0000936339-95-000016.txt : 19950802 0000936339-95-000016.hdr.sgml : 19950802 ACCESSION NUMBER: 0000936339-95-000016 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950801 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: 95557880 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 OTC SEMIANNUAL REPORT ______________________ SEMIANNUAL REPORT ______________________ OTC Funds ______________________ 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 -------------------------------------------------------------------------------- Fellow Shareholders -------------------------------------------------------------------------------- The second quarter was terrific for U.S. stocks and your fund. A bracing tonic of rising corporate earnings and falling interest rates sparked a broad rally, paced by highflying technology stocks. Financial stocks and selected large- capitalization issues also led the pack. Small stocks sparkled too. Your OTC Fund essentially matched its benchmark, the unmanaged Russell 2000 Index of small-company stocks, in the quarter and the first half. After significantly lagging the unmanaged, large-c ap dominated S&P 500 in the first quarter, small stocks -- and your fund -- enjoyed a late surge in the second quarter, nearly matching the broad market index in that period. Nevertheless, your fund and most market indices trailed the technology-laden Nasdaq composite in the three- and six-month periods. Technology was the leading sector in "small-cap land" with that component of the Russell 2000 rising a dazzling 18%. Durable goods and energy also soared, up 17% and 10%, respectively. Meanwhile, real estate investment trusts (REITs) and health care lagged, producing modest gains of 2.7% and 1.6%. While your fund was modestly underweighted in technology during the quarter, good stock selection in this sector, plus an overweighting in energy services and several takeovers of portfolio holdings, allowed us to finish virtually neck-in-neck with the Russell 2000. -------------------------------------------------------------------------------- Performance Comparison -------------------------------------------------------------------------------- Periods Ended 6/30/95 3 Months 6 Months --------------------- OTC Fund 9.2% 14.6% Russell 2000 9.4 14.4 Nasdaq Composite* 14.2 24.1 S&P 500 9.6 20.2 *Principal only ________________________________________________________________________________ Looking ahead, we believe the prospects for small-cap stocks are becoming even brighter. The market's spectacular run this year has been narrowly led by large multinational companies, whose overseas earnings got a boost from the generally weak dollar and a speculative frenzy in technology stocks. We expect this momentum will shift to small-cap stocks. More on that in the outlook section. -------------------------------------------------------------------------------- INVESTMENT REVIEW -------------------------------------------------------------------------------- In the past, we've repeatedly expressed our fondness for RICHFOOD HOLDINGS, a Richmond, Virginia-based wholesale grocery distributor. In late June, Richfood announced a definitive agreement to acquire SUPER RITE, a wholesale food distributor headquartered in Pennsylvania. The deal substantially increases Richfood's revenues and makes it the dominant low-cost distributor in the Mid-Atlantic. We expect Richfood's seasoned management to quickly combine the two businesses, cut costs by eliminating redundant operations, and enhance profitability by adding Richfood's higher margin fresh produce and meat distribution lines to Super Rite's system. The resulting economies of scale should lead to substantial earnings gains. Consequently, after the quarter ended, we aggressively added to our already substantial position in Richfood by acquiring shares in Super Rite. As a result, Richfood passed SELECTIVE INSURANCE as the fund's largest holding, representing 2.7% of total assets. This late move is not reflected in the table following this letter, which ranks holdings