-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vr1a9JWFpbZGPqbWkIsjlDYIQPSDSupgR9ug18ig51mU4cBIm29irzqkbpAET+7K NAqpRzH5gy4SiYlZ0WGkrg== 0000950133-96-000079.txt : 19960205 0000950133-96-000079.hdr.sgml : 19960205 ACCESSION NUMBER: 0000950133-96-000079 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960202 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: 96510632 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 T.ROWE PRICE OTC FUND ANNUAL REPORT - 12/31/95. 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 INVEST WITH CONFIDENCE(R) LOGO] OTC [T.ROWE PRICE LOGO] ------------------- OTC FUND DECEMBER 31, 1995 2 - -------------------------------------------------------------------------------- Fellow Shareholders Small stocks had a banner year in 1995, with the Russell 2000 returning nearly 30%. While large - capitalization stocks soared even higher, putting a slight damper on our celebration, a 30% gain is excellent by any measure. Although your fund lagged the technology-laden Nasdaq Composite and the large - company - dominated Standard & Poor's 500 Stock Index for the full year, it outperformed both unmanaged indices for the six months ended December 31, with a gain of 16.8%. Meanwhile, the fund outpaced the small - cap Russell 2000 in both periods. Looking ahead, we continue to see good investment opportunities in small-cap stocks, and feel certain they remain attractively valued relative to their larger counterparts. More on this in the Outlook section. - ------------------------------------------------------ Performance Comparison
Periods Ended 12/31/95 6 Months 12 Months -------- --------- OTC Fund 16.8% 33.9% Russell 2000 12.3 28.4 Nasdaq Composite* 12.7 39.9 S&P 500 14.5 37.6
- ------------------------------------------------------ * Principal only YEAR-END DISTRIBUTIONS Your Board of Directors declared a fourth quarter dividend of $0.12 per share and also a $2.01 per share capital gain distribution, of which $0.66 represented short-term and $1.35 long-term gains. These distributions were paid on December 28 to shareholders of record on December 26. In early January, we mailed your check or statement reflecting this distribution, and Form 1099-DIV, reporting this payment for tax purposes, was sent in late January. INVESTMENT REVIEW Where did these extraordinary returns come from? Two sectors accounted for half of the Russell 2000's 28.4% return. Technology stocks rose more than 48% for the year, buoyed by semiconductor stocks, an ebullient IPO (initial public offering) market, and a frenzy over the Internet. Financial service firms such as banks and insurance companies also racked up heady returns exceeding 38%, helped by the sharp decline in interest rates. Both categories were well represented in your fund. In the financial services arena, two of our holdings, PREMIER BANCORP and BELL BANCORP, were acquired by larger banks, boosting performance. Finally, health care stocks did well, rising nearly 40% for the year, mostly in the second half. Your fund had substantially increased its weighting in this area before it rebounded. Stock selection played an important part in the fund's performance, and our largest holdings were particularly beneficial. Star performers included many of the names you are familiar with from previous letters: ORTHODONTIC CENTERS OF AMERICA, RICHFOOD HOLDINGS, HOLOPHANE, and SELECTIVE INSURANCE were the top four contributors. In the June letter, we mentioned the emerging value in REIT stocks (real estate investment trusts). REITs, which now compose a significant part of the Russell 2000, are under-followed, under - owned, unloved, and unappreciated by most investors -- just the kind of opportunity we look for. Driven by the compounding of substantial annual dividends, REIT stocks have historically performed well versus the major indices, according to Goldman Sachs. As we wrote in our semiannual report, we've begun tapping the cream of this sector. 3 Our largest purchase in the last six months (as shown in the table following this letter) was PRIME RETAIL, a REIT invested in high-quality, income-producing factory outlet malls. Prime Retail has arguably the best management, best layouts, and best tenants in its industry. With consumers becoming simultaneously more value- and brand-conscious, top-flight factory outlet operators should grow and prosper. The management at Prime Retail is setting the standard in this industry for design and tenants. The technology sector generated the most headlines last year, first due to stellar returns and, of late, to its emerging weakness. Your fund sold substantial positions in technology in the second half as they became, in our view, fully valued. Major sales included ADOBE SYSTEMS, SYMANTEC, and SILICON VALLEY GROUP, all of which were quite successful investments for the fund. However, there were still some bargains available among technology stocks. Our largest purchase in the sector was PANAMSAT, a firm offering satellite transmission services to broadcasters, long-distance companies, and private businesses. PanAmSat has three satellites in orbit and a fourth scheduled to launch in early January. Once in orbit, satellites generate high-margin, predictable cash streams since most business is conducted under long-term contract. We made a major commitment to this company on the strength of its 70% profit margins and a theoretical discounted cash flow value that was 50% higher than our purchase price. The Internet was another media darling, with offerings like Netscape and UUNET generating astronomical single - day returns to IPO investors. Your fund invested in VERITY, a maker of software that helps users search the Internet and other electronic media for key words and topics. The firm is growing rapidly and appears to have the search tool of choice in today's market. The largest sale in the past six months was FIRST UNION, which we acquired through the company's merger with United Financial of South Carolina. We reinvested a portion of EDGAR DESCRIPTION: A PIE CHART SHOWING SECTOR DIVERSIFICATION ON 12/31/95 AMONG BUSINESS SERVICES/TRANSPORTATION (19%), CONSUMER NONDURABLES (19%), FINANCIAL (16%), CONSUMER SERVICES/CONSUMER CYCLICALS (12%), RESERVES (9%) CAP. EQUIP/PROCESS IND./BASIC MAT. (9%), ENERGY/UTILITIES/MISC. (8%), TECHNOLOGY (8%).
