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<PAGE>
Annual Report
[Logo]
Capital Appreciation
Fund
December 31, 1994
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 distri-
bution only to shareholders and to
others who have received a copy of
the prospectus of the T. Rowe Price
Capital Appreciation Fund.
[Logo]
CAF
<PAGE>
Fellow Shareholders
Ouch! The past year and its last quarter were not kind to most investors. In
November, the Federal Reserve raised the key federal funds rate for the sixth
time in 1994; shortly thereafter came the bankruptcy of Orange County,
California, and Mexico's currency devaluation. For these and other reasons,
the majority of equity and bond mutual fund investors appear to have lost
money in 1994. The year was hardly terrible, but it wasn't very good either.
The Capital Appreciation Fund's 3.8% return for 1994 was substantially
better than that of similar funds and the broad market as represented by the
unmanaged Standard & Poor's 500 Stock Index. Our prejudice against "away
games" kept us out of Mexican stocks, and our wariness toward the government
and monetary policy helped minimize the impact of higher interest rates on
Fund holdings. Your Fund ranked in the top 10% of all capital appreciation
funds for the year. While pleased with this competitive standing, we can't
help but be disappointed with the level of returns, particularly in the fourth
quarter.
Performance Comparison
Periods Ended
12/31/94
3 Months 12 Months
-------------------
Capital Appreciation Fund -1.2% 3.8%
S&P 500 0.0 1.3
Lipper Capital Appreciation
Fund Average -1.8 -3.4
- -----------------------------------------------
YEAR-END DISTRIBUTION
The Fund's Board of Trustees declared a year-end income dividend of $0.35 per
share, a long-term capital gain of $0.44 per share, and a short-term capital
gain of $0.25 per share. All were paid December 29 to shareholders of record
on December 27. Your check or statement reflecting these distributions was
mailed in early January and Form 1099-DIV reporting them for tax purposes was
sent toward month-end.
MARKET ENVIRONMENT
In last year's annual report we said, "It seldom gets much better than this,"
and it certainly didn't. Practically all financial markets got worse. For
example, long-term bonds had their worst calendar year since at least the
1920s, due mainly to the Fed's tighter monetary policy. Toward year-end, the
money and shorter-term bond markets were rocked by Orange County's bankruptcy,
engineered by an elected investment manager who appeared to have doubled his
bet each time he called interest rates wrong. Finally, we had Mexico's recent
devaluation and financial crisis, which sent Latin American investments into a
tailspin. We missed the big profits in Mexican stocks; happily, we missed the
losses as well and have a mild case of survivor euphoria.
The real financial story of 1994 and nearly every year is that average
Americans went about making their world better. They worked smarter and with
better tools. More people had jobs and, in a real sense, most got a little
richer. This sort of story doesn't make the headlines, but, as investors, we
should never be so pessimistic and focused on the short term as to forget this
truth. Bad news monopolizes headlines; steady progress is seldom considered
newsworthy.
PORTFOLIO HIGHLIGHTS
The Fund's basic asset allocation, shown in the chart, became slightly more
aggressive over the course of 1994 as our most defensive asset class, cash
reserves, declined from 24% to 19% of the portfolio. In a difficult year such
as 1994, reserves provide important protection to the Fund's net asset value
and also give us the wherewithal to make opportunistic purchases of securities
with higher return potential. In recent months, the search for such
investments led us to a number of convertible securities, one of which,
AUTOMATIC DATA PROCESSING bonds, is now our largest position.
<PAGE>
Our common stock holdings declined modestly as a percentage of the
portfolio. In this area, we have been buying a number of beaten down electric
utilities. Everything seems to have gone wrong for this industry, once
considered a safe haven for widows and orphans. In a year when the broad
market went nowhere, this group fell over 20%, and the most "snake bitten"
electrics plummeted nearly 50% from their 1993 highs. These holdings are now
more than 6% of your portfolio.
Security Diversification
[chart]
A pie chart showing the percent of the Fund's assets invested among common
stocks 50.71%, preferred stocks 4.49%, convertibles 21.54%, bonds 2.73%, and
reserves 20.52%.
