-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, SxaNb9QSyXPvApkWZ+W5SBjXzsVAOaluCo963ggkOQARrBJNAevpfy28Ycl9Oprv v9rVKvy1NtRZWVGalETpvA== 0000950161-94-000004.txt : 19940304 0000950161-94-000004.hdr.sgml : 19940304 ACCESSION NUMBER: 0000950161-94-000004 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940303 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRICE T ROWE OTC FUND INC CENTRAL INDEX KEY: 0000075170 STANDARD INDUSTRIAL CLASSIFICATION: 0000 IRS NUMBER: 231622210 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 40 SEC FILE NUMBER: 811-00696 FILM NUMBER: 94514459 BUSINESS ADDRESS: STREET 1: 100 EAST PRATT ST STREET 2: C/O T ROWE PRICE ASSOCIATES INC CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: 2156432510 MAIL ADDRESS: STREET 1: 100 EAST PRATT STRE STREET 2: NULL CITY: BALTIMORE STATE: MD ZIP: 21202 FORMER COMPANY: FORMER CONFORMED NAME: OVER THE COUNTER SECURITIES GROUP INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: OVER THE COUNTER SECURITIES FUND INC DATE OF NAME CHANGE: 19890108 N-30D 1 ANNUAL REPORT OF T. ROWE PRICE OTC FUND Fellow Shareholders Nineteen ninety-three closed on a satisfying note for the OTC Fund, as its gain in the final quarter outperformed the unmanaged Nasdaq Composite, Russell 2000 Index, and S&P 500. Indeed, the final quarter's strong performance left the OTC Fund handily ahead of the Nasdaq and S&P 500 and only narrowly behind the Russell 2000 for the year. Performance Comparison Periods Ended 12/31/93 3 Months 12 Months OTC Fund 4.3% 18.4% Nasdaq Composite 1.8 14.7 Russell 2000 2.6 18.9 S&P 500 2.3 10.1 T. Rowe Price Associates became the investment manager of the Fund on September 2, 1992. Principal only As you can see in the next table, 1993 marked the third straight year that small-cap stocks decisively outperformed their larger-cap brethren. As we'll comment on later in our outlook, we believe this trend will remain intact for 1994. Small-Cap vs. Large-Cap Performance 1991 1992 1993 Nasdaq Composite 56.8% 15.5% 14.7% Russell 2000 46.1 18.4 18.9 S&P 500 30.4 7.6 10.1 Principal only Year-End Distributions On December 21, 1993, your Board of Directors declared a long-term capital gain of $1.17 per share and a short-term capital gain of $0.41 per share. The $1.58 total distribution was paid on December 31 to shareholders of record on the 21st. You should already have received a check or statement as well as your 1099-DIV reflecting these distributions. Investment Review PartnerRe, a new Bermuda-based reinsurer, was the largest purchase for the Fund during the fourth quarter. The company is a formidable new force in the reinsurance market, with nearly one billion in capital and the sponsorship of Swiss Re, one of the world's largest reinsurers. One area within the property and casualty business where capacity has been short and pricing has firmed is catastrophic reinsurance (or, in layman's terms, the insurance which covers insurance companies when a major disaster like hurricane Andrew hits). PartnerRe focuses exclusively on this highly profitable niche. We believe PartnerRe can earn $5.00 a share or more over the next 12 months if the "winds don't blow" this year. Therefore, priced at $20 a share, or 1.1 times book value, and with a 2% yield, we found the stock too attractive to pass up. For the past several quarters, we've written of our belief that a stronger economy was just around the corner. Fortunately, our weightings in economically sensitive stocks enabled us to participate fully in this group's rally during the just-completed quarter. Three of the top five performing sectors in the Russell 2000 _ auto and transport, material and process industries, and producer durable goods _ were cyclicals, all areas of focus for your portfolio. Based on our projection that the economy will gradually accelerate in 1994, we have enhanced the position in cyclicals by adding to the industrial holdings through the purchase of two recent initial public offerings. Early in the fourth quarter, we bought a position in Holophane, a niche