Sector Diversification Business Services/Transportation 19% Consumer Nondurables 19% Financial 16% Consumer Services/Cyclicals 12% Reserves 9% Cap. Equip./Process Ind./Basic Mat. 9% Energy/Utilities/Misc. 8% Technology 8%
- ---------------------------------------- 12/31/95 these proceeds in several smaller thrifts, including FIRST BELL BANCORP, which we acquired at 95% of book value. The Pittsburgh-based firm is well managed and well capitalized, and possesses an attractive franchise. The stock is statistically cheap and may eventually prove attractive to a larger financial institution. We've written extensively of our search for solidly positioned, well-managed niche companies. Earlier in the year we discovered just such a stock when a Baltimore firm, SINCLAIR BROADCAST GROUP, went public. The stock did quite well initially, but retreated late in 1995 as investors grew concerned about the slowing economy's impact on broadcasting revenue and the loss of a Fox affiliate station. We took advantage of the pullback to purchase more shares. Sinclair owns six Fox and UPN (United Paramount Network) affiliated UHF television stations. The firm also has local marketing management arrangements with five other stations. Sinclair's management holds substantial equity in the company. Priced at just three-quarters of comparable firms' cash flow multiples, Sinclair is a growing position in your fund. 2 4 OUTLOOK The financial markets had an exceptional year in 1995, described by many observers as "near perfect" for equity investors -- rising earnings, falling interest rates, expanding price/earnings multiples, and the prospect of fiscal discipline and a capital gains tax cut from Washington. It is doubtful that the markets can do better in 1996. Nevertheless, we remain confident that the current environment will remain favorable for selective small - cap investors and your OTC Fund. First, cash flows into aggressive small - cap funds remain strong, bringing a favorable supply/demand backdrop to the sector. Second, with the economic expansion now in its fifth year and showing signs of slowing, investors should again be drawn to companies that can consistently deliver dependable earnings gains. In particular, smaller, nimbler domestic companies should attract more attention than those whose earnings are cyclically driven. Finally, though small - caps again underperformed large - caps in 1995, we believe they will reassume leadership in 1996. Relative valuations remain at reasonable levels. Although some sectors, such as technology, may already be correcting as we write, your fund's focus on both growth and value stocks helps us find attractive investment opportunities, avoid the speculative manias, and, we hope, deliver solid returns with moderate volatility. Thank you for your continued support and welcome to all our new shareholders. Respectfully submitted, /s/ GREG MCCRICKARD -------------------- Greg McCrickard President and Chairman of the Investment Advisory Committee January 17, 1996 - -------------------------------------------------------------------------------- A Word on Market Corrections After the stock market's spectacular run in 1995, concerns about a "correction" have intensified. Most market observers consider a correction to be a short and sometimes steep decline following a period of rising prices. Moderate corrections of around 10% have been quite common, occurring on average about once every two years over the last half-century, according to Ned Davis Research. The market as measured by the Dow Jones Industrial Average has not experienced a moderate correction since early 1994. Furthermore, the Dow last hit a bear market bottom -- defined as a drop of at least 20% -- in October 1990. Therefore, it would not be surprising to see a modest pullback in 1996, on the order of 5% to 10%. In fact, as we write, the market has gotten off to a rocky start. Corrections are not only common, but can be beneficial for long-term investors, especially those who invest in regular amounts through dollar cost averaging. In a correction, overall stock prices decline, often leading to more attractive valuations and good buying opportunities. History has shown that investors who continue to buy through a downturn fare quite well. In fact, the Dow has proven resilient in the aftermath of past corrections of around 10%, taking an average of just six months to recover its losses, according to Ned Davis. (To realize the benefits of dollar cost averaging, you should be prepared to continuously purchase securities over a period of time, in up and down markets. This approach does not assure a gain nor protect you from a loss in declining markets.) We raise the issue of a market correction not as a prediction, but as a reminder that stock prices do not move in only one direction. If you are satisfied that your investments are appropriate for your various objectives, we recommend that you stay the course when a correction eventually occurs. 3 5 - ------------------------------------------------------ Twenty-Five Largest Holdings December 31, 1995