as of June 30. Richfood wasn't the only merger among our major holdings. Also in late June, ENTERRA announced an agreement to merge with WEATHERFORD INDUSTRIES. The combined company will dominate the oil service rental tool market. As with Richfood-Super Rite, the deal offers tremendous opportunities for synergy between the two companies. With improving fundamentals, substantial cost savings, and strong combined management, we believe Weatherford-Enterra will provide significant appreciation. In managing your money, we have always felt a healthy dose of contrarian thought can lead to attractive investment opportunities. Like the old maxim about "buying straw hats in winter," great bargains can be found by betting against the crowd. A year ago, it was quite profitable to purchase the then out-of-favor technology sector, but at this point we're more inclined to sell tech stocks. This year's downtrodden opportunity appears to be in REITs, which now constitute a substantial part of the Russell 2000 Index. REITs essentially offer an income-producing, liquid method of investing in professionally managed real estate property. Due to special tax regulations, the lion's share of the properties' income must be passed along to shareholders, making the securities attractive to income-oriented investors. High-yielding stocks, such as utilities and REITs, have been out of favor for most of the past 18 months. REITs in particular have rarely looked as attractive for capital appreciation as they do now. FELCOR SUITES HOTELS, a REIT which owns equity interests in 10 EMBASSY SUITES hotels, buys existing hotels at prices below replacement value. Management implements better operating practices and raises room rates to market levels. This strategy allows FelCor to earn a return on cash flow that exceeds its cost of capital. Under tax law, the bulk of these returns must be paid to shareholders as dividends. We believe FelCor management has the opportunity, experience, and capital to aggressively acquire properties. We purchased the company's shares at only 10 times cash flow, which is growing at 15% a year. Mergers that eliminated holdings also boosted fund performance. Two large holdings accepted all-cash tender offers during the June quarter. These were MOORCO, a manufacturer of meters and valves for the petroleum industry, acquired by FMC; and FLAIR, an industrial filtration manufacturer, bought by United Dominion of Canada. Both holdings were consequently eliminated by the fund. As in the previous quarter, we continued to reduce our technology holdings because we think they are fully valued. XILINX, the semiconductor firm, and 3COM, a manufacturer of networking equipment, both fit this bill. While the fund was fortunate to have six mergers or takeovers during the quarter, we just missed the IBM acquisition of LOTUS DEVELOPMENT. Disappointing sales of Lotus Notes networking software and a disastrous first quarter for Lotus 1-2-3 spreadsheets eroded the company's fundamentals, persuading us to sell our position just days before the lucrative offer was announced. Nevertheless, six deals in a quarter is extraordinary, and we believe it validates our approach to selecting well-managed niche companies. -------------------------------------------------------------------------------- OUTLOOK -------------------------------------------------------------------------------- Despite their strong second quarter, small-cap stocks slightly trailed the S&P 500 for the third consecutive period. At the risk of sounding like a broken record, we continue to believe small stocks are poised for significant outperformance. The spectacular advance of 1995 has been dominated by large blue chips and technology stocks, leaving many sectors behind. Investors naturally seek the sectors with the best fundamentals and superior earnings growth. A recent example is stocks that benefit from a falling dollar, such as multinationals and export-driven domestic companies. Blue chips dominate these categories, hence the S&P 500's superior return. However, with the