyclicals 9,773
TECHNOLOGY _ 8.6%
ELECTRONIC COMPONENTS _ 3.9%
138,213 <F1> Analogic 2,194
50,000 <F1> Lattice Semiconductor 819
60,000 Linear Technology 2,332
55,000 <F1> Maxim Integrated Products 2,623
7,968
INFORMATION PROCESSING _ 0.7%
80,000 <F1> DH Technology 1,420
SPECIALIZED COMPUTER _ 1.2%
43,500 BGS Systems 1,174
50,000 <F1> Boole & Babbage 1,212
2,386
TELECOMMUNICATIONS _ 2.1%
35,000 <F1> BroadBand Technologies 1,094
55,000 <F1> Cellular Communications of Puerto Rico 1,231
80,000 <F1> Electronic Information Systems 1,050
30,000 <F1> LCI International 1,099
4,474
AEROSPACE & DEFENSE _ 0.7%
18,000 shs. Woodward Governor $1,359
Total Technology 17,607
CAPITAL EQUIPMENT _ 6.9%
ELECTRICAL EQUIPMENT _ 0.8%
100,000 <F1> Holophane 1,725
MACHINERY _ 6.1%
101,000 AMTROL 1,957
85,003 <F1> Central Sprinkler 1,190
95,000 <F1> Flair 1,935
37,290 Hardinge Brothers (Class A) 802
126,600 <F1> Hurco Companies 301
17,450 Laser Alignment 401
55,000 <F1> Lindsay Manufacturing 1,932
43,942 Roper Industries 1,390
50,000 Watts Industries (Class A) 2,500
12,408
Total Capital Equipment 14,133
BUSINESS SERVICES & TRANSPORTATION _ 16.9%
COMPUTER SERVICE & SOFTWARE _ 3.7%
20,000 Autodesk 905
30,000 <F1> Electronic Arts 904
25,000 HBO 1,153
25,000 <F1> PeopleSoft 775
80,000 <F1> Ross Systems 500
127,400 SEI 3,296
7,533
ENVIRONMENTAL _ 2.2%
164,250 <F1> EMCON 1,314
135,000 Mid-American Waste Systems 1,114
130,000 <F1> TRC 1,398
50,000 <F1> United Waste Systems 756
4,582
TRANSPORTATION SERVICES _ 6.2%
60,000 Expeditors International of Washington 915
59,800 <F1> FRP Properties 800
50,000 <F1> Heartland Express 1,231
50,250 International Shipholding 936
140,000 Intertrans 1,803
110,000 <F1> M. S. CARRIERS 2,310
75,000 <F1> Swift Transportation 1,594
101,000 Werner Enterprises 3,068
12,657
MISCELLANEOUS BUSINESS SERVICES _ 4.2%
45,800 <F1> Amplicon 893
60,000 <F1> Insituform Technologies 757
105,000 <F1> Isomedix 2,034
100,000 McGrath RentCorp 1,462
126,000 shs. <F1> Shorewood Packaging 1,764
40,000 Unitog 970
140,000 <F1> UTILX 718
8,598
RAILROADS _ 0.6%
33,400 North Carolina Railroad 1,236
Total Business Services & Transportation 34,606
ENERGY _ 6.3%
ENERGY SERVICES _ 5.1%
115,000 <F1> Atwood Oceanics 1,301
151,500 <F1> Enterra 3,106
50,000 <F1> Garnet Resources 225
10,000 Geophysique (FRF) 958
101,200 Moorco International 1,923
130,000 <F1> Oceaneering International 1,771
61,500 <F1> Petroleum Helicopters 619
33,500 <F1> Petroleum Helicopters (non-voting) 343
10,000 Wheatley TXT (non-voting) 115
10,361
INTEGRATED PETROLEUM-DOMESTIC _ 0.4%
176,000 <F1> Benton Oil and Gas 858
INTEGRATED PETROLEUM-
INTERNATIONAL _ 0.8%
260,000 <F1> Tuboscope Vetco 1,576
Total Energy 12,795
PROCESS INDUSTRIES _ 1.3%
DIVERSIFIED CHEMICALS _ 0.7%
103,616 Aceto 1,386
SPECIALTY CHEMICALS _ 0.6%
40,000 A. Schulman 1,335
Total Process Industries 2,721
BASIC MATERIALS _ 2.1%
MINING _ 2.1%
9,295 <F2> Coal Creek 1,022
65,000 Pittston Minerals 1,552
15,728 Rochester & Pittsburgh 619
164,000 <F1> TVX Gold 1,087
Total Basic Materials 4,280
Miscellaneous _ 0.8% 1,628
Total Common Stocks (Cost _ $137,020) 190,005
The accompanying notes are an integral part of these financial statements.