Percent of Company Net Assets - --------------------------------------- ---------- Richfood Holdings 3.5% - -------------------------------------------------- Orthodontic Centers of America 2.2 Selective Insurance 1.9 - -------------------------------------------------- Insituform Technologies 1.7 Weatherford Enterra 1.6 - -------------------------------------------------- Holophane 1.4 Electro Rent 1.4 - -------------------------------------------------- Collective Bancorp 1.4 JP Foodservice 1.4 - -------------------------------------------------- Glacier Bancorp 1.3 Prime Retail 1.2 - -------------------------------------------------- Harleysville Group 1.2 WestPoint Stevens 1.2 - -------------------------------------------------- Analogic 1.1 Adobe Systems 1.1 - -------------------------------------------------- Maxim Integrated Products 1.1 FelCor Suites Hotels 1.1 - -------------------------------------------------- Analysts International 1.1 Home Beneficial 1.1 - -------------------------------------------------- Atwood Oceanics 1.0 Unitog 1.0 - -------------------------------------------------- Shiva 1.0 Mercantile Bancorporation 1.0 - -------------------------------------------------- Boston Acoustics 1.0 Woodward Governor 1.0 - -------------------------------------------------- Total 34.0% - --------------------------------------------------
- ------------------------------------------------------ Major Portfolio Changes Six Months Ended December 31, 1995 Listed in descending order of size - ------------------------------------------------------ TEN LARGEST PURCHASES Prime Retail* - -------------------------------------------------- Petrolite* Richfood Holdings - -------------------------------------------------- PanAmSat* ITI Technologies* - -------------------------------------------------- Raytel Medical* GT Bicycles* - -------------------------------------------------- Northfield Laboratories* COREStaff* - -------------------------------------------------- United Insurance* - --------------------------------------------------
- ------------------------------------------------------ TEN LARGEST SALES First Union** - -------------------------------------------------- St. Jude Medical American City Business Journals** - -------------------------------------------------- Chiron** Lindsay Manufacturing** - -------------------------------------------------- Adobe Systems Symantec** - -------------------------------------------------- Multicare** Silicon Valley Group** - -------------------------------------------------- Consolidated Graphics - --------------------------------------------------
* Position added ** Position eliminated 4 6 Performance Comparison as of 12/31/95
Nasdaq Russell OTC Fund Composite 2000 12/85 $ 10,000 $ 10,000 $ 10,000 12/86 10,472 10,736 10,568 12/87 9,166 10,171 9,641 12/88 11,649 11,737 12,041 12/89 13,878 13,997 13,998 12/90 11,037 11,505 11,267 12/91 15,297 18,045 16,456 12/92 17,424 20,834 19,485 12/93 20,630 23,907 23,169 12/94 20,647 23,142 22,747 12/95 27,636 32,380 29,217
Note: The Index return does not reflect expenses, which have been deducted from the fund's return. - ------------------------------------------------------ Average Annual Compound Total Return* Periods Ended December 31, 1995
1 Year 5 Years 10 Years - --------- ----------- ------------ 33.85% 20.15% 10.70%
- ------------------------------------------------------ * Performance prior to 9/2/92 reflects investment managers other than T. Rowe Price. Investment return and principal value represent past performance and will vary. Shares may be worth more or less at redemption than at original purchase. 5 7 - -------------------------------------------------------------------------------- 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 12/31/95. 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 Return Taken in Cash Reinvested in Additional Shares on Investment --------------------------- ------------------------------------------ % Change Year Net Capital Capital --------------- Ended Asset Gain Income Gain Income Value of 12/31 Value Distributions(1) Dividends Distributions Dividends Investment Fund S&P 500 - ------- ------ ------------- --------- ------------- --------- ---------- ----- ------- 1992(2) $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 ------------------------------------------------------------------------------------------------------------------ 1995 16.32 2.01 0.12 3.31 0.20 30.46 33.9 37.6 ------------------------------------------------------------------------------------------------------------------ Total $9.79 $0.22 $ 12.36 $0.31 - ------------------------------------------------------------------------------------------------------------------
(1) Includes short-term capital gains of $0.50 in 1992; $0.41 in 1993; $0.12 in 1994; and $0.66 in 1995. (2) From inception 9/2/92 to 12/31/92. Performance prior to 9/2/92 reflects investment managers other than T. Rowe Price. 6 8 - -------------------------------------------------------------------------------- Statement of Net Assets T. Rowe Price OTC Fund / December 31, 1995 (values in thousands)
