PAGE 1

   

OTC FUND

PROSPECTUS
MAY 1, 1994
T. ROWE PRICE
OTC FUND, INC.

Investment Summary
The Fund seeks long-term growth of capital through investments in
securities traded in the U.S. over-the-counter ("OTC") market. The Fund
will invest primarily in securities of smaller growth and value-oriented
companies.

T. Rowe Price
100% No Load.  This Fund has no sales charges, no redemption fees, and no
12b-1 fees. 100% of your investment is credited to your account.

Services.  T. Rowe Price provides easy access to your money through bank
wires or telephone redemptions and offers easy exchange to other T. Rowe
Price Funds.
T. Rowe Price Associates, Inc. (T. Rowe Price) was founded in 1937 by the
late Thomas Rowe Price, Jr. As of December 31, 1993, the firm and its
affiliates managed over $50 billion for approximately three million
individual and institutional investor accounts.
This prospectus contains information you should know about the Fund before
you invest. Please keep it for future reference. A Statement of Additional
Information for the Fund (dated May 1, 1994) has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
prospectus. It is available at no charge by calling: 1-800-638-5660.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION,
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

TABLE OF CONTENTS

Fund Information
Investment Objective and Program            2
Summary of Fund Fees and Expenses           3
Financial Highlights                        4
Investing in Small-Cap Stocks               4
Investment Policies                         4
Performance Information                     7
Capital Stock                               7
NAV, Pricing, and Effective Date            9
Receiving Your Proceeds                     9
Dividends and Distributions                10
Taxes                                      10
Management of the Fund                     11
Expenses and Management Fee                11
How to Invest
Shareholder Services                       12
Conditions of Your Purchase                13
Completing the New Account Form            14
Opening a New Account                      15
Purchasing Additional Shares               15
Exchanging and Redeeming Shares            16


INVESTMENT OBJECTIVE AND PROGRAM

The Fund's investment objective is long-term growth of capital through
investments in securities traded in the U.S. OTC market, primarily common
stocks of small to medium-sized companies.
     The Fund's share price will fluctuate with changing market conditions,
and your investment may be worth more or less when redeemed than when
purchased. The Fund should not be relied upon as a complete investment
program, nor used to play short-term swings in the stock market. In
addition, stocks of small companies may be subject to more abrupt or
erratic price movements than larger company securities. The Fund cannot
guarantee it will achieve its investment objective.
     The Fund expects, under normal conditions, to invest at least 80% of
its net assets in equity and equity-related securities traded in the U.S.
OTC market. OTC securities are typically not listed for trading on any
national exchange. The Fund will invest its assets primarily in securities
of smaller companies which are believed to offer either superior earnings
growth or appear undervalued based on cash flow, book value or assets per
share. Up to 20% of the Fund's assets may be invested in exchange listed-
 equity securities. Current dividend or interest income is not a
prerequisite in the selection of portfolio securities.
     The Fund's holdings will be widely diversified by industry and
company. Under most circumstances, the Fund's average holding will be less
than 1.5% of its net assets.

INVESTING IN EQUITY SECURITIES TRADED IN THE U.S. OTC MARKET.

     Investors should realize that the very nature of investing in small
companies involves greater risk than is customarily associated with more
established companies. The Fund is designed for long-term investors who are
willing to accept greater investment risks in search of substantial
long-term rewards. Small companies often have limited product lines,
markets, or financial resources, and they may be dependent upon a small
group of inexperienced managers. The securities of small companies may have
limited-
 marketability and may be subject to more abrupt or erratic market
movements than securities of larger companies or the market averages in
general. In addition, certain smaller OTC securities in which the Fund
invests may be less liquid than exchange-traded securities. However, small
companies may offer greater opportunities for capital appreciation than
larger, more established companies. In addition, small companies are often
overlooked by the investment community. Therefore, these securities may be
undervalued and provide the potential for significant capital appreciation.
     The Fund's manager, T. Rowe Price Associates, Inc. (T. Rowe Price),
will rely on its proprietary research to identify attractive small company
stocks before their value is recognized by the investment community. It is
anticipated the Fund will invest in both growth and value-oriented
companies. When reviewing investments in small growth companies, T. Rowe
Price will consider the following characteristics: capable management,
attractive business niches, pricing flexibility, sound financial and
accounting practices, and a demonstrated capability to grow revenues,
earnings and cash flow in a consistent manner. Stocks will be selected when
T. Rowe Price believes: (1) the current stock price is undervalued based on
a low price to earnings ratio, projected cash flow or asset value per
share; or (2) the price to earnings ratio is attractive relative to the
security's underlying earnings growth rate; and (3) the potential for some
catalyst exists (such as increased investor attention, asset sales or a
change in management) which will cause the stock's price to increase to
reflect the company's underlying value.
     Although the Fund will invest primarily in U.S. common stocks, it may
also purchase other types of securities, for example, foreign securities,
convertible securities and warrants, when considered consistent with the
Fund's investment objective and program. The Fund may also engage in a
variety of investment management practices, such as buying and selling
futures and options. Please see Investment Policies for a more complete
description of these and other permissible Fund investments.

