Annual Report
For yield, price, last transaction,
and current balance, 24 hours,
7 days a week, call:
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T. Rowe Price
100 East Pratt Street
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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 OTC Fund.
T. Rowe Price
_____________
OTC Fund
December 31, 1994
OTC
Fellow Shareholders
Last year was a roller coaster ride for small-cap investors. The year started
strongly, then ended with a resounding correction following asummer rally in
small-cap stocks. Your Fund rose a modest 0.1% for the 12 months ended
December 31, 1994, and outperformed two unmanaged small-cap indexes shown
below for both the final quarter and the year. It trailed the Standard &
Poor's 500 Stock Index, which is composed of the shares of large corporations.
Performance Comparison
Periods Ended 12/31/94
3 Months 12 Months
________________________
OTC Fund* -1.5% 0.1%
Nasdaq Composite** -1.6 -3.2
Russell 2000 -1.9 -1.8
S&P 500 0.0 1.3
* T. Rowe Price Associates became the investment manager of the Fund on
September 2, 1992.
** Principal only
Year-End Distributions
Your Board of Directors declared a fourthquarter dividend of $0.03 per share
and also a $1.56 per share capital gain distribution, of which $0.12
represented short-term and $1.44 long-term gains. These distributions were
paid on December 29 to shareholders of record on December 27. You should have
received your check or statement reflecting them, as well as Form 1099-DIV
summarizing this information for 1994 tax purposes.
Investment Review
Richfood Holdings, among our 10 largest purchases in the fourth quarter, has
most of the characteristics we find attractive in a stock. The firm enjoys a
solid niche as the dominant wholesale grocer in the Mid-Atlantic region. Its
market dominance and low-cost distribution are evident in the industry, with
leading return-on-capital and return-on-equity rates of 14% and 21.8%,
respectively. Moreover, the company continues to expand by filling capacity
through internal growth and acquisition. Debt is only 31% of capitalization,
insiders own 12% of outstanding shares, and they have been acquiring shares
aggressively at current levels. We believe this company's recent acquisition
of Rotelle, a high-margin frozen foods distributor, will be a catalyst for
continued growth.
The quarter's largest purchase, Ellett Brothers, a nationwide
distributor of outdoor sporting goods, shares many of the same attributes.
This company is growing through the expansion of both its customer base and
product categories, enjoys rapidly growing earnings, and has a solid
management team that retains 53% of the company's equity. The stock appears to
represent excellent value at 12 times 1994 earnings.
Since we believe 1995 will be a year of solid performance for small
growth stocks, we added to our existing technology holdings in the final
quarter. We increased our position in Xilinx, a semiconductor manufacturer,
and added Symantec, a software utilities firm. We also want to highlight our
initial purchase of Corporate Express, a play on the consolidating contract
stationery market. The firm's excellent management and strong operating
systems allow it to grow by acquiring smaller, less efficient competitors.
Considering how large and fragmented this market is, we believe Corporate
Express can sustain earnings growth of 40% to 50% a year over the foreseeable
future and become the dominant contract stationery supplier in the country.
On the sales side, we said goodbye in the fourth quarter to Intuit, a
major Fund purchase earlier in the year. We were attracted to the firm's
product position in home financial software and its strong management, a
sentiment shared by Microsoft, which announced its purchase of Intuit in the
fall. It is worth noting that this merger was the seventh your Fund has seen
since T. Rowe Price became the investment manager in September 1992.
We also continued selling securities that we believe have become fully
valued. We had purchased Urban Outfitters, a rapidly growing fashion forward
retailer, because of its attractive earnings growth, its niche in the
industry, and a discounted P/E multiple. Fortunately, the market recognized
this value and quickly bid up the company's shares to a multiple in excess of
its growth rate, at which point we eliminated the position with a handsome
three-month return. We also eliminated several other positions we believed
were fully valued, including LCI International, the long distance reseller;
StrataCom, a networking equipment vendor; and Liqui-Box, a packaging company.