Value --------- - ------------------------------------------------------ Common Stocks & Warrants -- 89.9% - ------------------------------------------------------ FINANCIAL -- 15.9% BANK AND TRUST -- 7.4% 30,000 shs Albank Financial............. $ 902 60,000 Bell Bancorp................. 2,156 150,000 Collective Bancorp........... 3,825 100,000 * First Bell Bancorp........... 1,338 50,000 First Security............... 1,912 112,000 Frankfort First.............. 1,463 176,000 + Glacier Bancorp.............. 3,498 30,000 Marshall & Ilsley............ 778 61,500 Mercantile Bancorporation.... 2,829 55,000 Premier Bancorp.............. 1,282 52,500 ValliCorp Holdings........... 722 20,705 INSURANCE -- 7.7% 35,000 Foremost..................... 1,785 105,000 Harleysville Group........... 3,399 125,000 Home Beneficial (Class B).... 3,016 75,000 PartnerRe Holdings........... 2,048 70,400 Poe & Brown.................. 1,734 146,400 Selective Insurance.......... 5,216 100,000 * United Insurance............. 1,881 42,500 W. R. Berkley................ 2,274 21,353 FINANCIAL SERVICES -- 0.8% 60,000 * Cityscape Financial.......... 1,252 70,000 * Imperial Thrift.............. 858 2,110 TOTAL FINANCIAL....................................... 44,168 - ------------------------------------------------------ UTILITIES -- 0.7% ELECTRIC UTILITIES -- 0.7% 105,000 * Public Service of New Mexico.................... 1,851 TOTAL UTILITIES....................................... 1,851 - ------------------------------------------------------ CONSUMER NONDURABLES -- 18.8% FOOD PROCESSING -- 1.5% 20,000 * Lone Star Steakhouse & Saloon.................... 767 164 Makepeace.................... 1,066 Value --------- 65,200 shs * Seneca Foods (Class A)....... $ 1,206 65,200 * Seneca Foods (Class B)....... 1,247 4,286 HOSPITAL SUPPLIES/HOSPITAL MANAGEMENT -- 2.5% 100,000 Allied Healthcare Products... 1,600 35,000 * OccuSystems.................. 700 110,000 * Quorum Health Group.......... 2,406 52,500 * St. Jude Medical............. 2,251 6,957 PHARMACEUTICALS -- 1.6% 40,000 * Biogen....................... 2,450 175,000 * Perrigo...................... 2,089 4,539 BIOTECHNOLOGY -- 0.6% 150,000 * Cell Genesys................. 1,500 HEALTH CARE SERVICES -- 5.1% 4,700 * Apria Healthcare............. 134 60,000 * EmCare Holdings.............. 1,418 88,000 * Inphynet Medical Management................ 2,101 35,000 * NeoPath...................... 807 100,000 * Northfield Laboratories...... 1,869 130,000 * Orthodontic Centers of America................... 6,256 187,900 * Raytel Medical............... 1,644 14,229 MISCELLANEOUS CONSUMER PRODUCTS -- 7.5% 120,000 Boston Acoustics............. 2,820 34,500 + Crown City Plating........... 233 174,662 Culp......................... 1,921 90,800 DiMon........................ 1,600 360,000 Richfood Holdings............ 9,720 65,000 * TSC.......................... 1,316 167,300 * Westpoint Stevens............ 3,336 20,946 TOTAL CONSUMER NONDURABLES............................ 52,457 - ------------------------------------------------------ CONSUMER SERVICES -- 8.4% GENERAL MERCHANDISERS -- 0.5% 75,000 * Carson Pirie Scott........... 1,491 SPECIALTY MERCHANDISERS -- 1.4% 48,000 * CSS Industries............... 1,056 50,000 * Egghead...................... 322
7 9 - --------------------------------------------------------------------------------
Value --------- 175,000 shs * GT Bicycles.................. $ 1,641 100,000 * Pacific Sunwear.............. 937 3,956 ENTERTAINMENT AND LEISURE -- 1.3% 109,000 FelCor Suites Hotels, REIT... 3,038 160,000 * Noble Roman's................ 560 3,598 MEDIA AND COMMUNICATIONS -- 5.2% 54,000 * American Radio Systems (Class A)........................ 1,492 30,000 Cadmus Communications........ 799 72,398 * Comnet Cellular.............. 2,099 48,978 + Cowles Media................. 1,163 75,000 * Mobile Telecommunication Technologies.............. 1,603 40,000 * Shiva........................ 2,920 100,000 * Sinclair Broadcast Group (Class A)................. 1,700 44,600 * Vanguard Cellular............ 898 100,000 * Wireless One................. 1,687 14,361 TOTAL CONSUMER SERVICES............................... 23,406 - ------------------------------------------------------ CONSUMER CYCLICALS -- 3.6% AUTOMOBILES AND RELATED -- 0.4% 7,756 Adrian Steel................. 1,222 BUILDING AND REAL ESTATE -- 1.8% 200,000 + Prime Retail, REIT........... 2,412 50,000 * Starwood Lodging, REIT....... 1,487 50,000 Storage Trust Realty, REIT... 1,138 5,037 MISCELLANEOUS CONSUMER DURABLES -- 1.4% 20,970 wts *# Craftmatic Contour, 12/31/02.................. 0 200,000 shs Ellett Brothers.............. 1,575 55,000 Juno Lighting................ 866 50,000 * Vallen....................... 975 30,000 X-Rite....................... 431 3,847 TOTAL CONSUMER CYCLICALS.............................. 10,106 - ------------------------------------------------------ TECHNOLOGY -- 8.1% ELECTRONIC COMPONENTS -- 3.1% 175,000 Analogic..................... 3,150 50,000 * Cirrus Logic................. 991 Value --------- 35,000 shs Linear Technology............ $ 1,378 80,000 * Maxim Integrated Products.... 3,080 8,599 ELECTRONIC SYSTEMS -- 0.9% 70,000 * ITI Technologies............. 2,056 50,000 * Lifeline Systems............. 597 2,653 INFORMATION PROCESSING -- 0.2% 22,500 * DH Technology................ 