Convertible Bonds _ 1.6%
$1,500,000 American City Business
Journals, 6.00%, 12/31/11 $1,504
2,000,000 Cellular, 6.75%, 7/15/09 1,945
Total Convertible Bonds (Cost _ $2,525) 3,449
Short-Term Investments _ 6.5%
COMMERCIAL PAPER _ 6.5%
2,000,000 American Express Credit, 3.26%, 3/30/94 1,967
3,000,000 Bank of Nova Scotia, 3.25%, 1/21/94 2,976
1,600,000 Bankers Trust Company, 3.25%, 1/3/94 1,600
3,000,000 Caisse des Depots et Consignations 4(2),
3.32%, 1/21/94 2,978
1,000,000 Citicorp, VRMTN, 3.55%, 12/7/94 999
52,000 Harvard University, 3.20%, 1/3/94 52
1,000,000 Morgan Stanley Group, VRMTN, 3.625%, 7/25/94 1,002
1,600,000 Province of British Columbia, 3.30%, 2/11/94 1,573
Total Short-Term Investments (Cost _ $13,147) 13,147
Total Investments in Securities _ 101.0% (Cost $152,692) 206,601
Other Assets Less Liabilities _ (1.0)% (1,992)
Net Assets Consisting of:
Accumulated realized gains/losses -
net of distributions $ 5,669
Unrealized appreciation of investments 53,909
Paid-in-capital applicable to 13,296,602
shares of $0.50 par value capital stock
outstanding; 200,000,000 shares authorized 145,031
Net Assets - 100.0% $204,609
Net Asset Value Per Share $15.39
<F1> Non-income producing
(FRF) French franc denominated
<F2> Affiliated company
VRMTN Variable Rate Medium Term Note
Statement of Operations
T. Rowe Price OTC Fund/Year Ended December 31, 1993
Amounts in Thousands
INVESTMENT INCOME
Income
Dividends $ 1,595
Interest 720
Total income $2,315
Expenses
Investment management fees 1,547
Shareholder servicing fees & expenses 444
Custodian and accounting fees & expenses 149
Registration fees & expenses 52
Legal & auditing fees 46
Prospectus & shareholder reports 38
Directors' fees & expenses 12
Miscellaneous 43
Total expenses 2,331
Net investment income (16)
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain 24,877
Change in unrealized appreciation or depreciation 7,769
Net gain on investments 32,646
INCREASE IN NET ASSETS FROM OPERATIONS $ 32,630
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
T. Rowe Price OTC Fund
Year Ended
December 31,
1993 1992
Amounts in Thousands
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income $ (16) $ 69
Net realized gain on investments 24,877 49,010
Change in unrealized appreciation or
depreciation of investments 7,769 (25,166)
Increase in net assets from operations 32,630 23,913
Distributions to shareholders
Net investment income _ (723)
Net realized gain on investments (19,192) (47,946)
Decrease in net assets from distributions
to shareholders (19,192) (48,669)
Capital share transactions
Sold 2,717 and 1,874 shares 41,461 32,843
Distributions reinvested of 1,166 and 3,096 shares 17,461 43,341
Redeemed 3,589 and 7,778 shares (54,589) (131,174)
Increase (decrease) in net assets from capital
share transactions 4,333 (54,990)
Total increase (decrease) 17,771 (79,746)
NET ASSETS
Beginning of year 186,838 266,584
End of year $204,609 $186,838
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price OTC Fund / December 31, 1993
Note 1 - Significant Accounting Policies
T. Rowe Price OTC Fund (the Fund) is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment
company.
A) Valuation - Equity securities listed or regularly traded on a securities
exchange 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 that are 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 their cost which, when
combined with accrued interest, approximates fair value.
For purposes of determining the Fund's net asset value per share, all
assets and liabilities initially expressed in foreign currencies are
converted into U.S. dollars at 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.
B) 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.
C) Currency translation - Foreign currency amounts are translated into U.S.
dollars at prevailing exchange rates as follows: assets and liabilities at
the rate of exchange at the end of the respective period, purchases and
sales of securities and income and expenses at the rate of exchange
prevailing on the dates of such transactions.
D) 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 an 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 which may differ from generally
accepted accounting principles.
E) Accounting Change - Effective as of the beginning of the year, the Fund
adopted a recently issued accounting standard related to shareholder
distributions and discontinued the practice of equalization. These changes
resulted in a reclassification to paid-in-capital of permanent differences
between tax and financial reporting of net investment income and net
realized gains/losses. The cumulative effect of these changes as of
December 31, 1992 increased Accumulated net investment income - net of
distributions by $758,000, increased Accumulated realized gains/losses -
net of distributions by $822,000, and decreased Paid-in-capital by
$1,580,000. The results of operations and net assets were not affected by
these changes.