Your Fund's best performance contributor in 1994 was AMERICAN CYANAMID,
which was acquired by American Home Products in the third quarter. Our second
best contributor was KEMPER, another acquisition target but a more
nerve-racking one. At one point we had substantial gains, some of which were
lost when the takeover subsequently aborted. We are again adding to our
holdings and remain hopeful. Our third best contributor was IBM. Having long
misjudged the gravity of this company's problems, we are pleased to see a
recovery under way, although the analogy of a stopped clock being right twice
a day may also be appropriate. (We hope not!) Our biggest disappointment has
been PETRIE STORES, where potential profits from a corporate restructuring
remain tantalizingly close, but elusive.
FUND OPERATING GUIDELINES
Your Fund's assets grew substantially in 1994, and we welcome all new
shareholders. At the risk of boring our "old-timers," we'd like to again spell
out our investment philosophy.
We work as hard to reduce risk as to maximize gain.
Attractively priced value stocks (as opposed to growth stocks) are our
investment of choice.
[bullet]We will make short-term, opportunistic investments as well as more
typical long-term ones.
[bullet]No type of investment is off-limits (bonds, stocks, convertibles,
etc.) if the risk/reward characteristics are attractive.
[bullet]Our decisions reflect case-by-case investment judgment; we have no
all-encompassing formula.
[bullet]Our asset allocations result from individual security decisions, not
vice versa.
[bullet]In general, we favor large-company stocks over small, because we
usually take big positions to make the most of our intensive analysis of
individual securities.
OUTLOOK
As usual, our three key considerations of stock market potential are mixed.
Valuations are unattractive, interest rate trends are unfavorable but likely
to improve, and the economy and related corporate earnings are strong. A word
or two about each:
The stock market as represented by the S&P 500 has a dividend yield of about
3%, historically a valuation level more indicative of high risk than potential
reward. In addition, dividend growth remains poor, and the price/book value
ratio is inauspiciously high. The price/earnings multiple for the market is
neutral.
Interest rate trends were the financial market's key driver in 1994, but are
unlikely to remain dominant. Eventually, the Federal Reserve will be confident
that an overheating economy is under control and that inflation is no longer
the primary concern. Unfortunately, we may have to suffer through several more
federal funds rate hikes before that time comes. Six more months of pain looks
possible, but 18 seems unlikely.
<PAGE>
Economic activity and corporate profits are very strong, but should slow
over the next year. In addition to the gradual effect of higher interest
rates, there appears to be minimal capacity slack, with both labor and capital
nearly fully utilized.
With these mixed signals and our long-held belief that there are always good
securities to buy, we intend to continue selective purchases and sales
regardless of the market's direction. If 1995 is a tough year for most
investors, we expect to use their disappointments as opportunities to make
attractive purchases. When articles of solid value are put on sale, we intend
to be buyers. If stock prices generally are strong, we will as always be
taking some profits.
Thank you, and best wishes for the new year.
Respectfully submitted,
s/Richard P. Howard
Richard P. Howard
President and Chairman of the
Investment Advisory Committee
January 20, 1995
Twenty-Five Largest Holdings
December 31, 1994
Percent of
Company Net Assets
- -------------------------------- ----------
Automatic Data Processing 4.4%
Petrie Stores 3.7
Manville 3.3
Rockefeller Center 2.5
Entergy 2.3
Loews 2.3
Philip Morris 2.2
Sallie Mae 2.2
Cleveland Electric 2.0
Delta 1.9
Texaco 1.8
Washington Post 1.8
Eli Lilly 1.6
Atlantic Richfield 1.6
Price Company 1.5
PHH 1.5
Tandy 1.3
Weyerhaeuser 1.3
Champion International 1.2
Federated Department Stores 1.2
CIGNA 1.2
Polaroid 1.2
IBM 1.2
Centerior Energy 1.2
Public Service of New Mexico 1.2
- -------------------------------------------
Total 47.6%