531 TELECOMMUNICATIONS -- 2.9% 55,000 * Cellular Communications of Puerto Rico............... 1,499 125,000 * Inter-Tel.................... 1,937 125,000 * PanAmSat..................... 2,766 42,500 * SITEL........................ 1,296 40,000 * TriQuint Semiconductor....... 543 8,041 AEROSPACE AND DEFENSE -- 1.0% 37,900 Woodward Governor............ 2,814 TOTAL TECHNOLOGY...................................... 22,638 - ------------------------------------------------------ CAPITAL EQUIPMENT -- 3.8% ELECTRICAL EQUIPMENT -- 1.8% 110,000 * Advanced Lighting Technologies.............. 1,110 180,000 * Holophane.................... 3,983 5,093 MACHINERY -- 2.0% 161,000 AMTROL....................... 2,515 22,800 Greenfield Industries........ 710 16,450 # Laser Alignment.............. 236 276,000 * Sudbury...................... 2,139 5,600 TOTAL CAPITAL EQUIPMENT............................... 10,693 - ------------------------------------------------------ BUSINESS SERVICES AND TRANSPORTATION -- 18.9% COMPUTER SERVICE AND SOFTWARE -- 4.8% 50,000 Adobe Systems................ 3,106 100,000 Analysts International....... 3,038 31,000 * Dataworks.................... 391 35,000 * Expert Software.............. 494 50,000 * PLATINUM technology.......... 922 30,000 * Premenos Technology.......... 799 30,000 * SunGard Data Systems......... 844
8 10 - --------------------------------------------------------------------------------
Value --------- 50,000 shs * Synopsys..................... $ 1,906 46,100 * Verity....................... 2,017 13,517 DISTRIBUTION SERVICES -- 1.6% 200,000 * JP Foodservice............... 3,800 135,000 Primesource.................. 793 4,593 ENVIRONMENTAL -- 1.2% 100,000 * Continental Waste............ 1,131 90,000 * EMCON........................ 349 50,108 Heidemij..................... 457 200,000 * TRC.......................... 1,300 3,237 TRANSPORTATION SERVICES -- 3.1% 60,000 Expeditors International of Washington................ 1,567 40,000 * Fritz Companies.............. 1,665 53,885 * Heartland Express............ 1,091 101,562 International Shipholding.... 2,107 70,000 * M.S. Carriers................ 1,383 20,000 * Midwest Express Holdings..... 555 18,600 * Team Rental Group............ 156 8,524 MISCELLANEOUS BUSINESS SERVICES -- 7.9% 50,000 * Consolidated Graphics........ 1,281 65,000 * COREStaff.................... 2,397 180,000 * Electro Rent................. 3,825 414,200 * Insituform Technologies (Class A)................. 4,763 40,000 * International Imaging Materials................. 1,005 120,000 McGrath RentCorp............. 2,280 50,000 * Nobel Education Dynamics..... 838 186,000 * Shorewood Packaging.......... 2,674 120,000 Unitog....................... 2,925 21,988 RAILROADS -- 0.3% 27,400 * North Carolina Railroad...... 754 TOTAL BUSINESS SERVICES AND TRANSPORTATION............ 52,613 - ------------------------------------------------------ ENERGY -- 5.4% ENERGY SERVICES -- 3.8% 115,000 * Atwood Oceanics.............. 2,925 50,000 Cooper Cameron............... 1,775 10,000 * Geophysique (FRF)............ 329 Value --------- 100,000 shs * Maverick Tube................ $ 756 187,100 * Oceaneering International.... 2,409 61,500 Petroleum Helicopters........ 861 33,500 Petroleum Helicopters (non- voting)................... 457 50,000 * Smith International.......... 1,175 10,687 EXPLORATION AND PRODUCTION -- 1.6% 152,100 * Weatherford Enterra.......... 4,392 TOTAL ENERGY.......................................... 15,079 - ------------------------------------------------------ PROCESS INDUSTRIES -- 3.1% SPECIALTY CHEMICALS -- 2.6% 55,000 A. Schulman.................. 1,231 27,300 Furon........................ 546 360,000 * Hauser Chemical Research..... 1,642 100,000 Petrolite.................... 2,787 100,000 * Sybron Chemical.............. 1,100 7,306 PAPER AND PAPER PRODUCTS -- 0.5% 125,000 * Jefferson Smurfit............ 1,180 TOTAL PROCESS INDUSTRIES.............................. 8,486 - ------------------------------------------------------ BASIC MATERIALS -- 1.5% METALS -- 0.4% 54,300 Matthews International....... 1,039 MINING -- 1.1% 9,295 + Coal Creek................... 925 50,000 Pittston Minerals............ 694 15,728 Rochester & Pittsburgh....... 452 164,000 * TVX Gold..................... 1,168 3,239 TOTAL BASIC MATERIALS................................. 4,278 MISCELLANEOUS COMMON STOCKS -- 1.7%................... 4,784 TOTAL COMMON STOCKS & WARRANTS (COST $179,650)..................................... 250,559
9 11 - --------------------------------------------------------------------------------