SUMMARY OF FUND FEES AND EXPENSES

The Fund is 100% no-load...you pay no fees to purchase, exchange or redeem
shares, nor any ongoing marketing (12b-1) expenses. Lower expenses benefit
you by increasing your investment return from the Fund.
     Shown below are all expenses and fees the Fund incurred during its
fiscal year. Where applicable, expenses were restated to reflect current
fees. Expenses are expressed as a percent of average Fund net assets. More
information about these expenses may be found below and under Expenses and
Management Fee and in the Statement of Additional Information under
Management Fee and Limitation on Fund Expenses.

Shareholder Transaction Expenses            Annual Fund Expenses

Sales load "charge" on purchases     None   Management fee            0.80%
Sales load "charge" on reinvested           Total other (Shareholder
  dividends                          None     servicing, custodial,
Redemption fees                      None     auditing, etc.)     0.40%
Exchange fees                        None   Distribution fees (12b-1)  None

                                            Total Fund Expenses       1.20%

    The Fund charges a $5.00 fee for wire redemptions under $5,000,
        subject to change without notice.

EXAMPLE OF FUND EXPENSES.

The following example illustrates the expenses you would incur on a $1,000
investment, assuming a 5% annual rate of return and redemption at the end
of each period shown. For example, expenses for the first year in the Fund
would be $12. This is an illustration only. Actual expenses and performance
may be more or less than shown.

          1 Year-$12     3 Years-$38    5 Years-$66    10 Years-$145


Management Fee.  The Fund pays T. Rowe Price an investment management fee
consisting of a flat Individual Fund Fee of 0.45% of the Fund's net assets
and a Group Fee, defined on page 11 under Expenses and Management Fee, of
0.35% as of December 31, 1993. Thus, the total combined management fee for
the Fund would be 0.80% of net assets. Because the investment program of
the Fund is more costly to implement and maintain, the total combined
management fee is higher than that paid by many other investment companies.

Transfer Agent, Shareholder Servicing, and Administrative Costs.  The Fund
paid fees to: (i) T. Rowe Price Services, Inc. (TRP Services) for transfer
and dividend disbursing agent functions and shareholder services for all
accounts; (ii) T. Rowe Price Retirement Plan Services, Inc. for
subaccounting and recordkeeping services for certain retirement accounts;
and (iii) T. Rowe Price for calculating the daily share price and
maintaining the portfolio and general accounting records of the Fund. These
fees totaled approximately $350,000, $200, and $85,000, respectively.

FINANCIAL HIGHLIGHTS

The following table provides information about the Fund's financial
history. It is based on a single share outstanding throughout each fiscal
year (which ends on the last day of December). The table is part of the
Fund's financial statements which are included in the Fund's annual report
and incorporated by reference into the Statement of Additional Information,
which is available to shareholders. The financial highlights for the years
ended December 31, 1992 and 1993, presented below, is included in financial
statements audited by the Fund's independent accountants, Coopers &
Lybrand, whose reports thereon were unqualified. The information presented
below for the years 1984-1991 has been examined by Sanville & Company,
independent accountants, whose respective reports thereon were unqualified.



                      Investment Activities          Distributions  End of Period
                                  Net                                                    Total                  Ratio of
                               Realized   Total                                         Return         Ratio of  Net In-
              Net               and Un-   from                                    Net  (Includes       Expenses vestment   Port-
             Asset      Net    realized  Invest-    Net                          Asset   Rein-            to     Income    folio
   Year     Value,    Invest- Gain(Loss)  ment    Invest-    Net        Total   Value,  vested    Net   Average  to Avg.   Turn-
  Ended,   Beginning   ment   on Invest- Activi-   ment   Realized     Distri-  End of   Divi-  Assets    Net      Net     over
  Dec. 31  of Period  Income     ments    ties    Income    Gain       butions  Period  dends)  ($000s) Assets   Assets    Rate