<PAGE>
Contributions to the Change in Net Asset Value Per Share
Three Months Ended December 31, 1994
- ------------------------------------------------------------------------------
TEN BEST CONTRIBUTORS
Eli Lilly 3[cents]
Teledyne 3
Reebok 2
Manville 1
SCEcorp 1
Delta 1
Public Service of New Mexico 1
Union Texas Petroleum 1
Washington Post 1
IBM 1
- ---------------------------------------------------------
Total 15[cents]
TEN WORST CONTRIBUTORS
Petrie Stores -6[cents]
Kemper 5
Newmont Mining 3
Weyerhaeuser 3
Chris-Craft Industries 2
American Premier Underwriters* 1
CBS 1
Homestake Mining 1
Price Company 1
Entergy 1
- ---------------------------------------------------------
Total -24[cents]
Twelve Months Ended December 31, 1994
- ---------------------------------------------------------
TEN BEST CONTRIBUTORS
American Cyanamid* 26[cents]
Kemper 8
IBM 8
Reebok 5
Philip Morris 2
Public Service of New Mexico 2
Eli Lilly 2
Macy (R.H.)* 2
Scott Paper* 2
Meredith 2
- ---------------------------------------------------------
Total 59[cents]
TEN WORST CONTRIBUTORS
Petrie Stores -11[cents]
Entergy 5
Newmont Mining 4
Price Company 3
Oryx Energy 3
Pennzoil 3
Weyerhaeuser 3
Rockefeller Center 2
Homestake Mining 2
Eastman Kodak* 2
- ---------------------------------------------------------
Total -38[cents]
*Position eliminated
<PAGE>
Performance Contributions
Twelve Months Ended December 31, 1994
Cents-Per-Share % of
Sector Contribution Net Assets
- ------------------------------- --------------- ----------
Basic Materials -6[cents] 2%
Business Services &
Transportation -3 9
Capital Equipment 1 1
Consumer Cyclicals -7 9
Consumer Nondurables 40 8
Consumer Services -13 12
Energy -1 9
Financial 2 10
Process Industries 2 3
Technology 4 2
Utilities -4 9
U.S. Government/Options -7 3
Total 8 77
Miscellaneous 0 3
Reserves & Income 40 20
- ----------------------------------------------------------
Total Portfolio 48[cents] 100%
- ----------------------------------------------------------
Fiscal-Year Performance
Periods Ended December 31, 1994
1 Year 5 Years* Since Inception 6/30/86*
- ------- -------- ------------------------
3.80% 9.53% 12.20%
- -----------------------------------------
* 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.
[chart]
Fiscal-Year Performance Comparison
A two-line chart comparing the growth in an initial $10,000 investment in the
Fund with the same investment in the S&D 500 Index starting on 6/30/86 and
ending on 12/31/94.
<PAGE>
Investment Record
T. Rowe Price Capital Appreciation Fund
The table below shows the investment record of one share of the T. Rowe Price
Capital Appreciation Fund, purchased at the initial price of $10.00, for the
period 6/30/86 through 12/31/94. Over this time, stock prices in general have
risen. The results shown should not be considered as a representation of the
income or capital gain or loss which may be realized from an investment made
in the Fund today.
Per-Share Data
<TABLE>
<CAPTION>
With Capital Gains and Income Dividends Annual
Taken in Cash Reinvested in Additional Shares Total Return
------------------------------- -------------------------------- On Investment
Year Capital Capital % Change
Ended Asset Gain Income Gain Income Value of -------------
12/31 Value Distribution/1/ Dividend Distribution Dividend Investment Fund S&P 500
- -------- ------ --------------- -------- ------------ -------- ---------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1986/2/ $10.85 - - - - $10.85 8.5% -1.8%
1987 9.15 $1.85 0.48 1.95 0.50 11.47 5.7 5.3
1988 10.42 0.37 0.28 0.47 0.35 13.91 21.2 16.5
1989 10.82 1.36 0.45 1.81 0.60 16.88 21.4 31.6
1990 9.98 0.31 0.39 0.48 0.61 16.67 -1.2 -3.1
1991 11.02 0.64 0.43 1.07 0.72 20.27 21.6 30.3
1992 11.39 0.16 0.50 0.29 0.92 22.17 9.4 7.6
1993 12.66 0.33 0.18 0.64 0.35 25.64 15.7 10.1
1994 12.10 0.69 0.35 1.40 0.71 26.62 3.8 1.3
- ---------------------------------------------------------------------------------------
Total $5.71 $3.06 8.11 4.76
- ---------------------------------------------------------------------------------------
<FN>
1. Includes short-term capital gains of $1.74 in 1987, $0.28 in 1988,
$1.10 in 1989, $0.08 in 1990, $0.21 in 1991, $0.09 in 1992, $0.14 in
1993, and $0.25 in 1994.