Value --------- - ------------------------------------------------------ Preferred Stocks -- 0.2% 30,000 shs + Prime Retail, REIT, Cum., 10.50%, Series A.......... $ 582 TOTAL PREFERRED STOCKS (COST $570).................... 582 - ------------------------------------------------------ Convertible Preferred Stocks -- 0.6% 51,000 ICO, $25.00.................. 1,036 25,000 + Prime Retail, REIT, 8.50%, Series B.................. 456 TOTAL CONVERTIBLE PREFERRED STOCKS (COST $1,504)....................................... 1,492 - ------------------------------------------------------ Convertible Bonds -- 0.5% $1,000,000 Arch Communications (144a), 6.75%, 12/1/03............ 1,460 TOTAL CONVERTIBLE BONDS (COST $1,150)................. 1,460 - ------------------------------------------------------ Short-Term Investments -- 9.3% CERTIFICATES OF DEPOSIT -- 1.1% 3,000,000 Banque Nationale de Paris, 5.82%, 2/14/96............ 3,000 COMMERCIAL PAPER -- 7.5% 2,000,000 ANZ (Delaware), 5.668%, 2/9/96.................... 1,971 3,000,000 AT&T, 5.70%, 1/25/96......... 2,950 2,000,000 Caisse des Depots et Consignations, 4(2), 5.76%, 1/17/96............ 1,986 4,000,000 Dean Witter Discover, 5.68%, 1/31/96................... 3,933 3,000,000 Ford Credit Europe, 5.68%, 2/12/96................... 2,944 2,075,347 Investments in Commercial Paper through a joint account, 5.90-6.05%, 1/2/96.................... 2,074 2,000,000 KFW International, 5.75%, 2/8/96.................... 1,978 3,000,000 U.S. Bancorp, 5.73%, 1/22/96................... 2,969 20,805 Value --------- MEDIUM-TERM NOTES -- 0.7% $2,000,000 Morgan Stanley Group, VR, 6.063%, 1/31/97........... $ 2,001 TOTAL SHORT-TERM INVESTMENTS (COST $25,806)........... 25,806 - ------------------------------------------------------ TOTAL INVESTMENTS IN SECURITIES -- 100.5% OF NET ASSETS (COST $208,680)................ 279,899 - ------------------------------------------------------ OTHER ASSETS LESS LIABILITIES......... (1,286) --------- Value ------- NET ASSETS CONSIST OF: Accumulated net investment income -- net of distributions................ $ 50 Accumulated net realized gain/loss -- net of distributions................ 5,817 Net unrealized gain (loss)............ 71,219 Paid-in-capital applicable to 17,074,565 shares of $0.50 par value capital stock outstanding; 200,000,000 shares authorized....... 201,527 ------- NET ASSETS............................ $ 278,613 ========= NET ASSET VALUE PER SHARE............. $16.32 ======
- ------------------------------------------------------ + Affiliated company * Non-income producing # Securities contain some restrictions as to public resale -- total of such securities at year-end amounts to 0.08% 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 year-end amounts to 0.50% of net assets. FRF French franc
The accompanying notes are an integral part of these financial statements. 10 12 - -------------------------------------------------------------------------------- Statement of Operations T. Rowe Price OTC Fund / Year Ended December 31, 1995 (in thousands) INVESTMENT INCOME Income Dividend........................................................................ $ 2,426 Interest........................................................................ 2,012 ------- Total income.................................................................... 4,438 ------- Expenses Investment management........................................................... 1,897 Shareholder servicing........................................................... 507 Custody and accounting.......................................................... 137 Prospectus and shareholder reports.............................................. 59 Registration.................................................................... 45 Legal and audit................................................................. 25 Directors....................................................................... 12 Miscellaneous................................................................... (18) ------- Total expenses.................................................................. 2,664 ------- Net investment income............................................................. 1,774 ------- REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on securities.......................................... 30,377 Change in net unrealized gain or loss........................................... 37,772 ------- Net realized and unrealized gain (loss)........................................... 68,149 ------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS................................. $69,923 ========
- -------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements. 11 13 - -------------------------------------------------------------------------------- Statement of Changes in Net Assets T. Rowe Price OTC Fund (in thousands)
Year Ended December 31, ----------------------------------------- 1995 1994 ------------------- ------------------- INCREASE (DECREASE) IN NET ASSETS FROM Operations Net investment income.................................... $ 1,774 $ 468 Net realized gain (loss)................................. 30,377 20,036 Change in net unrealized gain or loss.................... 37,772 (20,462) ---------- ---------- Increase (decrease) in net assets from operations........ 69,923 42 ---------- ---------- Distributions to shareholders Net investment income.................................... (1,809) (383) Net realized gain........................................ (30,304) (19,961) ---------- ---------- Decrease in net assets from distributions................ (32,113) (20,344) ---------- ---------- Capital share transactions* Shares sold.............................................. 69,748 34,781 Distributions reinvested................................. 