-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Pm6W4y1KB+XFFldOswP7w8RZX4sM+zOrvuR9RF9X4C+8xbbapy/FTaoNFTQOfKOJ m559D+90ixlxk6t3qK9/XA== 0000075170-95-000001.txt : 19950515 0000075170-95-000001.hdr.sgml : 19950515 ACCESSION NUMBER: 0000075170-95-000001 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950215 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRICE T ROWE OTC FUND INC CENTRAL INDEX KEY: 0000075170 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 231622210 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-00696 FILM NUMBER: 95511576 BUSINESS ADDRESS: STREET 1: 100 EAST PRATT ST STREET 2: C/O T ROWE PRICE ASSOCIATES INC CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: 2156432510 MAIL ADDRESS: STREET 1: 100 EAST PRATT STRE STREET 2: NULL CITY: BALTIMORE STATE: MD ZIP: 21202 FORMER COMPANY: FORMER CONFORMED NAME: OVER THE COUNTER SECURITIES GROUP INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: OVER THE COUNTER SECURITIES FUND INC DATE OF NAME CHANGE: 19890108 N-30D 1 Annual Report For yield, price, last transaction, and current balance, 24 hours, 7 days a week, call: 1-800-638-2587 toll free 625-7676 Baltimore area For assistance with your existing fund account, call: Shareholder Service Center 1-800-225-5132 toll free 625-6500 Baltimore area T. Rowe Price 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 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. Per-Share Data
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 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 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. /TABLE 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. -----END PRIVACY-ENHANCED MESSAGE-----