                                                                                   
   1984     $16.81    $.16       $(.56)   $(.40)   $(.10)  $(1.38)     $(1.48)  $14.93  (2.6)%  $84,340  1.28%   1.07 %    21.6%
   1985      14.93     .14        4.895    5.035    (.15)   (1.135)     (1.285)  18.68  35.4%   147,535  1.25%   0.75 %    31.2%
   1986      18.68     .20         .79      .99     (.06)   (2.57)      (2.63)   17.04   4.7%   247,676  0.85%   0.95 %    30.7%
   1987      17.04     .15       (2.17)   (2.02)    (.32)   (1.51)      (1.83)   13.19 (12.5)%  212,319  1.00%   0.80 %    49.0%
   1988      13.19     .11        3.47     3.58     (.13)   (2.50)  (2.63)   14.14 (27.2)%  292,104  1.55%   0.69 %    27.2%
   1989      14.14     .09        2.61     2.70     (.13)   (0.48)      (0.61)   16.23  19.1%   315,939  1.45%   0.63 %    33.1%
   1990      16.23     .11       (3.43)   (3.32)    (.09)   (0.10)      (0.19)   12.72 (20.5)%  215,299  1.47%   0.73 %    34.8%
   1991      12.72     .07        4.84     4.91     (.09)   (0.68)      (0.77)   16.86  38.6%   266,584  1.34%   0.48 %    31.2%
   1992      16.86     .02        2.20     2.22     (.07)   (4.64)      (4.71)   14.37  13.9%   186,838  1.32%   0.03 %    30.7%
   1993      14.37    -           2.60     2.60     -       (1.58)      (1.58)   15.39  18.4%   204,609  1.20%  (0.01)%    40.8%



Return of capital distribution.







INVESTING IN SMALL-CAP STOCKS
Common stocks of large and small companies offer a way to invest for
long-term growth of capital. As the U.S. economy has expanded, corporate
profits have grown, and share values have risen. Small companies often grow
faster than large and can generate greater earnings increases.
     Prices of small-company shares have risen over time, but this rise has
been punctuated by periodic declines. As with large stocks, prices of even
the best managed, most profitable small companies are subject to market
risk, which means they can fluctuate widely. In the short run,
small-company stocks tend to be more volatile than large for a number of
reasons relating to their marketplace and their business environment. In
addition, swings in investor psychology and/or significant trading by large
institutional investors can result in price fluctuations. For this reason,
investors in these stocks should have a long-term horizon and be willing to
wait out bear markets.

INVESTMENT POLICIES

This section takes a detailed look at some of the types of securities the
Fund may hold in its portfolio and the various kinds of investment
practices that may be used in day-to-day portfolio management. The Fund's
investment program is subject to further restrictions and risks described
in the Statement of Additional Information.
     Shareholder approval is required to substantively change the Fund's
objective and certain investment restrictions noted in the following
section as "fundamental policies." The managers also follow certain
"operating policies" which can be changed without shareholder approval.
However, significant changes are discussed with shareholders in Fund
reports.

Types of Portfolio Securities

FUND MANAGERS HAVE CONSIDERABLE LEEWAY IN CHOOSING INVESTMENT STRATEGIES
AND SELECTING SECURITIES THEY BELIEVE WILL HELP THE FUND ACHIEVE ITS
OBJECTIVE.

In seeking to meet its investment objective, the Fund may invest in any
type of security whose investment characteristics are consistent with the
Fund's investment program. These and some of the other investment
techniques the Fund may use are described in the following pages.

Fundamental Policy. The Fund will not purchase a security if, as a result,
with respect to 75% of its total assets, more than 5% of its total assets
would be invested in securities of the issuer or more than 10% of the
voting securities of the issuer would be held by the Fund.
     Common and Preferred Stocks.  Stocks represent shares of ownership in
a company. Generally, preferred stock has a specified dividend and ranks
after bonds and before common stocks in its claim on income for dividend
payments and on assets should the company be liquidated. After other claims
are satisfied, common stockholders participate in company profits on a pro
rata basis; profits may be paid out in dividends or reinvested in the
company to help it grow. Increases and decreases in earnings are usually-
 reflected in a company's stock price, so common stocks generally have the
greatest appreciation and depreciation potential of all corporate
securities. While most preferred stocks pay a dividend, the Fund may
purchase preferred stock where the issuer has omitted, or is in danger of
omitting, payment of its dividend. Such investments would be made primarily
for their capital appreciation potential.
     Convertible Securities and Warrants.  The Fund may invest in debt or
preferred equity securities convertible into or exchangeable for equity
securities. Traditionally, convertible securities have paid dividends or
interest at rates higher than common stocks but lower than non-convertible
securities. They generally participate in the appreciation or depreciation
of the underlying stock into which they are convertible, but to a lesser
degree. In recent years, convertibles have been developed which combine
higher or lower current income with options and other features. Warrants
are options to buy a stated number of shares of common stock at a specified
price any time during the life of the warrants (generally, two or mor e
years).