manufacturer of industrial, commercial, and outdoor lighting. We also added Flair Corp., a manufacturer of industrial filtration systems. Both companies should benefit from the pickup in industrial production now occurring. Correspondingly, we believe consumers will continue to respond to the rebounding economy in 1994. Thus, to play a resurgence in consumer confidence, we added several retailers, including department store Carson Pirie Scott and specialty retailer Charming Shoppes. Similarly, we purchased Tommy Hilfiger, an exceptionally well-positioned apparel company with what, in our opinion, is perhaps the strongest management in the business. We have also further built the portfolio weighting in technology stocks. During the fourth quarter, we initiated a position in Electronic Information Systems (EISI), which produces computerized telephone call processing systems. These systems automatically dial numbers from a database, then connect the call to a sales agent when a voice is detected on the other end. EISI possesses many of the attributes we seek in our quest for well-positioned investments with capital appreciation potential. Such characteristics include growing market share, attractive operating margins, management ownership, as well as attractive but unrecognized, undiscounted earnings growth. Outlook So, will it be three years in, and over two years to go? We're referring, of course, to the average period of outperformance by the small-cap market sector. Typically, small-cap stock cycles have run from four to seven years, with an average of over five years, so we could be halfway through this cycle. All our indicators (relative price to earnings multiples, price to book, price to sales) tell us small-cap stocks remain attractively priced relative to larger-cap stocks. However, the party rarely goes on uninterrupted. History has also shown each cycle to be laced with 10% to 15% "midterm" corrections. Thus, as we've said for the past two quarters, we believe the environment for small-cap stocks will prove rewarding in 1994 even though the market may be vulnerable to an interim correction. We appreciate your support and hope the new year will be healthy and profitable for you. Respectfully submitted, (signature) Greg McCrickard President and Chairman of the Investment Advisory Committee January 21, 1994 Twenty-Five Largest Holdings December 31, 1993 Percent of Company Net Assets Selective Insurance 2.5 % SEI 1.6 Enterra 1.5 Werner Enterprises 1.5 Glacier Bancorp 1.4 CSS Industries 1.4 Collective Bancorp 1.3 Monk-Austin 1.3 PartnerRe Holdings 1.3 Transnational Re 1.3 Maxim Integrated Products 1.3 United Federal Bancorp 1.3 Watts Industries 1.2 Stewart Enterprises 1.2 Cragin Financial 1.1 Linear Technology 1.1 M.S. Carriers 1.1 Analogic 1.1 Harleysville Group 1.0 Zenith Laboratories 1.0 Isomedix 1.0 TPI Enterprises 1.0 Pulitzer Publishing 1.0 Liqui-Box 1.0 Mariner Health Group 1.0 Total 31.5% Major Portfolio Changes Three Months Ended December 31, 1993 Ten Largest Purchases Cost (000) PartnerRe Holdings $2,500 Transnational Re 2,208 Flair 1,648 Holophane 1,499 Carson Pirie Scott 1,420 Tommy Hilfiger 1,403 Pittston Minerals 1,376 Charming Shoppes 1,229 St. Jude Medical 988 Electronic Information Systems 970 Ten Largest Sales Proceeds (000) Merisel $2,252 Allmerica Property & Casuality 1,802 BISYS Group 1,612 Amplicon 1,406 Roper Industries 1,143 Culp 1,007 Scios Nova 988 Linear Technology 982 Salick Health Care 940 Hollywood Park Pfd. 890 Position added Position eliminated Performance Comparison Chart (see Appendix) Total Return Performance Periods Ended December 31, 1993 1 Year 5 Years 10 years 18.40 % 12.11 % 10.53 % Until September 2, 1992, the Fund was managed by USF&G Review Management. Average Annual Compound Total Return Income return and principal value represent past performance and will vary. Shares may be worth more or less at redemption than at original purchase. Statement of Net Assets (Value in thousands) T. Rowe Price OTC Fund/December 31, 1993 Common Stocks & Warrants _ 92.9% FINANCIAL _ 