30,002 18,722 Shares redeemed.......................................... (55,673) (41,084) ---------- ---------- Increase (decrease) in net assets from capital share transactions........................................... 44,077 12,419 ---------- ---------- Increase (decrease) in net assets.......................... 81,887 (7,883) NET ASSETS Beginning of period........................................ 196,726 204,609 ---------- ---------- End of period.............................................. $ 278,613 $ 196,726 ===================== ===================== - -------------------------------------------------------------------------------------------------------- * Share information Shares sold.............................................. 4,412 2,284 Distributions reinvested................................. 1,857 1,367 Shares redeemed.......................................... (3,448) (2,695) ---------- ---------- Increase (decrease) in shares outstanding................ 2,821 956 ===================== =====================
- -------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements. 12 14 - -------------------------------------------------------------------------------- Notes to Financial Statements T. Rowe Price OTC Fund / December 31, 1995 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 the 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 A) Commercial Paper Joint Account - The fund, and other affiliated funds, may transfer uninvested cash into a commercial paper joint account, the daily aggregate balance of which is invested in high-grade commercial paper. All securities purchased by the joint account satisfy the fund's criteria as to quality, yield, and liquidity. B) Other - Purchases and sales of portfolio securities, other than short-term securities, aggregated $131,498,000 and $119,562,000, respectively, for the year ended December 31, 1995. 13 15 - -------------------------------------------------------------------------------- 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 income. At December 31, 1995, the aggregate cost of investments for federal income tax and financial reporting purposes was $208,680,000 and net unrealized gain aggregated $71,219,000, of which $77,750,000 related to appreciated investments and $6,531,000 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 $182,000 was payable at December 31, 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 December 31, 1995, 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., 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 $474,000 for the year ended December 31, 1995, of which $57,000 was payable at period-end. 14 16 - -------------------------------------------------------------------------------- Financial Highlights T. Rowe Price OTC Fund
For a share outstanding throughout each period ---------------------------------------------------- Year Ended December 31, ---------------------------------------------------- 1995 1994 1993 1992 1991 ---------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD.............. $13.80 $15.39 $14.37 $16.86 $12.72 ------ ------ ------ ------ ------ Investment activities Net investment income........................... 0.12 0.04 -- 0.02 0.07 Net realized and unrealized gain (loss)......... 4.53 (0.04) 2.60 2.20 4.84 ------ ------ ------ ------ ------ Total from investment activities................ 4.65 -- 2.60 2.22 4.91 ------ ------ ------ ------ ------ Distributions Net investment income........................... (0.12) (0.03) -- (0.07) (0.09) Net realized gain............................... (2.01) (1.56) (1.58) (4.64) (0.68) ------ ------ ------ ------ ------ Total distributions............................. (2.13) (1.59) (1.58) (4.71) (0.77) ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD.................... $16.32 $13.80 $15.39 $14.37 $16.86 ====== ====== ====== ====== ====== - -------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Total return...................................... 33.9% 0.1% 18.4% 13.9% 38.6% Ratio of expenses to average net assets........... 1.11% 1.11% 1.20% 1.32% 1.34% Ratio of net investment income to average net assets.......................................... 0.74% 0.24% (0.01)% 0.03% 0.48% Portfolio turnover rate........................... 57.8% 41.9% 40.8% 30.7% 31.2% Net assets, end of period (in thousands).......... $278,613 $196,726 $204,609 $186,838 $266,584 - --------------------------------------------------------------------------------------------------------