2. From inception 6/30/86 to 12/31/86
</TABLE>
<PAGE>
Statement of Net Assets (Value in thousands)
T. Rowe Price Capital Appreciation Fund / December 31, 1994
Common Stocks--50.0%
FINANCIAL--7.8%
Value
--------
INSURANCE--4.2%
33,500 shs. * Fund American Enterprises............ $2,421
70,000 Kemper............................... 2,651
175,000 Loews................................ 15,203
175,000 Unitrin.............................. 7,525
27,800
FINANCIAL SERVICES--3.4%
260,000 American Express..................... 7,670
440,000 Sallie Mae........................... 14,300
21,970
BANK & TRUST--0.2%
150 Bank for International Settlements
(CHF).............................. 1,111
13,822 Mellon Bank.......................... 423
1,534
TOTAL FINANCIAL 51,304
UTILITIES--6.1%
ELECTRIC UTILITIES--6.1%
900,000 Centerior Energy..................... 7,987
700,000 Entergy.............................. 15,312
110,000 General Public Utilities............. 2,888
600,000 * Public Service of New Mexico......... 7,800
400,000 SCEcorp.............................. 5,850
TOTAL UTILITIES 39,837
CONSUMER NONDURABLES--7.0%
BEVERAGES--0.2%
85,000 Coca-Cola Enterprises................ 1,519
FOOD PROCESSING--1.1%
50,000 General Mills........................ 2,850
220,000 Pet.................................. 4,345
7,195
HOSPITAL SUPPLIES/
HOSPITAL MANAGEMENT--0.0%
3,300 * Lynx Therapeutics.................... 1
PHARMACEUTICALS--2.4%
160,000 Eli Lilly............................ 10,500
180,000 Upjohn............................... 5,535
16,035
MISCELLANEOUS CONSUMER PRODUCTS--3.3%
250,000 shs. Philip Morris........................ $14,375
180,000 Reebok............................... 7,110
21,485
TOTAL CONSUMER NONDURABLES 46,235
CONSUMER SERVICES--9.2%
GENERAL MERCHANDISERS--0.8%
250,000 * Hills Stores......................... 5,187
SPECIALTY MERCHANDISERS--3.7%
1,089,790 Petrie Stores........................ 24,384
MEDIA & COMMUNICATIONS--4.7%
43,525 CBS.................................. 2,410
200,000 * Chris-Craft Industries............... 6,900
100,000 Meredith............................. 4,663
240,000 New York Times (Class A)............. 5,310
48,000 Washington Post (Class B)............ 11,640
30,923
TOTAL CONSUMER SERVICES 60,494
CONSUMER CYCLICALS--1.2%
MISCELLANEOUS CONSUMER DURABLES--1.2%
250,000 Polaroid............................. 8,125
TOTAL CONSUMER CYCLICALS 8,125
TECHNOLOGY--1.8%
INFORMATION PROCESSING--0.6%
50,000 IBM.................................. 3,675
AEROSPACE & DEFENSE--1.2%
50,000 Litton Industries.................... 1,850
300,000 * Teledyne............................. 6,038
7,888
TOTAL TECHNOLOGY 11,563
BUSINESS SERVICES & TRANSPORTATION--3.2%
TRANSPORTATION SERVICES--2.7%
235,000 Overseas Shipholding Group........... 5,405
280,000 PHH.................................. 9,730
120,000 Ryder System......................... 2,640
17,775
MISCELLANEOUS BUSINESS SERVICES--0.5%
340,000 * Chemical Waste Management............ 3,188
TOTAL BUSINESS SERVICES & TRANSPORTATION 20,963
ENERGY--8.8%
EXPLORATION & PRODUCTION--0.1%
60,000 shs. Ranger Oil........................... $353
GAS TRANSMISSION--0.1%
75,000 Noram Energy......................... 403
INTEGRATED PETROLEUM-DOMESTIC--6.4%
100,000 Atlantic Richfield................... 10,175
50,000 Kerr-McGee........................... 2,300
150,000 Murphy Oil........................... 6,375