20.0% Value BANK & TRUST _ 10.4% 16,000 shs. Banc First $ 236 30,000 Bell Bancorp 1,410 120,000 Collective Bancorp 2,595 63,000 Cragin Financial 2,347 50,000 First Security 1,300 133,100 Glacier Bancorp 2,862 35,000 Magna Group 669 41,000 Mercantile Bancorporation 1,850 44,550 ONBANCorp 1,565 55,000 Premier Bancorp 969 60,500 Silicon Valley Bancshares 597 80,000 United Federal Bancorp 2,580 90,000 United Financial of South Carolina 1,665 52,500 Vallicorp Holdings 643 21,288 FINANCIAL SERVICES _ 0.2% 20,000 Pioneer Group 508 INSURANCE _ 9.4% 35,000 Foremost 1,190 70,000 Harleysville Group 2,091 103,000 Intercargo 1,210 34,050 Navigators Group 1,158 156,200 Pac Rim Holding 410 125,000 PartnerRe Holdings 2,688 100,200 Philadelphia Consolidated Holding 1,202 171,400 Selective Insurance 5,185 100,000 Transnational Re 2,663 42,500 W. R. Berkley 1,466 19,263 Total Financial 41,059 CONSUMER NONDURABLES _ 15.0% BEVERAGES _ 0.3% 79,100 Chalone 489 FOOD PROCESSING _ 2.2% 190,000 Foodmaker 1,852 164 Makepeace 902 60,500 Seneca Foods 1,180 25,000 Thorn Apple Valley 575 4,509 HOSPITAL SUPPLIES/HOSPITAL MANAGEMENT _ 1.0% 25,000 shs. Pacificare Health Systems $941 35,000 St. Jude Medical 923 1,864 PHARMACEUTICALS _ 2.4% 25,000 Immunex 403 60,000 Life Technologies 1,087 65,000 Marsam Pharmaceuticals 1,373 87,000 Zenith Laboratories 2,055 4,918 HEALTH CARE SERVICES _ 3.6% 32,000 Abbey Healthcare 896 76,000 Advantage Health 1,168 29,000 Intergroup Healthcare 1,385 90,000 Mariner Health 1,958 108,700 Multicare 1,957 7,364 MISCELLANEOUS CONSUMER PRODUCTS _ 5.5% 61,500 Boston Acoustics 1,015 94,225 CIMCO 660 34,500 Crown City Plating 224 74,375 Culp 1,864 21,900 Cygne Designs 422 53,400 Liqui-Box 1,976 171,300 Monk-Austin 2,741 90,000 Stewart Enterprises (Class A) 2,396 11,298 Total Consumer Nondurables 30,442 CONSUMER SERVICES _ 10.2% GENERAL MERCHANDISERS _ 1.6% 43,500 Brookstone 674 100,000 Carson Pirie Scott 1,419 15,000 Cosmetic Center (Class A) 279 50,000 Cosmetic Center (Class B) 919 3,291 SPECIALTY MERCHANDISERS _ 3.6% 95,000 Charming Shoppes 1,122 138,000 CSS Industries 2,846 50,000 Shoe Carnival 613 46,400 Tommy Hilfiger 1,450 161,200 Vans 826 40,000 Wolohan Lumber 705 7,562 ENTERTAINMENT & LEISURE _ 1.5% 55,000 Carmike Cinemas (Class A) 990 200,000 TPI Enterprises 2,000 2,990 MEDIA & COMMUNICATIONS _ 3.5% 50,000 shs. Associated Communication (Class B) $1,406 48,978 Cowles Media 1,139 3,836 Fisher Companies 700 78,000 Gray Communications Systems 1,151 30,000 Mobile Telecommunication Technologies 731 55,500 Pulitzer Publishing 1,991 7,118 Total Consumer Services 20,961 CONSUMER CYCLICALS _ 4.8% AUTOMOBILES & RELATED _ 0.6% 7,506 Adrian Steel 1,257 BUILDING & REAL ESTATE _ 0.9% 1,882 Boston Sand & Gravel 259 13,384 First Republic of America 589 1,650 J. C. Nichols 949 1,797 MISCELLANEOUS CONSUMER DURABLES _ 3.3% 20,970 wts. Craftmatic Contour, 12/31/02 0 55,000 shs. Juno Lighting 1,127 187,500 LADD Furniture 1,898 60,000 Scotts (Class A) 1,192 60,000 Vallen 758 150,000 Winston Furniture 1,744 6,719 Total Consumer Cyclicals 9,773 TECHNOLOGY _ 8.6% ELECTRONIC COMPONENTS _ 3.9% 138,213 Analogic 2,194 50,000 Lattice Semiconductor 819 60,000 Linear Technology 2,332 55,000 Maxim Integrated Products 2,623 7,968 INFORMATION PROCESSING _ 0.7% 80,000 DH Technology 1,420 SPECIALIZED COMPUTER _ 1.2% 43,500 BGS Systems 1,174 50,000 Boole & Babbage 1,212 2,386 TELECOMMUNICATIONS _ 2.1% 35,000 BroadBand Technologies 1,094 55,000 Cellular Communications of Puerto Rico 1,231 80,000 Electronic Information Systems 1,050 30,000 LCI International 1,099 4,474 AEROSPACE & DEFENSE _ 0.7% 18,000 shs. Woodward Governor $1,359 Total Technology 17,607 CAPITAL EQUIPMENT _ 6.9% ELECTRICAL EQUIPMENT _ 0.8% 100,000 Holophane 1,725 MACHINERY _ 6.1% 101,000 AMTROL 1,957 85,003 Central Sprinkler 1,190 95,000 Flair 1,935 37,290 Hardinge Brothers (Class A) 802 126,600 Hurco Companies 301 17,450 Laser Alignment 401 55,000 Lindsay Manufacturing 1,932 43,942 Roper Industries 1,390 50,000 Watts Industries (Class A) 2,500 12,408 Total Capital Equipment 14,133 