Outlook
Did the correction signal a premature end to the current small-company cycle?
Our answer in a word: No! The current small-cap upswing began in November 1990
and, typically, small-cap bull markets run five to seven years with
intermittent periods of underperformance. These interim corrections have
occurred in every small-cap rally, and we believe that 1994's market action
can be viewed as a typical pause during an ongoing recovery. Our optimism is
based on several factors:
Attractive valuation. Small-cap stocks appear modestly priced compared
with their large-cap brethren. Relative P/E ratios remain in the lower half of
historical measures-not usually a signal of a market top.
Strong domestic economy. We believe the U.S. economy will continue to
grow throughout 1995 and well into 1996. Consequently, we don't see a
near-term recession knocking the market out of bed. While interest rates may
continue to rise throughout the balance of this economic upswing, we believe
earnings growth will more than compensate for any contraction in P/E
multiples.
Possible capital gains tax cut. If the Republican congressional
leadership succeeds in implementing a reduction in capital gains taxes,
small-cap investors could be major beneficiaries since the lower tax rate
would make capital gains more attractive to some investors
A Review of Our Investment Philosophy
In the 28 months since T. Rowe Price acquired the OTC Fund, we have
consistently searched for attractive business franchises at appealing
valuations. Considering the passage of time and our many new shareholders, we
feel it is important to review our thoughts on investing in small-cap stocks.
As we wrote two and a half years ago, we continue to seek firms with the
following attributes:
o Strong business franchises
o Attractive operating margins
o Significant cash generation
o Sound financial structure
o Capable and consistent management
o Substantial employee and management stock ownership
o Appealing valuation based on price to cash flow, or price/earnings to
estimated earnings growth rates
We believe that when we acquire unique business franchises that create
substantial value through cash earnings growth, the market will not fail to
notice over time. We also believe that investing alongside management closely
aligns our interest in creating shareholder value with management's. Your
Fund's results since 1992 compared with various benchmarks are shown below.
Performance since September 2, 1992, when
T. Rowe Price Associates began managing the Fund:
OTC Fund 36.52%
Lipper Small Cap Growth Index 34.41%
Russell 2000 35.82%
Nasdaq Composite 31.63%
S&P 500 17.37%
Note: See pages 1, 4, and 5 for other performance and total return
information.
than current income. Thus, small-cap stocks would appeal more to those
investors than dividend-paying stocks or bonds. Also, with a lower capital
gains tax, closely held firms controlled by families might have an "urge to
merge," favorably affecting small-cap stocks.
In conclusion, we believe a period of strong performance lies ahead for
small-cap stocks. If history is a guide, the current cycle should end like
other small-cap bull markets, with stocks overvalued and investors in a state
of euphoria-not exactly the present situation.
As always, thank you for your continued confidence.
Respectfully submitted,
Greg McCrickard
Chairman of the
Investment Advisory Committee
January 20, 1995
Twenty-Five Largest Holdings
T. Rowe Price OTC Fund / December 31, 1994
Percent of
Company Net Assets
________ __________
Selective Insurance Group 2.2%
Pittston Minerals 1.9
Xilinx 1.6
3Com 1.6
Enterra 1.5
M.S. Carriers 1.4
Autodesk 1.4
Analogic 1.3
Shorewood Packaging 1.3
Collective Bancorp 1.3
Glacier Bancorp 1.3
Werner Enterprises 1.2
United Financial 1.2
St. Jude Medical 1.2
Flair Corp. 1.1
Cellular 1.1
Insituform Technologies 1.1
Holophane 1.1
Silicon Valley 1.1
Maxim Integrated Products 1.1
Electro Rent 1.0
Mercantile Bancorporation 1.0
Ellett Brothers 1.0
Cellular Communications of Puerto Rico 0.9
Intertrans 0.9
__________________________________________________________________________
Total 31.8%
Major Portfolio Changes
Three Months Ended December 31, 1994
TEN LARGEST PURCHASES
Cost (000)
__________
Ellett Brothers* $2,033
Electro Rent* 1,978
Insituform Mid-America* 1,941
Tractor Supply* 1,406
Richfood Holdings* 1,296
Corporate Express* 1,265
EmCare Holdings 1,124
Xilinx 1,045
Symantec* 1,038
Pacific Sunwear 998
TEN LARGEST SALES
Proceeds (000)
______________
Intuit** $2,052
SEI Corp. 1,495
Tuboscope Vetco 1,372
LCI International** 1,364
Urban Outfitters** 1,316
Maxim Integrated Petroleum 1,278
StrataCom** 1,141
Lattice Semiconductor** 1,045
Heartland Express 855
Liqui-Box** 823
*Position added
**Position eliminated
Chart 1 - Fiscal-Year Performance Comparison
Fiscal-Year Performance*
Periods Ended December 31, 1994
1 Year 5 Years** 10 Years**
_______ __________ ___________
0.08% 8.27% 10.83%
* Until September 2, 1992, the Fund was managed by USF&G Review Management.