Foreign Securities.  The Fund may invest in foreign securities. These
include non-dollar denominated securities traded outside of the U.S. and
dollar denominated securities traded in the U.S. (such as ADRs). Such
investments increase a portfolio's diversification and may enhance return,
but they also involve some special risks such as exposure to potentially
adverse local political and economic developments; nationalization and
exchange controls; potentially lower liquidity and higher volatility;
possible problems arising from accounting, disclosure, settlement, and
regulatory practices that differ from U.S. standards; and the chance that
fluctuations in foreign exchange rates will decrease the investment's value
(favorable changes can increase its value).

Operating Policy. The Fund may invest up to 10% of its total assets in
foreign securities.

Fixed Income Securities.  The Fund may invest in debt securities of any
type without regard to quality or rating. Such securities would be
purchased in companies which meet the investment criteria for the Fund. The
price of a bond fluctuates with changes in interest rates, rising when
interest rates fall and falling when interest rates rise.

High Yield/High Risk Investing.  The total return and yield of lower
quality (high yield/high risk) bonds, commonly referred to as junk bonds,
can be expected to fluctuate more than the total return and yield of higher
quality, shorter-term bonds, but not as much as common stocks. Junk bonds
are regarded as predominantly speculative with respect to the issuer's
continuing ability to meet principal and interest payments.

Operating Policy. The Fund will not purchase a non-investment grade debt
security (or junk bond) if immediately after such purchase the Fund would
have more than 10% of its total assets invested in such securities.

Hybrid Instruments.  These instruments can combine the characteristics of
securities, futures and options. For example, the principal amount,
redemption or conversion terms of a security could be related to the market
price of some commodity, currency or securities index. Such securities may
bear interest or pay dividends at below market (or even relatively nominal)
rates. Under certain conditions, the redemption value of such an investment
could be zero. Hybrids can have volatile prices and limited liquidity and
their use by the Fund may not be successful.

Operating Policy. The Fund may invest up to 10% of its total assets in
hybrid instruments.

Private Placements (Restricted Securities).  These securities are sold
directly to a small number of investors, usually institutions. Unlike
public offerings, such securities are not registered with the SEC. Although
certain of these securities may be readily sold, for example, under Rule
144A, the sale of others may involve substantial delays and additional
costs.

Operating Policy. The Fund will not invest more than 15% of its net assets
in illiquid securities.

Types of Management Practices

Cash Position.  The Fund will hold a certain portion of its assets in money
market securities, including repurchase agreements, in the two highest
rating categories, maturing in one year or less. For temporary, defensive
purposes, the Fund may invest without limitation in such securities. This
reserve position provides flexibility in meeting redemptions, expenses, and
the timing of new investments, and serves as a short-term defense during
periods of unusual market volatility.
Borrowing Money and Transferring Assets.  The Fund can borrow money from
banks as a temporary measure for emergency purposes, to facilitate
redemption requests, or for other purposes consistent with the Fund's
investment objective and program. Such borrowings may be collateralized
with Fund assets, subject to restrictions.

Fundamental Policy. Borrowings may not exceed 33 1/3% of total Fund assets.

Operating Policies. The Fund may not transfer as collateral any portfolio
securities except as necessary in connection with permissible borrowings or
investments, and then such transfers may not exceed 33 1/3% of the Fund's
total assets. The Fund may not purchase additional securities when
borrowings exceed 5% of total assets.

Futures and Options.  Futures are often used to manage risk, because they
enable the investor to buy or sell an asset in the future at an agreed upon
price. Options give the investor the right, but not the obligation, to buy
or sell an asset at a predetermined price in the future. The Fund may buy
and sell futures contracts (and options on such contracts) to manage its
exposure to changes in securities prices and foreign currencies and as an
efficient means of adjusting its overall exposure to certain markets. The
Fund may purchase, sell, or write call and put options on securities,
financial indices, and foreign currencies.
     Futures contracts and options may not always be successful hedges;
their prices can be highly volatile; using them could lower the Fund's
total return; and the potential loss from the use of futures can exceed the
Fund's initial investment in such contracts.