BUSINESS SERVICES & TRANSPORTATION _ 16.9% COMPUTER SERVICE & SOFTWARE _ 3.7% 20,000 Autodesk 905 30,000 Electronic Arts 904 25,000 HBO 1,153 25,000 PeopleSoft 775 80,000 Ross Systems 500 127,400 SEI 3,296 7,533 ENVIRONMENTAL _ 2.2% 164,250 EMCON 1,314 135,000 Mid-American Waste Systems 1,114 130,000 TRC 1,398 50,000 United Waste Systems 756 4,582 TRANSPORTATION SERVICES _ 6.2% 60,000 Expeditors International of Washington 915 59,800 FRP Properties 800 50,000 Heartland Express 1,231 50,250 International Shipholding 936 140,000 Intertrans 1,803 110,000 M. S. CARRIERS 2,310 75,000 Swift Transportation 1,594 101,000 Werner Enterprises 3,068 12,657 MISCELLANEOUS BUSINESS SERVICES _ 4.2% 45,800 Amplicon 893 60,000 Insituform Technologies 757 105,000 Isomedix 2,034 100,000 McGrath RentCorp 1,462 126,000 shs. Shorewood Packaging 1,764 40,000 Unitog 970 140,000 UTILX 718 8,598 RAILROADS _ 0.6% 33,400 North Carolina Railroad 1,236 Total Business Services & Transportation 34,606 ENERGY _ 6.3% ENERGY SERVICES _ 5.1% 115,000 Atwood Oceanics 1,301 151,500 Enterra 3,106 50,000 Garnet Resources 225 10,000 Geophysique (FRF) 958 101,200 Moorco International 1,923 130,000 Oceaneering International 1,771 61,500 Petroleum Helicopters 619 33,500 Petroleum Helicopters (non-voting) 343 10,000 Wheatley TXT (non-voting) 115 10,361 INTEGRATED PETROLEUM-DOMESTIC _ 0.4% 176,000 Benton Oil and Gas 858 INTEGRATED PETROLEUM- INTERNATIONAL _ 0.8% 260,000 Tuboscope Vetco 1,576 Total Energy 12,795 PROCESS INDUSTRIES _ 1.3% DIVERSIFIED CHEMICALS _ 0.7% 103,616 Aceto 1,386 SPECIALTY CHEMICALS _ 0.6% 40,000 A. Schulman 1,335 Total Process Industries 2,721 BASIC MATERIALS _ 2.1% MINING _ 2.1% 9,295 Coal Creek 1,022 65,000 Pittston Minerals 1,552 15,728 Rochester & Pittsburgh 619 164,000 TVX Gold 1,087 Total Basic Materials 4,280 Miscellaneous _ 0.8% 1,628 Total Common Stocks (Cost _ $137,020) 190,005 The accompanying notes are an integral part of these financial statements. Convertible Bonds _ 1.6% $1,500,000 American City Business Journals, 6.00%, 12/31/11 $1,504 2,000,000 Cellular, 6.75%, 7/15/09 1,945 Total Convertible Bonds (Cost _ $2,525) 3,449 Short-Term Investments _ 6.5% COMMERCIAL PAPER _ 6.5% 2,000,000 American Express Credit, 3.26%, 3/30/94 1,967 3,000,000 Bank of Nova Scotia, 3.25%, 1/21/94 2,976 1,600,000 Bankers Trust Company, 3.25%, 1/3/94 1,600 3,000,000 Caisse des Depots et Consignations 4(2), 3.32%, 1/21/94 2,978 1,000,000 Citicorp, VRMTN, 3.55%, 12/7/94 999 52,000 Harvard University, 3.20%, 1/3/94 52 1,000,000 Morgan Stanley Group, VRMTN, 3.625%, 7/25/94 1,002 1,600,000 Province of British Columbia, 3.30%, 2/11/94 1,573 Total Short-Term Investments (Cost _ $13,147) 13,147 Total Investments in Securities _ 101.0% (Cost $152,692) 206,601 Other Assets Less Liabilities _ (1.0)% (1,992) Net Assets Consisting of: Accumulated realized gains/losses - net of distributions $ 5,669 Unrealized appreciation of investments 53,909 Paid-in-capital applicable to 13,296,602 shares of $0.50 par value capital stock outstanding; 200,000,000 shares authorized 145,031 Net Assets - 100.0% $204,609 Net Asset Value Per Share $15.39 Non-income producing (FRF) French franc denominated Affiliated company VRMTN Variable Rate Medium Term Note Statement of Operations T. Rowe Price OTC Fund/Year Ended December 31, 1993 Amounts in Thousands INVESTMENT INCOME Income Dividends $ 1,595 Interest 720 Total income $2,315 Expenses Investment management fees 1,547 Shareholder servicing fees & expenses 444 Custodian and accounting fees & expenses 149 Registration fees & expenses 52 Legal & auditing fees 46 Prospectus & shareholder reports 38 Directors' fees & expenses 12 Miscellaneous 43 Total expenses 2,331 Net investment income (16) REALIZED AND UNREALIZED GAIN ON INVESTMENTS Net realized gain 24,877 Change in unrealized appreciation or depreciation 7,769 Net gain on investments 32,646 INCREASE IN NET ASSETS FROM OPERATIONS $ 32,630 The accompanying notes are an integral part of these financial statements. Statement of Changes in Net Assets T. Rowe Price OTC Fund