dollar stabilizing and some European economies slowing, we believe investors may rediscover small-caps later this year. During periods of slow growth, investors typically seek rapidly growing small companies because their consistently rising earnings are expected to outpace a sluggish economy. As always, thanks for your continuing confidence in the fund. Respectfully submitted, [signature] Greg McCrickard President and Chairman of the Investment Advisory Committee July 19, 1995 -------------------------------------------------------------------------------- Major Portfolio Changes Three Months Ended June 30, 1995 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Twenty-Five Largest Holdings June 30, 1995 -------------------------------------------------------------------------------- Percent of Company Net Assets ---------------------------------- -------- Selective Insurance Group 2.4% Richfood Holdings 2.0 St. Jude Medical 1.9 Enterra 1.6 United Financial of South Carolina 1.5 Holophane 1.4 Glacier Bancorp 1.4 Orthodontic Centers of America 1.4 Collective Bancorp 1.3 Analogic 1.3 Insituform Mid-America 1.2 Adobe Systems 1.2 Mercantile Bancorporation 1.2 JPFoodservice 1.2 Shorewood Packaging 1.2 Electro Rent 1.2 WestPoint Stevens 1.1 Unitog 1.1 Analysts International 1.1 Insituform Technologies (Class A) 1.0 Home Beneficial 1.0 Seneca Foods 1.0 FelCor Suites Hotel 1.0 Boston Acoustics 1.0 Maxim Integrated Products 0.9 Total 32.6% ================================================================================ -------------------------------------------------------------------------------- TEN LARGEST PURCHASES -------------------------------------------------------------------------------- Cost (000) -------- FelCor Suites Hotels* $2,248 Home Beneficial* 2,203 Perrigo* 1,958 Jefferson Smurfit* 1,641 Inphynet Medical Management Company* 1,439 Inter-Tel* 1,408 Hauser Chemical Research 1,303 Sinclair Broadcast Group* 1,248 Poe & Brown* 1,116 American Radio Systems* 1,038 ================================================================================ -------------------------------------------------------------------------------- TEN LARGEST SALES -------------------------------------------------------------------------------- Proceeds (000) ------------ Flair** $2,520 Moorco International** 2,317 Xilinx** 2,062 Corporate Express 1,817 3Com** 1,529 Lotus Development** 1,218 Norton McNaughton 1,102 Regional Acceptance 1,060 Silicon Valley Group 1,018 Fritz Companies 978 * Position added **Position eliminated ================================================================================ -------------------------------------------------------------------------------- Average Annual Compound Total Return* -------------------------------------------------------------------------------- Periods Ended June 30, 1995 1 Year 5 Years 10 Years ------- ------- --------- 19.47% 11.57% 10.23% * Until September 2, 1992, the fund was managed by Review Management. Investment return and principal value represent past performance and will vary. Shares may be worth more or less at redemption than at original purchase. ================================================================================ -------------------------------------------------------------------------------- Statement of Net Assets -------------------------------------------------------------------------------- T. Rowe Price OTC Fund / June 30, 1995 (Unaudited) (VALUE IN THOUSANDS) Common Stocks & Warrants -- 85.5% FINANCIAL -- 14.9% Value ---------- BANK & TRUST -- 7.9% 60,000 shs Bell Banc $1,718 150,000 Collective Bancorp 3,019 70,000 First Sec 1,977 176,000 +Glacier Bancorp 3,300 30,000 Marshall & Ilsley 681 61,500 Mercantile Bancorporation 2,760 55,000 *Premier B 990 170,000 United Financial of South Carolina 3,432 52,500 ValliCorp 820 18,697 INSURANCE -- 6.8% 35,000 Foremost 1,348 70,000 Harleysville Group 1,715 110,000 Home Beneficial 2,296 30,000 Intercargo 334 75,000 PartnerRe Holdings ADR 1,955 47,600 Poe & Brown 1,136 171,400 Selective Insurance 5,613 