** 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.
Investment Record
T. Rowe Price OTC Fund
The table below shows the investment record of one share of the T. Rowe Price
OTC Fund purchased at the initial price of $16.67, for the period 9/2/92
through 12/31/94. Over this time, stock prices in general have risen. The
results shown should not be considered as a representation of the income or
capital gain or loss which may be realized from an investment made in the Fund
today.
<PAGE>
<TABLE>
Per-Share Data
<CAPTION>
With Capital Gains and Income Dividends
_________________________________________________________________________
Annual Total
Taken in Cash Reinvested in Additional Shares Return on Investment
Year _____________________ __________________________________ % Change
Ended Asset Capital Gain IncomeCapital Gain Income Value of _______________________
12/31 Value Distribution1DividendDistributionDividendInvestment Fund S&P 500
<S> <C> <C> <C> <C> <C> <C> <C> <C>
19922 $14.37 $4.64 $0.07 $4.64 $0.07 $19.20 15.2% -1.8%
1993 15.39 1.58 - 2.11 - 22.74 18.4 5.3
1994 13.80 1.56 0.03 2.30 0.04 22.76 0.1 1.3
_________________________________________________________________________________________________________
Total $7.78 $0.10 $9.05 $0.11
<FN>
1 Includes short-term capital gains of $0.50 in 1992; $0.41 in 1993; and $0.12 in 1994.
2 From inception 9/2/92 to 12/31/92. Until 9/2/92 the Fund was managed by USF&G Review Management.
</FN>
/TABLE
<PAGE>
Statement of Net Assets (Value in thousands)
T. Rowe Price OTC Fund / December 31, 1994
Common Stocks-87.5%
FINANCIAL-12.8%
Value
______
BANK & TRUST-7.1%
60,000 shs. Bell Bancorp. . . . . . . . . $ 1,402
150,000 Collective Bancorp . . . . . . . 2,541
70,000 First Security . . . . . . . . . 1,601
146,410 ! Glacier Bancorp. . . . . . . . . 2,507
61,500 Mercantile Bancorporation. . . . 1,922
55,000 * Premier Bancorp. . . . . . . . . 877
170,000 United Financial of South
Carolina. . . . . . . . . . . 2,380
52,500 ValliCorp Holdings . . . . . . . 807
14,037
INSURANCE-5.2%
35,000 Foremost . . . . . . . . . . . . 1,242
70,000 Harleysville Group . . . . . . . 1,671
40,000 Intercargo . . . . . . . . . . . 345
171,400 Selective Insurance. . . . . . . 4,285
45,400 * Transnational Re (Class A) . . . 1,050
42,500 W. R. Berkley. . . . . . . . . . 1,578
10,171
FINANCIAL SERVICES-0.5%
87,000 * Regional Acceptance. . . . . . . 903
Total Financial 25,111
CONSUMER NONDURABLES-13.2%
BEVERAGES-0.1%
28,000 * Chalone Wine Group . . . . . . . 171
FOOD PROCESSING-3.2%
241,800 * Foodmaker. . . . . . . . . . . . 1,058
65,000 * Lone Star Steakhouse &
Saloon. . . . . . . . . . . . 1,276
164 * Makepeace. . . . . . . . . . . . 902
45,100 * Seneca Foods . . . . . . . . . . 1,550
50,000 Thorn Apple Valley . . . . . . . 1,419
6,205
HOSPITAL SUPPLIES/HOSPITAL
MANAGEMENT-2.4%
75,000 * Cephalon . . . . . . . . . . . . 609
40,000 * Lincare. . . . . . . . . . . . . 1,165