Year Ended December 31, 1993 1992 Amounts in Thousands INCREASE (DECREASE) IN NET ASSETS Operations Net investment income $ (16) $ 69 Net realized gain on investments 24,877 49,010 Change in unrealized appreciation or depreciation of investments 7,769 (25,166) Increase in net assets from operations 32,630 23,913 Distributions to shareholders Net investment income _ (723) Net realized gain on investments (19,192) (47,946) Decrease in net assets from distributions to shareholders (19,192) (48,669) Capital share transactions Sold 2,717 and 1,874 shares 41,461 32,843 Distributions reinvested of 1,166 and 3,096 shares 17,461 43,341 Redeemed 3,589 and 7,778 shares (54,589) (131,174) Increase (decrease) in net assets from capital share transactions 4,333 (54,990) Total increase (decrease) 17,771 (79,746) NET ASSETS Beginning of year 186,838 266,584 End of year $204,609 $186,838 The accompanying notes are an integral part of these financial statements. Notes to Financial Statements T. Rowe Price OTC Fund / December 31, 1993 Note 1 - Significant Accounting Policies T. Rowe Price OTC Fund (the Fund) is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. A) Valuation - Equity securities listed or regularly traded on a securities exchange are valued at the last quoted sales price on the day the valuations are made. A security which is listed or traded on more than one exchange is valued at the quotation on the exchange determined to be the primary market for such security. Listed securities that are not traded on a particular day and securities regularly traded in the over-the-counter market are valued at the mean of the latest bid and asked prices. Debt securities are generally traded in the over-the-counter market and are valued at a price deemed best to reflect fair value as quoted by dealers who make markets in these securities or by an independent pricing service. Short-term debt securities are valued at their cost which, when combined with accrued interest, approximates fair value. For purposes of determining the Fund's net asset value per share, all assets and liabilities initially expressed in foreign currencies are converted into U.S. dollars at 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 - Foreign currency amounts are translated into U.S. dollars at prevailing exchange rates as follows: assets and liabilities at the rate of exchange at the end of the respective period, purchases and sales of securities and income and expenses at the rate of exchange prevailing on the dates of such transactions. 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 which may differ from generally accepted accounting principles. E) Accounting Change - Effective as of the beginning of the year, the Fund adopted a recently issued accounting standard related to shareholder distributions and discontinued the practice of equalization. These changes resulted in a reclassification to paid-in-capital of permanent differences between tax and financial reporting of net investment income and net realized gains/losses. The cumulative effect of these changes as of December 31, 1992 increased Accumulated net investment income - net of distributions by $758,000, increased Accumulated realized gains/losses - net of distributions by $822,000, and decreased Paid-in-capital by $1,580,000. The results of operations and net assets were not affected by these changes. Note 2 - Portfolio Transactions Purchases and sales of portfolio securities, other than short-term and U.S. Government securities, aggregated $73,092,000 and $87,857,000, respectively, for the year ended December 31, 1993. Note 3 - Federal Income Taxes No provision for federal income taxes is required since the Fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. At December 31, 1993, the aggregate cost of investments for federal income tax and financial reporting purposes was $152,692,000 and net unrealized appreciation aggregated $53,909,000, of which $61,555,000 related to appreciated investments and $7,646,000 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, computed