Operating Policies. Futures: Initial margin deposits and premiums on
options used for non-hedging purposes will not equal more than 5% of the
Fund's net asset value. Options on securities: The total market value of
securities against which the Fund has written call or put options may not
exceed 25% of its total assets. The Fund will not commit more than 5% of
its total assets to premiums when purchasing call or put options.
Managing Foreign Currency Risk.  Investors in foreign securities may
"hedge" their exposure to potentially unfavorable currency changes by
purchasing a contract to exchange one currency for another on some future
date at a specified exchange rate. In certain circumstances, a "proxy
currency" may be substituted for the currency in which the investment is
denominated, a strategy known as "proxy hedging." Although foreign currency
transactions will be used primarily to protect the Fund's foreign
securities from adverse currency movements relative to the dollar, they
involve the risk that anticipated currency movements will not occur and the
Fund's total return could be reduced.

Lending of Portfolio Securities.  Like other mutual funds, the Fund may
lend securities to broker-dealers, other institutions, or other persons to
earn additional income. The principal risk is the potential insolvency of
the broker-dealer or other borrower. In this event, the Fund could
experience delays in recovering its securities and possibly capital losses.
Fundamental Policy. The value of loaned securities may not exceed 33 1/3% of
the Fund's total assets.

Portfolio Transactions.  The Fund will not generally trade in securities
for short-term profits but, when circumstances warrant, securities may be
purchased and sold without regard to the length of time held. The Fund's
portfolio turnover rates for the years 1993, 1992, and 1991 were 40.8%,
30.7%, and 31.2%, respectively.

PERFORMANCE INFORMATION

Total Return. The Fund may advertise total return figures on both a
cumulative and compound average annual basis and compare them to various
indices (e.g., the S&P 500), other mutual funds or other performance
measures. (The total return of the Fund consists of the change in its net
asset value per share and the net income it earns.) Cumulative total return
compares the amount invested at the beginning of a period with the amount
redeemed at the end of the period, assuming the reinvestment of all
dividends and capital gain distributions. The compound average annual total
return indicates a yearly compound average of the Fund's performance,
derived from the cumulative total return. The annual compound rate of
return for the Fund may vary from any average. Further information about
the Fund's performance is contained in its annual report which is available
free of charge.
     On September 2, 1992, T. Rowe Price became investment manager to the
OTC Fund. All performance data prior to September 2, 1992, is the result of
other investment managers. Prior to this date, the Fund had a sales load
which is not included in the performance data, but if deducted, the Fund's
total return would have been lower.

CAPITAL STOCK

The Fund was originally incorporated in Delaware in 1955 and was the first
mutual fund to invest principally in equity securities traded in the OTC
market. The Fund was reincorporated in Pennsylvania in 1985 and was
reorganized as a series of a Maryland corporation in 1988. The Fund is
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940 as a diversified, open-end investment company, commonly
known as a "mutual fund." A mutual fund, such as the Fund, enables
shareholders to: (1) obtain professional management of investments,
including T. Rowe Price's proprietary research; (2) diversify their
portfolio to a greater degree than would be generally possible if they were
investing as individuals and thereby reduce, but not eliminate risks; and
(3) simplify the recordkeeping and reduce transaction costs associated with
investments. The Fund is a series fund and has the authority to issue other
series in addition to the one currently in existence. Because the Fund
currently issues only one series, however, the term "Fund" as used in the
prospectus refers to that series only.
     The Fund has an Investment Advisory Committee composed of the
following members: Gregory A. McCrickard, Chairman, Preston G. Athey and
James A. C. Kennedy. The Committee Chairman has day-to-day responsibility
for managing the Fund and works with the Committee in developing and
executing the Fund's investment program. Mr. McCrickard has been Chairman
of the Committee since 1992. He joined T. Rowe Price in 1986 and has been
managing investments since 1988.

Shareholder Rights.  The Fund issues one class of capital stock, all shares
of which have equal rights with regard to voting, redemptions, dividends,
distributions, and liquidations. Fractional shares have voting rights and
participate in any distributions and dividends. Shareholders have no
preemptive or conversion rights; nor do they have cumulative voting rights.
When the Fund's shares are issued, they are fully paid and nonassessable.
The Fund does not routinely hold annual meetings of shareholders. However,
if shareholders representing at least 10% of all votes of the Fund entitled
to be cast so desire, they may call a special meeting of shareholders of
the Fund for the purpose of voting on the question of the removal of any
director(s). The total authorized capital stock of the Fund consists of
200,000,000 shares, each having a par value of $.50. As of December 31,
1993, there were 19,115 shareholders in the Fund and a total of 3,073,906
shareholders in the other 56 T. Rowe Price Funds.




DESCRIPTION OF SIGNIFICANT DIFFERENCES BETWEEN EDGAR FILING AND PRINTED
COPY:

Information appearing in all capital letters before a paragraph in the
Edgar filing will appear, in the printed copy, as call-outs in the left
margin.