30,000 * Quorum Health Group. . . . . . . 574
60,000 St. Jude Medical . . . . . . . . 2,370
4,718
PHARMACEUTICALS-1.0%
11,000 shs. * Chiron. . . . . . . . . . . . $ 881
45,000 * Immunex. . . . . . . . . . . . . 669
35,000 * Vertex Pharmaceuticals . . . . . 521
2,071
HEALTH CARE SERVICES-2.2%
100,000 * Emcare Holdings. . . . . . . . . 1,462
38,000 * Mariner Health . . . . . . . . . 827
58,700 * Multicare. . . . . . . . . . . . 1,148
71,600 * Orthodontic Centers of
America . . . . . . . . . . . 886
4,323
MISCELLANEOUS CONSUMER PRODUCTS-4.3%
91,500 Boston Acoustics . . . . . . . . 1,624
34,500 ! Crown City Plating . . . . . . . 246
134,662 Culp . . . . . . . . . . . . . . 1,313
55,600 * Cygne Designs. . . . . . . . . . 751
90,800 Monk-Austin. . . . . . . . . . . 1,226
50,000 Phillips-Van Heusen. . . . . . . 762
82,000 Richfood Holdings. . . . . . . . 1,312
60,000 * TSC. . . . . . . . . . . . . . . 1,245
8,479
Total Consumer Nondurables 25,967
CONSUMER SERVICES-6.6%
GENERAL MERCHANDISERS-1.5%
98,800 * Brookstone . . . . . . . . . . . 642
75,000 * Carson Pirie Scott . . . . . . . 1,425
40,000 * Proffitt's . . . . . . . . . . . 880
2,947
SPECIALTY MERCHANDISERS-2.5%
50,000 Charming Shoppes . . . . . . . . 328
88,000 * CSS Industries . . . . . . . . . 1,518
80,000 * JP Foodservice . . . . . . . . . 750
21,000 Medicine Shoppe
International . . . . . . . . 567
60,000 * Pacific Sunwear. . . . . . . . . 900
47,000 * Vans . . . . . . . . . . . . . . 370
35,800 Wolohan Lumber . . . . . . . . . 537
4,970
ENTERTAINMENT & LEISURE-0.4%
35,000 * Carmike Cinemas (Class A). . . . 805
MEDIA & COMMUNICATIONS-2.2%
48,978 shs. *! Cowles Media. . . . . . . . . $ 1,151
78,000 Gray Communications
Systems . . . . . . . . . . . 1,297
35,000 * Mobile Telecommunication
Technologies. . . . . . . . . 685
30,000 * Shiva. . . . . . . . . . . . . . 1,196
4,329
Total Consumer Services 13,051
CONSUMER CYCLICALS-6.2%
AUTOMOBILES & RELATED-0.6%
7,756 Adrian Steel . . . . . . . . . . 1,260
BUILDING & REAL ESTATE-1.1%
7,684 * First Republic of America. . . . 300
200,000 Insituform Mid America . . . . . 1,763
2,063
MISCELLANEOUS CONSUMER DURABLES-4.5%
20,970 wts. * Craftmatic Contour, 12/31/02. 0
131,200 shs. Ellett Brothers . . . . . . . 1,902
118,400 * Holophane. . . . . . . . . . . . 2,176
55,000 Juno Lighting. . . . . . . . . . 963
157,500 LADD Furniture . . . . . . . . . 1,004
60,000 * Scotts (Class A) . . . . . . . . 945
73,500 * Vallen . . . . . . . . . . . . . 1,038
150,000 * Winsloew Furniture . . . . . . . 909
8,937
Total Consumer Cyclicals 12,260
TECHNOLOGY-9.9%
ELECTRONIC COMPONENTS-4.7%
138,213 * Analogic . . . . . . . . . . . . 2,592
30,000 Linear Technology. . . . . . . . 1,481
60,000 * Maxim Integrated Products. . . . 2,115
52,500 * Xilinx . . . . . . . . . . . . . 3,104
9,292
ELECTRONIC SYSTEMS-1.1%
105,000 * Silicon Valley Group . . . . . . 2,152
INFORMATION PROCESSING-0.4%
30,000 * DH Technology. . . . . . . . . . 724