42,500 W. R. Berkley 1,519 15,916 FINANCIAL SERVICES -- 0.2% 30,000 * Regional Acceptance 540 TOTAL FINANCIAL 35,153 ================================================================================ UTILITIES -- 0.8% ELECTRIC UTILITIES -- 0.8% 130,000 *Public Service of New Mexico 1,853 TOTAL UTILITIES 1,853 ================================================================================ CONSUMER NONDURABLES -- 19.5% BEVERAGES -- 0.1% 28,000 *Chalone Wine Group 205 FOOD PROCESSING-- 2.1% 30,000 *Lone Star Steakhouse & Saloon 908 164 Makepeace 920 65,200 *Seneca Foods 2,290 35,000 Thorn Apple Valley 814 4,932 HOSPITAL SUPPLIES/HOSPITAL MANAGEMENT -- 4.0% 100,000 shs. Allied Healthcare Products 1,581 32,800 *Cephalon 603 35,000 *OccuSystems 588 110,000 *Quorum Health Group 2,207 90,000 St. Jude Medical 4,506 9,485 PHARMACEUTICALS -- 2.4% 40,000 *Biogen 1,785 29,792 *Chiron 1,929 175,000 *Perrigo 1,925 5,639 BIOTECHNOLOGY -- 0.3% 150,000 *Cell Genesys 703 HEALTH CARE SERVICES-- 3.7% 80,000 *EmCare Holdings 1,525 88,000 *Inphynet Medical Management. 1,650 70,000 *Multicare 1,221 35,000 *NeoPath 573 135,000 *Orthodontic Centers of America 3,240 25,000 *Ostex 581 8,790 MISCELLANEOUS CONSUMER PRODUCTS -- 6.9% 34,000 Armor-All Products 578 120,000 Boston Acoustics 2,265 34,500 +Crown City Plating 233 149,662 Culp 1,216 80,000 *Cygne Designs 485 90,800 DiMon 1,532 25,000 Phillips-Van Heusen 387 210,000 Richfood Holding 4,646 46,100 *Super Rite Foods Holdings 1,006 65,000 * TSC 1,276 150,000 * Westpoint Stevens 2,653 16,277 TOTAL CONSUMER NONDURABLES 46,031 ================================================================================ CONSUMER SERVICES -- 7.2% GENERAL MERCHANDISERS -- 0.5% 75,000 *Carson Pirie Scott 1,228 SPECIALTY MERCHANDISERS-- 2.1% 48,000 * CSS Industries 864 200,000 * JP Foodservice 2,750 21,000 Medicine Shoppe International 730 25,000 * Norton McNaughton 387 20,900 Wolohan Lumber 251 4,982 ENTERTAINMENT & LEISURE -- 1.5% 89,000 FelCor Suites Hotels, REIT 2,281 225,000 +*Noble Roman's 1,111 3,392 MEDIA & COMMUNICATIONS -- 3.1% 54,000 *American Radio Systems 1,256 48,978 +Cowles Media 1,175 38,000 Gray Communications Systems 1,102 75,000 *Mobile Telecommunication Technologies 2,048 40,000 *Shiva 1,720 7,301 TOTAL CONSUMER SERVICES 16,903 ================================================================================ CONSUMER CYCLICALS -- 2.1% AUTOMOBILES & RELATED -- 0.6% 7,756 Adrian Steel 1,314 BUILDING & REAL ESTATE-- 0.1% 7,684 *First Republic of America241 MISCELLANEOUS CONSUMER DURABLES -- 1.4% 20,970 wts. ++*Craftmatic Contour 12/31/02 0 160,000 shs. Ellett Brothers 1,100 55,000 Juno Lighting 887 76,200 *Vallen 1,343 3,330 TOTAL CONSUMER CYCLICALS 4,885 ================================================================================ TECHNOLOGY -- 7.3% ELECTRONIC COMPONENTS -- 3.5% 175,000 Analogic 2,975 23,500 * Cirrus Logic 1,473 25,000 Linear Technology 1,644 43,500 *Maxim Integrated Products 2,219 8,311 ELECTRONIC SYSTEMS -- 0.5% 30,000 *Silicon Valley Group 1,089 INFORMATION PROCESSING -- 0.2% 15,000 *DH Technology 414 TELECOMMUNICATIONS -- 2.5% 55,000 *Cellular Communications of Puerto Rico 1,685 100,000 *Inter-Tel 1,500 16,100 *LIN Television 541 55,000 *Sinclair Broadcast Group 1,523 40,000 *TriQuint Semiconductor 650 5,899 AEROSPACE & DEFENSE -- 0.6% 23,600 Woodward Governor 1,496 TOTAL TECHNOLOGY 17,209 ================================================================================ CAPITAL EQUIPMENT -- 4.9% ELECTRICAL EQUIPMENT -- 1.4% 150,000 * Holophane 3,356 MACHINERY -- 3.5% 101,000 AMTROL 1,856 35,000 Greenfield Industries 1,006 35,580 *Hardinge 687 85,000 *Hurco Companies 319 17,450 ++Laser Alignment 283 55,000 *Lindsay Manufacturing 1,890 276,000 *Sudbury 2,053 8,094 TOTAL CAPITAL EQUIPMENT 11,450 ================================================================================ BUSINESS SERVICES & TRANSPORTATION -- 18.1% COMPUTER SERVICE & SOFTWARE -- 5.5% 50,000 Adobe Systems 2,912 100,000 Analysts International 2,587 35,000 * Expert Software 639 60,000 * Frame Technology 1,747 