daily and paid monthly, consisting 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. The effective annual Group Fee rate at December 31, 1993, and for the year then ended was 0.35%. The Fund pays a pro rata portion of the Group Fee based on the ratio of the Fund's net assets to those of the Group. T. Rowe Price Services, Inc. (TRPS) and Retirement Plan Services, Inc. (RPS) are wholly owned subsidiaries of the Manager. TRPS provides transfer and dividend disbursing agent functions and shareholder services for all accounts. RPS provides subaccounting and recordkeeping services for certain retirement accounts invested in the Fund. The Manager, under a separate agreement, calculates the daily share price and maintains the financial records of the Fund. For the year ended December 31, 1993, the Fund in- curred fees totalling approximately $435,000 for these services provided by related parties. At December 31, 1993, these investment management and service fees payable were $183,000. Financial Highlights T. Rowe Price OTC Fund For a share outstanding throughout each Year Ended December 31, 1993 1992 1991 1990 1989 NET ASSET VALUE, BEGINNING OF YEAR $14.37 $16.86 $12.72 $16.23 $14.14 Investment Activities Net investment income _ 0.02 0.07 0.11 0.09 Net realized and unrealized gain (loss) 2.60 2.20 4.84 (3.43) 2.61 Total from Investment Activities 2.60 2.22 4.91 (3.32) 2.70 Distributions Net investment income _ (0.07) (0.09) (0.09) (0.13) Net realized gain (1.58) (4.64) (0.68) (0.10) (0.48) Total Distributions (1.58) (4.71) (0.77) (0.19) (0.61) NET ASSET VALUE, END OF YEAR $15.39 $14.37 $16.86 $12.72 $16.23 RATIOS/SUPPLEMENTAL DATA Total Return 18.4% 13.9% 38.6% (20.5%) 19.1% Ratio of Expenses to Average Net Assets 1.20% 1.32% 1.34% 1.47% 1.45% Ratio of Net Investment Income to Average Net Assets (0.01)% 0.03% 0.48% 0.73% 0.63% Portfolio Turnover Rate 40.8% 30.7% 31.2% 34.8% 33.1% Net Assets, End of Year (in thousands) $204,609 $186,838 $266,584 $215,299 $315,939 Report of Independent Accountants To the Shareholders and Board of Directors of T. Rowe Price OTC Fund We have audited the accompanying statement of net assets of T. Rowe Price OTC Fund, as of December 31, 1993, and the related statement of operations for the year then ended, the statement of changes in net assets and the financial highlights for each of the two 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. The financial highlights for each of the three years in the period ended December 31, 1991, were audited by other independent accountants whose report expressed an unqualified opinion 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, 1993 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 audit provides 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 as of December 31, 1993, the results of its operations for the year then ended, and the changes in its net assets and financial highlights for each of the two years in the period then ended in conformity with generally accepted accounting principles. COOPERS & LYBRAND Baltimore, Maryland January 19, 1994 Officers and Directors John H. Laporte, Chairman Gregory A. McCrickard, President Leo C. Bailey, Director Donald W. Dick, Jr., Director David K. Fagin, Director Addison Lanier, Director John K. Major, Director James S. Riepe, Vice President/Director Herbert D. Vos, Director Paul M. Wythes, Director Marcy L. Fisher, Vice President Henry H. Hopkins, Vice President James A. C. Kennedy, III, Vice President Brian D. Stansky, Vice President Richard T. Whitney, Vice President Lenora V. Hornung, Secretary Carmen F. Deyesu, Treasurer David S. Middleton, Controller Appendix Chart 1: Performance Comparison Chart OTC Fund Performance Comparison A line graph compares the 12/31/93 value of a hypothetical $10,000 investment made in the OTC Fund at its inception and a similar investment made concurrently in the S&P 500 Index. At 12/31/93, the Fund investment would have been worth $27,223 and the S&P Index investment would have been worth $40,177. -----END PRIVACY-ENHANCED MESSAGE-----