TELECOMMUNICATIONS-3.1%
60,000 * 3Com . . . . . . . . . . . . . . 3,094
55,000 * Cellular Communications of
Puerto Rico . . . . . . . . . 1,829
20,000 * Glenayre Technologies. . . . . . 1,162
6,085
AEROSPACE & DEFENSE-0.6%
18,000 shs. Woodward Governor . . . . . . $ 1,206
Total Technology 19,459
CAPITAL EQUIPMENT-5.7%
MACHINERY-5.7%
101,000 AMTROL . . . . . . . . . . . . . 1,692
55,000 DT Industries. . . . . . . . . . 605
120,000 Flair. . . . . . . . . . . . . . 2,250
60,000 Greenfield Industries. . . . . . 1,425
37,290 Harding Brothers (Class A) . . . 1,109
126,600 * Hurco Companies. . . . . . . . . 530
17,450 * Laser Alignment. . . . . . . . . 404
55,000 * Lindsay Manufacturing. . . . . . 1,643
180,000 * Sudbury. . . . . . . . . . . . . 1,058
25,000 Watts Industries (Class A) . . . 528
Total Capital Equipment 11,244
BUSINESS SERVICES & TRANSPORTATION-18.6%
COMPUTER SERVICE & SOFTWARE-4.3%
70,000 Autodesk . . . . . . . . . . . . 2,774
45,000 HBO. . . . . . . . . . . . . . . 1,547
30,000 * MapInfo. . . . . . . . . . . . . 761
50,000 SEI. . . . . . . . . . . . . . . 850
58,200 * Symantec . . . . . . . . . . . . 1,022
32,900 * Synopsys . . . . . . . . . . . . 1,431
8,385
DISTRIBUTION SERVICES-0.2%
24,000 * Tech Data. . . . . . . . . . . . 407
ENVIRONMENTAL-1.7%
89,250 * EMCON. . . . . . . . . . . . . . 340
88,608 Heidemij N.V.. . . . . . . . . . 803
130,000 * TRC. . . . . . . . . . . . . . . 1,040
50,000 * United Waste Systems . . . . . . 1,263
3,446
TRANSPORTATION SERVICES-5.3%
60,000 Expeditors International of
Washington. . . . . . . . . . 1,282
20,000 * Heartland Express. . . . . . . . 593
70,250 International Shipholding. . . . 1,370
140,000 Intertrans . . . . . . . . . . . 1,802
130,000 * M.S. Carriers. . . . . . . . . . 2,795
41,400 * TRISM. . . . . . . . . . . . . . 290
101,000 Werner Enterprises . . . . . . . 2,386
10,518
T. Rowe Price OTC Fund/Statement of Net Assets
MISCELLANEOUS BUSINESS SERVICES-6.7%
60,000 shs. * Corporate Express . . . . . . $ 1,163
120,000 * Electro Rent . . . . . . . . . . 1,995
40,000 Gilbert Associates (Class A) . . 535
184,200 * Insituform Technologies
(Class A) . . . . . . . . . . 2,176
105,000 * Isomedix . . . . . . . . . . . . 1,641
100,000 McGrath RentCorp . . . . . . . . 1,662
126,000 * Shorewood Packaging. . . . . . . 2,567
75,000 Unitog . . . . . . . . . . . . . 1,359
13,098
RAILROADS-0.4%
28,900 * North Carolina Railroad. . . . . 730
Total Business Services & Transportation 36,584
ENERGY-5.9%
ENERGY SERVICES-5.3%
115,000 * Atwood Oceanics. . . . . . . . . 1,380
151,500 * Enterra. . . . . . . . . . . . . 2,878
50,000 * Garnet Resources . . . . . . . . 172
10,000 * Geophysique (FRF). . . . . . . . 565
19,200 ICO. . . . . . . . . . . . . . . 77
100,000 * Maverick Tube. . . . . . . . . . 925
101,200 Moorco International . . . . . . 1,493
130,000 * Oceaneering International. . . . 1,333
61,500 Petroleum Helicopters. . . . . . 638
33,500 Petroleum Helicopters