Note 2 - Portfolio Transactions
Purchases and sales of portfolio securities, other than short-term and U.S.
Government securities, aggregated $73,092,000 and $87,857,000,
respectively, for the year ended December 31, 1993.
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 December 31, 1993, the aggregate cost of investments for federal
income tax and financial reporting purposes was $152,692,000 and net
unrealized appreciation aggregated $53,909,000, of which $61,555,000
related to appreciated investments and $7,646,000 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, computed daily and paid monthly, consisting of an Individual Fund Fee
equal to 0.45% 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 0.31% for
assets in excess of $34 billion. The effective annual Group Fee rate at
December 31, 1993, and for the year then ended was 0.35%. The Fund pays a
pro rata portion of the Group Fee based on the ratio of the Fund's net
assets to those of the Group.
T. Rowe Price Services, Inc. (TRPS) and Retirement Plan Services, Inc.
(RPS) are wholly owned subsidiaries of the Manager. TRPS provides transfer
and dividend disbursing agent functions and shareholder services for all
accounts. RPS provides subaccounting and recordkeeping services for certain
retirement accounts invested in the Fund. The Manager, under a separate
agreement, calculates the daily share price and maintains the financial
records of the Fund. For the year ended December 31, 1993, the Fund in-
curred fees totalling approximately $435,000 for these services provided by
related parties. At December 31, 1993, these investment management and
service fees payable were $183,000.
Financial Highlights
T. Rowe Price OTC Fund
For a share outstanding throughout each
Year Ended December 31,
1993 1992 1991 1990 1989
NET ASSET VALUE,
BEGINNING OF YEAR $14.37 $16.86 $12.72 $16.23 $14.14
Investment Activities
Net investment income _ 0.02 0.07 0.11 0.09
Net realized and unrealized
gain (loss) 2.60 2.20 4.84 (3.43) 2.61
Total from Investment Activities 2.60 2.22 4.91 (3.32) 2.70
Distributions
Net investment income _ (0.07) (0.09) (0.09) (0.13)
Net realized gain (1.58) (4.64) (0.68) (0.10) (0.48)
Total Distributions (1.58) (4.71) (0.77) (0.19) (0.61)
NET ASSET VALUE, END OF YEAR $15.39 $14.37 $16.86 $12.72 $16.23
RATIOS/SUPPLEMENTAL DATA
Total Return 18.4% 13.9% 38.6% (20.5%) 19.1%
Ratio of Expenses to
Average Net Assets 1.20% 1.32% 1.34% 1.47% 1.45%
Ratio of Net Investment Income
to Average Net Assets (0.01)% 0.03% 0.48% 0.73% 0.63%
Portfolio Turnover Rate 40.8% 30.7% 31.2% 34.8% 33.1%
Net Assets, End of Year
(in thousands) $204,609 $186,838 $266,584 $215,299 $315,939
Report of Independent Accountants
To the Shareholders and Board of Directors of T. Rowe Price OTC Fund
We have audited the accompanying statement of net assets of T. Rowe
Price OTC Fund, as of December 31, 1993, and the related statement of
operations for the year then ended, the statement of changes in net assets
and the financial highlights for each of the two 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. The financial highlights for each of the three years in the
period ended December 31, 1991, were audited by other independent
accountants whose report expressed an unqualified opinion thereon.
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, 1993 by correspondence with the
custodian and brokers. 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 audit provides 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 OTC Fund as of December 31, 1993, the results of
its operations for the year then ended, and the changes in its net assets
and financial highlights for each of the two years in the period then ended
in conformity with generally accepted accounting principles.
COOPERS & LYBRAND
Baltimore, Maryland
January 19, 1994
Officers and Directors
John H. Laporte, Chairman
Gregory A. McCrickard, President
Leo C. Bailey, Director
Donald W. Dick, Jr., Director
David K. Fagin, Director
Addison Lanier, Director
John K. Major, Director
James S. Riepe, Vice President/Director
Herbert D. Vos, Director
Paul M. Wythes, Director
Marcy L. Fisher, Vice President
Henry H. Hopkins, Vice President
James A. C. Kennedy, III, Vice President
Brian D. Stansky, Vice President
Richard T. Whitney, Vice President
Lenora V. Hornung, Secretary
Carmen F. Deyesu, Treasurer
David S. Middleton, Controller
Appendix
Chart 1: Performance Comparison Chart
OTC Fund Performance Comparison
A line graph compares the 12/31/93 value of a hypothetical $10,000
investment made in the OTC Fund at its inception and a similar investment
made concurrently in the S&P 500 Index. At 12/31/93, the Fund investment
would have been worth $27,223 and the S&P Index investment would have been
worth $40,177.