15 17 - -------------------------------------------------------------------------------- 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, 1995, 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 four 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 year ended December 31, 1991. Those statements were derived from the financial statements which were audited by other independent auditors 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, 1995, 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 respective periods stated in the first paragraph, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Baltimore, Maryland January 18, 1996 16 18 - -------------------------------------------------------------------------------- Shareholder Services To help shareholders monitor their current investments and make decisions that accurately reflect their financial goals, T. Rowe Price offers a wide variety of information and services--at no extra cost. KNOWLEDGEABLE SERVICE REPRESENTATIVES BY PHONE--Shareholder service representatives are available from 8 a.m. to 10 p.m. Monday - Friday, and weekends from 8:30 a.m. to 5 p.m. ET. Call 1-800-225-5132 to speak directly with a representative who will be able to assist you with your accounts. IN PERSON--Visit one of our investor center locations to meet with a representative who will be able to assist you with your accounts. While there, you can drop off applications or obtain prospectuses and other literature. AUTOMATED 24-HOUR SERVICES Tele*Access(R) (1-800-638-2587) provides information such as account balance, date and amount of your last transaction, latest dividend payment, and fund prices and yields. Additionally, you have the ability to request prospectuses, statements, account and tax forms; reorder checks; and initiate purchase, redemption, and exchange orders for identically registered accounts. PC*Access(R) provides the same information as Tele*Access, but on a personal computer via dial-up modem. ACCOUNT SERVICES Checking--Write checks for $500 or more on any money market and most bond fund accounts (except the High Yield Fund and Emerging Markets Bond Fund). Automatic Investing--Build your account over time by investing directly from your bank account or paycheck with Automatic Asset Builder. Additionally, Automatic Exchange enables you to set up systematic investments from one fund account into another, such as from a money fund into a stock fund. A low, $50 minimum makes it easy to get started. Automatic Withdrawal--If you need money from your fund account on a regular basis, you can establish scheduled, automatic redemptions. Dividend and Capital Gains Payment Options--Reinvest all or some of your distributions, or take them in cash. We give you maximum flexibility and convenience. INVESTMENT INFORMATION Combined Statement--A comprehensive overview of your T. Rowe Price accounts. The summary page gives your earnings by tax category, provides total portfolio value, and lists your investments by type--stock, bond, and money market. Detail pages itemize account transactions by fund. Shareholder Reports--Portfolio managers review the performance of the funds in plain language and discuss T. Rowe Price's economic outlook. The T. Rowe Price Report--A quarterly newsletter with relevant articles on market trends, personal financial planning, and T. Rowe Price's economic perspective. Performance Update--A quarterly report reviewing recent market developments and providing comprehensive performance information for every T. Rowe Price fund. Insights--A library of information that includes reports on mutual fund tax issues, investment strategies, and financial markets. Detailed Investment Guides--Our widely acclaimed Asset Mix Worksheet, College Planning Kit, Retirees Financial Guide, Retirement Planning Kit (also available on disk for PC use), and Guide to Risk-Adjusted Performance can help you determine and reach your investment goals. DISCOUNT BROKERAGE You can trade stocks, bonds, options, precious metals, and other securities at a substantial savings over regular commission rates. Call a shareholder service representative for more information. 17 19 - ----------------------------------------------------------------------------- T. Rowe Price No-Load Mutual Funds STABILITY Prime Reserve Summit Cash Reserves U.S. Treasury Money California Tax-Free Money New York Tax-Free Money Summit Municipal Money Market Tax-Exempt Money CONSERVATIVE INCOME Short-Term Bond Short-Term Global Income Short-Term U.S. Government Summit Limited-Term Bond U.S. Treasury Intermediate Florida Insured Intermediate Tax-Free Maryland Short-Term Tax-Free Bond Summit Municipal Intermediate Tax-Free Insured Intermediate Bond Tax-Free Short-Intermediate Virginia Short-Term Tax-Free Bond INCOME Global Government Bond GNMA New Income Spectrum Income Summit GNMA U.S. Treasury Long-Term California Tax-Free Bond Georgia Tax-Free Bond Maryland Tax-Free Bond New Jersey Tax-Free Bond New York Tax-Free Bond Summit Municipal Income Tax-Free Income Virginia Tax-Free Bond AGGRESSIVE INCOME Corporate Income Emerging Markets Bond High Yield International Bond Tax-Free High Yield CONSERVATIVE GROWTH Balanced Capital Appreciation Dividend Growth Equity Income Equity Index Global Stock Growth & Income Spectrum Growth Value GROWTH Blue Chip Growth European Stock Growth Stock International Stock Japan Mid-Cap Growth New Era OTC Small-Cap Value AGGRESSIVE GROWTH Capital Opportunity Health Sciences Emerging Markets Stock International Discovery Latin America New America Growth New Asia New Horizons Science & Technology PERSONAL STRATEGY FUNDS Personal Strategy Income Personal Strategy Balanced Personal Strategy Growth Call if you want to know about any T. Rowe Price fund. We'll send you a prospectus with more complete information, including management fees and other expenses. Read it carefully before you invest or send money. T. Rowe Price Investment Services, Inc., Distributor. 18 -----END PRIVACY-ENHANCED MESSAGE-----