(non-voting). . . . . . . . . 339
110,000 * Tuboscope Vetco. . . . . . . . . 674
10,474
INTEGRATED PETROLEUM-DOMESTIC-0.6%
126,000 * Benton Oil & Gas . . . . . . . . 1,126
Total Energy 11,600
PROCESS INDUSTRIES-2.3%
DIVERSIFIED CHEMICALS-0.5%
73,616 Aceto. . . . . . . . . . . . . . 1,021
SPECIALTY CHEMICALS-1.6%
50,000 A. Schulman. . . . . . . . . . . 1,363
27,300 Furon. . . . . . . . . . . . . . 614
90,000 * Hauser Chemical Research . . . . 433
39,210 IVAX . . . . . . . . . . . . . . 745
3,155
BUILDING & CONSTRUCTION-0.2%
20,000 * Wackenhut Corrections. . . . . . 334
Total Process Industries 4,510
BASIC MATERIALS-3.4%
MINING-3.4%
9,295 shs. *! Coal Creek. . . . . . . . . . $ 1,108
150,000 Pittston Minerals. . . . . . . . 3,825
15,728 Rochester & Pittsburgh . . . . . 547
164,000 *+ TVX Gold . . . . . . . . . . . . 1,107
6,587
Total Basic Materials 6,587
Miscellaneous Stocks-2.9% 5,713
Total Common Stocks (Cost $139,706) 172,086
Convertible Preferred Stock-0.4%
51,000 ICO, $25.00. . . . . . . . . . . 893
Total Convertible Preferred Stock (Cost $1,033) 893
Convertible Bonds-1.9%
$1,500,000 American City Business
Journals, 6.00%, 12/31/11 . . 1,552
2,000,000 Cellular, 6.75%, 7/15/09 . . . . 2,180
Total Convertible Bonds (Cost $2,525) 3,732
Short-Term Investments-12.4%
CERTIFICATES OF DEPOSIT-1.0%
2,000,000 Societe Generale,
5.80%, 3/1/95 . . . . . . . . 2,000
COMMERCIAL PAPER-10.9%
2,000,000 Abbey National North
America, 5.50%, 2/2/95. . . . 1,972
2,000,000 B.A.T. Capital, 6.03%, 1/6/95. . 1,994
2,000,000 Caisse des Depots et
Consignations, 4(2),
6.02%, 1/17/95. . . . . . . . 1,991
2,500,000 Ciesco L.P., 5.71%, 1/23/95. . . 2,473
2,500,000 Countrywide Funding,
6.30%, 1/5/95 . . . . . . . . 2,497
2,000,000 Ford Credit Europe,
5.78%, 1/30/95. . . . . . . . 1,980
2,000,000 Hanson Finance (U.K.),
5.86%, 1/25/95. . . . . . . . 1,982
3,000,000 John Hancock Capital,
4(2), 6.00%, 1/5/95 . . . . . 2,997
1,540,000 President & Fellows Harvard
College, 6.00%, 1/3/95. . . . 1,539
2,000,000 Reed Elsevier, 6.05%, 1/19/95. . 1,985
21,410
MEDIUM-TERM NOTES-0.5%
$1,000,000 Morgan Stanley Group, VR,
6.525%, 7/13/95 . . . . . . . $ 1,001
Total Short-Term Investments (Cost $24,411) 24,411
Total Investments in Securities-102.2%
(Cost $167,675) 201,122
Other Assets Less Liabilities (4,396)
Net Assets Consisting of:
Accumulated net investment income-
net of distributions. . . . . . . . . $ 85
Accumulated realized gains/losses-
net of distributions. . . . . . . . . 5,744
Net unrealized gain. . . . . . . . . . . 33,447
Paid-in-capital applicable to
14,253,441 shares of $0.50 par value
capital stock outstanding;
200,000,000 shares authorized . . . . 157,450
_________
NET ASSETS $196,726
_________
_________
NET ASSET VALUE PER SHARE $ 13.80
_______
_______
* Non-income producing
! Affiliated company
+ Security contains some restrictions as to public resale total of such
securities at year-end amounts to 0.6% of net assets.