30,000 * Softkey International 953 15,000 * SunGard Data Systems 788 60,000 * Symantec 1,729 25,000 * Synopsys 1,562 12,917 ENVIRONMENTAL -- 1.5% 168,450 *EMCON 758 120,108 Heidemij ADR 1,149 188,800 *TRC 1,416 10,000 *United Waste Systems 357 3,680 TRANSPORTATION SERVICES -- 3.6% 60,000 Expeditors International of Washington 1,358 31,100 *Fritz Companies 1,827 20,000 *Heartland Express 520 81,250 International Shipholding 1,696 65,000 *M.S. Carriers 1,211 130,000 *Team Rental Group 975 51,000 Werner Enterprises 1,007 8,594 MISCELLANEOUS BUSINESS SERVICES -- 7.1% 50,000 *Consolidated Graphics 709 200 *Corporate Express 4 120,000 *Electro Rent 2,730 200,000 Insituform Mid-America 2,925 184,200 *Insituform Technologies (Class A) 2,464 57,500 *Isomedix 776 100,000 McGrath RentCorp 1,713 186,000 *Shorewood Packaging 2,744 120,000 Unitog 2,610 16,675 RAILROADS -- 0.4% 28,900 *North Carolina Railroad 946 TOTAL BUSINESS SERVICES & TRANSPORTATION 42,812 ================================================================================ ENERGY -- 4.4% ENERGY SERVICES -- 4.4% 115,000 *Atwood Oceanics 1,854 180,000 *Enterra 3,780 10,000 *Geophysique (FRF) 596 100,000 *Maverick Tube 750 187,100 * Oceaneering International 1,661 61,500 Petroleum Helicopters 638 33,500 Petroleum Helicopters (non-voting) 331 50,000 *Smith International 837 10,447 TOTAL ENERGY 10,447 ================================================================================ PROCESS INDUSTRIES -- 2.7% SPECIALTY CHEMICALS -- 2.0% 40,000 A. Schulman 1,150 27,300 Furon 601 360,000 *Hauser Chemical Research 1,924 81,900 *Sybron Chemical 1,136 4,811 PAPER & PAPER PRODUCTS -- 0.7% 125,000 *Jefferson Smurfit 1,640 TOTAL PROCESS INDUSTRIES 6,451 ================================================================================ BASIC MATERIALS -- 1.8% MINING -- 1.8% 9,295 +Coal Creek 1,013 150,000 Pittston Minerals 1,481 15,728 Rochester & Pittsburgh 472 164,000 *TVX Gold ADR 1,189 4,155 TOTAL BASIC MATERIALS 4,155 ================================================================================ MISCELLANEOUS COMMON STOCKS -- 1.8% 4,307 ================================================================================ TOTAL COMMON STOCKS (COST $153,715) 201,656 ================================================================================ Convertible Preferred Stocks -- 0.4% 51,000 ICO $25.00 1,039 TOTAL CONVERTIBLE PREFERRED STOCKS (COST $1,033) 1,039 ================================================================================ Convertible Bonds -- 2.3% $1,500,000 American City Business Journals, 6.00%, 12/31/11 1,890 1,000,000 Arch Communications (144a), 6.75%, 12/1/03 1,331 2,000,000 Cellular, 6.75%, 7/15/09 2,079 TOTAL CONVERTIBLE BONDS (COST $3,675) 5,300 ================================================================================ Short-Term Investments -- 13.6% BANK NOTES -- 0.9% 2,000,000 Fifth Third Bank, 6.21%, 10/27/95 2,000 CERTIFICATES OF DEPOSIT -- 3.8% 2,000,000 Bank of Nova Scotia, 6.01%, 7/10/95 2,000 1,000,000 Bayerische Hypotheken, 6.04%, 8/7/95 1,000 3,000,000 National Westminster Bank, 6.09%, 7/28/95 3,000 3,000,000 Swiss Bank, 6.01%, 7/21/95 3,000 9,000 COMMERCIAL PAPER -- 8.5% 1,000,000 Air Products & Chemicals, 5.87%, 8/25/95 990 2,000,000 AT&T Capital, 6.01%, 8/4/95 1,965 3,000,000 BANC ONE, 4(2), 6.04%, 7/7/95 2,957 3,000,000 Caisse des Depots et Consignations, 4(2), 5.95%, 7/21/95 2,981 330,000 Cargill Financial Services, 6.10%, 7/3/95 330 1,000,000 Ciesco L.P., 5.65%, 9/14/95 984 3,000,000 Electronic Data Systems, 5.95%, 7/12/95 2,980 1,000,000 Kingdom of Sweden, 6.025%, 9/25/95 974 3,000,000 Preferred Receivables Funding, 5.95%, 8/9/95 2,976 3,000,000 Statoil (Den Norske Stats Oljeselskap), 5.96%, 7/6/95 2,988 20,125 MEDIUM-TERM NOTES -- 0.4% 1,000,000 Morgan Stanley Group, VR, 6.213%, 7/13/95 1,001 TOTAL SHORT-TERM INVESTMENTS (COST $32,126) 32,126 ================================================================================ TOTAL INVESTMENTS IN SECURITIES -- 101.8% OF NET ASSETS (COST $190,549) 240,121 ================================================================================ Other Assets Less Liabilities (4,133) ---------- Net Assets Consist of: Value ------ Accumulated net investment income - net of distributions $ 864 Accumulated net realized gain/loss - net of distributions 19,030 Net unrealized gain (loss) 49,572 Paid-in-capital applicable to 14,919,508 shares of $0.50 par value capital stock outstanding; 200,000,000 shares authorized 166,522 -------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . $ 235,988 ============= Net Asset Value Per Share . . . . . . . . . . . . . . . . . $ 15.82 ============= + Affiliated company * Non-income producing ++ Securities contain some restrictions as to public resale--total of such securities at year-end amounts to 0.12% of net assets. REIT Real Estate Investment Trust VR Variable rate 4(2) Commercial Paper sold within terms of a private placement memorandum, exempt 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." 144a Security was purchased pursuant to Rule 144a under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers -- total of such securities at period-end amounts to 0.56% of net assets. FRF French franc ================================================================================ ================================================================================ -------------------------------------------------------------------------------- Statement of Operations -------------------------------------------------------------------------------- T. Rowe Price OTC Fund / Six Months Ended June 30, 1995 (Unaudited) (IN THOUSANDS) INVESTMENT INCOME Income Interest ................................................ $1,007 Dividend ................................................ 992 Total income ............................................ 1,999 Expenses Investment management ....................................... 854 Shareholder servicing ....................................... 257 Custody and accounting ...................................... 71 Registration ................................................ 22 Prospectus and shareholder reports .......................... 17 Legal and audit ............................................. 12 Directors ................................................... 6 Miscellaneous ............................................... (19) Total expenses .............................................. 1,220 Net investment income .................................................... 779 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on securities ............................. 13,286 Change in net unrealized gain or loss on securities ................ 16,125 Net realized and unrealized gain (loss) ....................... 29,411 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ............... 30,190 -------------------------------------------------------------------------------- Statement of Changes in Net Assets -------------------------------------------------------------------------------- T. Rowe Price OTC Fund (Unaudited) (IN THOUSANDS) Six Months Ended Year Ended June 30, 1995 Dec. 31, 1994 ------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM Operations Net investment income ................................ $779 $468 Net realized gain (loss) ............................. 13,286 20,036 Change in net unrealized gain or loss ................ 16,125 (20,462) --------- --------- Increase (decrease) in net assets from operations .... 30,190 42 --------- --------- Distributions to shareholders Net investment income ................................ -- (383) Net realized gain .................................... -- (19,961) --------- --------- Decrease in net assets from distributions ............ -- (20,344) --------- --------- Capital share transactions* Shares sold .......................................... 31,964 34,781 Distributions reinvested ............................. -- 18,722 Shares redeemed ...................................... (22,892) (41,084) --------- --------- Increase (decrease) in net assets from capital share transactions ................................... 