4(2) Commercial Paper sold within terms of a private placement memorandum,
except 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."
VR Variable rate
FRF French franc
The accompanying notes are an integral part of these financial statements.
Statement of Operations
T. Rowe Price OTC Fund / Year Ended December 31, 1994
(Amounts in thousands)
INVESTMENT INCOME
Income
Dividends (including $141 from
affiliated issues) . . . . . . . . . . . $ 1,720
Interest . . . . . . . . . . . . . . . . . 889
___________
Total income . . . . . . . . . . . . . . . 2,609
___________
Expenses
Investment management. . . . . . . . . . . 1,534
Shareholder servicing. . . . . . . . . . . 347
Custody and accounting . . . . . . . . . . 148
Prospectus and shareholder reports . . . . 50
Registrations. . . . . . . . . . . . . . . 33
Legal and auditing . . . . . . . . . . . . 32
Proxy and annual meeting . . . . . . . . . 32
Directors. . . . . . . . . . . . . . . . . 13
Miscellaneous. . . . . . . . . . . . . . . (48)
___________
Total expenses . . . . . . . . . . . . . . 2,141
___________
Net investment income. . . . . . . . . . . . 468
___________
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain on securities. . . . . . . 20,036
Change in net unrealized gain or
loss on securities . . . . . . . . . . . . (20,462)
___________
Net realized and unrealized loss . . . . . . (426)
___________
INCREASE IN NET ASSETS FROM OPERATIONS . . . $ 42
___________
___________
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,
_______________________
1994 1993
________ ________
(Amounts in thousands)
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income (loss) . . . . . $ 468 $ (16)
Net realized gain. . . . . . . . . . . 20,036 24,877
Change in net unrealized gain or loss. (20,462) 7,769
__________ __________
Increase in net assets from operations 42 32,630
__________ __________
Distributions to shareholders
Net investment income. . . . . . . . . (383) -
Net realized gain. . . . . . . . . . . (19,961) (19,192)
__________ __________
Decrease in net assets from
distributions. . . . . . . . . . . . (20,344) (19,192)
__________ __________
Capital share transactions1
Shares sold. . . . . . . . . . . . . . 34,781 41,461
Distributions reinvested . . . . . . . 18,722 17,461
Shares redeemed. . . . . . . . . . . . (41,084) (54,589)
__________ __________
Increase in net assets from capital
share transactions . . . . . . . . . 12,419 4,333
__________ __________
Increase (decrease) in net assets. . . . (7,883) 17,771
NET ASSETS
Beginning of year. . . . . . . . . . . . 204,609 186,838
__________ __________
End of year. . . . . . . . . . . . . . . $196,726 $204,609
__________ __________
__________ __________
1Capital share transactions (number of shares)
Shares sold. . . . . . . . . . . . . . 2,284 2,717
Distributions reinvested . . . . . . . 1,367 1,166
Shares redeemed. . . . . . . . . . . . (2,695) (3,589)
__________ __________
Increase in capital shares outstanding 956 294
__________ __________
__________ __________
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price OTC Fund / December 31, 1994
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 that are 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, 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.
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- Assets and liabilities are converted 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 or losses is reflected as a component of such gains or losses.
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 and may differ from those determined in accordance with generally
accepted accounting principles.
Note 2-Investment Transactions
Purchases and sales of portfolio securities, other than short-term and U.S.
Government securities, aggregated $75,242,000 and $90,443,000, respectively,
for the year ended December 31, 1994.
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, 1994, the aggregate cost of investments for federal
income tax and financial reporting purposes was $167,675,000 and net unrealized
gain aggregated $33,447,000, of which $44,160,000 related to appreciated
investments and $10,713,000 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 $129,000 was payable at December 31, 1994. The fee is computed
daily and paid monthly, and consists 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. At December 31, 1994, and for the year then ended, the effective
annual Group Fee rate was 0.34%. 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 $344,000 for
the year ended December 31, 1994, of which $37,000 was payable at year end.
Financial Highlights
T. Rowe Price OTC Fund
For a share outstanding throughout each
Year Ended December 31,
__________________________________________
1994 1993 1992 1991 1990
__________________________________________
NET ASSET VALUE,
BEGINNING OF YEAR. . $15.39 $14.37 $16.86 $12.72 $16.23
_____________ _______ _______ _______
Investment Activities
Net investment
income . . . . . . . 0.04 - 0.02 0.07 0.11
Net realized and
unrealized gain
(loss) . . . . . . . (0.04) 2.60 2.20 4.84 (3.43)
_____________ _______ _______ _______
Total from Investment
Activities . . . . . - 2.60 2.22 4.91 (3.32)
_____________ _______ _______ _______
Distributions
Net investment
income . . . . . . . (0.03) - (0.07) (0.09) (0.09)
Net realized
gain . . . . . . . . (1.56) (1.58) (4.64) (0.68) (0.10)
_____________ _______ _______ _______
Total
Distributions. . . . (1.59) (1.58) (4.71) (0.77) (0.19)
_____________ _______ _______ _______
NET ASSET VALUE,
END OF YEAR. . . . . $13.80 $15.39 $14.37 $16.86 $12.72
_____________ _______ _______ _______
_____________ _______ _______ _______
RATIOS/SUPPLEMENTAL DATA
Total Return . . . . . 0.1% 18.4% 13.9% 38.6% (20.5)%
Ratio of Expenses to
Average Net Assets . 1.11% 1.20% 1.32% 1 .34% 1.47%
Ratio of Net
Investment Income
to Average
Net Assets . . . . . 0.24% (0.01)% 0.03% 0.48% 0.73%
Portfolio Turnover
Rate . . . . . . . . 41.9% 40.8% 30.7% 31.2% 34.8%
Net Assets,
End of Year
(in thousands) . . . $196,726$204,609 $186,838$266,584 $215,299
Report of Independent Accountants
To the Shareholders and Board of Directors
of T. Rowe Price OTC Fund, Inc.
We have audited the accompanying statement of net assets of T. Rowe Price
OTC Fund, Inc. as of December 31, 1994, 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 three 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 did not audit the financial
highlights for each of the two years in the period ended December 31, 1991.
Those statements were derived from the financial statements which were audited
by other independent accountants whose report expressed unqualified opinions
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, 1994, 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 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 OTC Fund, Inc., the results of its operations, the
changes in its net assets, and financial highlights for each of the respec-tive
periods stated in the first paragraph, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
January 23, 1995
Chart 1 - Fiscal-Year Performance Comparison
Fiscal-Year Performance Comparison line graph for OTC Fund annual report (Dec.
31, 1994)
Shows $10,000 investments in OTC Fund, Nasdaq Composite, and Russell 2000 from
1984 to 1994 growing to $27,966, $30,401, and $29,811, respectively.