9,072 12,419 --------- --------- Increase (decrease) in net assets .................... 39,262 (7,883) NET ASSETS Beginning of period .................................. 196,726 204,609 --------- --------- End of period ........................................ $235,988 $196,726 ========= ========= *Share information Shares sold .......................................... 2,231 2,284 Distributions reinvested ............................. -- 1,367 Shares redeemed ...................................... (1,565) (2,695) --------- --------- Increase (decrease) in shares outstanding ............ 666 956 ========= ========= The accompanying notes are an integral part of these financial statements. ================================================================================ Notes to Financial Statements T. Rowe Price OTC Fund / June 30, 1995 (Unaudited) -------------------------------------------------------------------------------- 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 at the time 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. Other equity securities are valued at a price within the limits of the latest bid and asked prices deemed by the Board of Directors, or by persons delegated by the Board, best to reflect fair value. 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 translated 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 and losses is reflected as a component of such gains and 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 securities, aggregated $70,784,000 and $68,805,000, respectively, for the six months ended June 30, 1995. -------------------------------------------------------------------------------- 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 June 30, 1995, the aggregate cost of investments for federal income tax and financial reporting purposes was $190,549,000 and net unrealized gain aggregated $49,572,000, of which $57,086,000 related to appreciated investments and $7,514,000 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 $151,000 was payable at June 30, 1995. 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 June 30, 1995, and for the six months 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 $239,000 for the six months ended June 30, 1995, of which $52,000 was payable at period-end. -------------------------------------------------------------------------------- Financial Highlights T. Rowe Price OTC Fund (Unaudited) -------------------------------------------------------------------------------- For a share outstanding throughout each period Six Months Ended Year Ended December 31, June 30, 1995 1994 1993 1992 1991 1990 ==================================================================================================================================== NET ASSET VALUE, BEGINNING OF PERIOD ............................................. $13.80 $15.39 $14.37 $16.86 $12.72 $16.23 ------ ------ ------ ------ ------ ------ Investment Activities Net investment income ................................. 0.05 0.04 -- 0.02 0.07 0.11 Net realized and unrealized gain (loss) .......................................... 1.97 (.04) 2.60 2.20 4.84 (3.43) ------ ------ ------ ------ ------ ------ Total from Investment Activities ...................... 2.02 -- 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 PERIOD ........................ $15.82 $13.80 $15.39 $14.37 $16.86 $12.72 ====== ====== ====== ====== ====== ====== RATIOS / SUPPLEMENTAL DATA Total Return .......................................... 14.6% 0.1% 18.4% 13.9% 38.6% (20.5)% Ratio of Expenses to Average Net Assets ............................................ 1.13%+ 1.11% 1.20% 1.32% 1.34% 1.47% Ratio of Net Investment Income to Average Net Assets ................................. 0.72%+ 0.24% (0.01)% 0.03% 0.48% 0.73% Portfolio Turnover Rate ............................... 72.5%+ 41.9% 40.8% 30.7% 31.2% 34.8% Net Assets, End of Period (in thousands) ....................................... $235,988 $196,726 $204,609 $186,838 $266,584 $215,299 +Annualized.