340,000 * Oryx Energy.......................... 4,037
145,000 Pennzoil............................. 6,398
156,000 Sun Company.......................... 4,485
300,000 Union Texas Petroleum................ 6,225
70,000 Unocal............................... 1,908
41,903
INTEGRATED PETROLEUM-
INTERNATIONAL--1.8%
200,000 Texaco............................... 11,975
ENERGY SERVICES--0.4%
120,000 Helmerich & Payne.................... 3,075
TOTAL ENERGY 57,709
PROCESS INDUSTRIES--2.8%
DIVERSIFIED CHEMICALS--0.4%
96,800 Cabot................................ 2,747
FOREST PRODUCTS--1.3%
220,000 Weyerhaeuser......................... 8,250
BUILDING & CONSTRUCTION--1.1%
820,000 Manville............................. 7,380
TOTAL PROCESS INDUSTRIES 18,377
BASIC MATERIALS--1.1%
MINING--1.1%
195,000 Homestake Mining..................... 3,339
100,000 Newmont Mining....................... 3,600
TOTAL BASIC MATERIALS 6,939
MISCELLANEOUS COMMON STOCKS--1.0% 6,409
TOTAL COMMON STOCKS (COST $309,149) 327,955
Preferred Stocks--4.5%
7,300 Cleveland Electric, 8.80%,
Series R........................... 5,822
9,100 Cleveland Electric, Series S......... 7,234
510,700 Gulf Canada Resources, Series 1...... 1,277
46,292 shs. Gulf States Utilities, Adj.,
Series B........................... $2,222
4,800 * Lynx Therapeutics, Series A.......... 5
550,000 Manville, $2.70, Cum., Series B...... 12,787
TOTAL PREFERRED STOCKS (COST $26,981) 29,347
Convertible Preferred Stocks--3.1%
10,000 GATX, $3.875, Series A............... 540
120,000 Kemper (144a), Series E.............. 5,288
55,000 Newmont Mining (144a), $2.75......... 2,894
232,000 Tandy, $2.14, PERCS, Series C........ 8,758
17,480
MISCELLANEOUS CONVERTIBLE PREFERRED STOCKS 2,853
TOTAL CONVERTIBLE PREFERRED STOCKS
(COST $19,746) 20,333
Convertible Bonds--18.4%
$6,000,000 American Brands, 5.75%, 4/11/05...... 6,840
70,000,000 Automatic Data Processing,
LYONS, Zero Coupon, 2/20/12........ 28,787
7,500,000 Champion International,
Sub. Deb., 6.50%, 4/15/11.......... 8,152
1,500,000 CHUBB CAPITAL, 6.00%, 5/15/98........ 1,515
8,000,000 CIGNA, 8.20%, 7/10/10................ 8,125
18,000,000 Delta, Sub. Deb., 3.23%, 6/15/03..... 12,735
8,500,000 Federated Department Stores,
STEP, Zero Coupon, 2/15/95,
6.00%, 2/15/95 - 2/15/04........... 8,128
1,600,000 Homestake Mining, (144a),
Sub. Deb., 5.50%, 6/23/00.......... 1,542
19,186,685 FRF IBM, 5.75%, 1/1/98................... 4,441
5,200,000 Potomac Electric Power, Deb.,
5.00%, 9/1/02...................... 4,134
5,800,000 Price, Sub. Deb., 5.50%, 2/28/12..... 4,408
6,000,000 Price, Sub. Deb., 6.75%, 3/1/01...... 5,460
17,950,000 Rockefeller Center, Deb.,
8.00%, 12/31/00.................... 16,604
8,000,000 Rouse, 5.75%, 7/23/02................ 6,460
10,000,000 U.S. West, LYONS,
Zero Coupon, 6/25/11............... 3,075
TOTAL CONVERTIBLE BONDS (COST $122,004)................. 120,406
Corporate Bonds--0.3%
1,794,000 Manville, Sub. Deb.,
Zero Coupon, 12/31/03.............. 1,688
TOTAL CORPORATE BONDS (COST $1,505) 1,688
U.S. Government
Obligations/Agencies--4.3%
2,500,000 U.S. Treasury Notes,
3.875%, 3/31/95.................... 2,491
U.S. Government
Obligations/Agencies (Cont'd)
$7,500,000 4.25%, 12/31/95-5/15/96.............. $7,252
8,500,000 4.625%, 8/15/95-2/29/96.............. 8,283
2,500,000 5.125%, 11/15/95..................... 2,457
20,483
MISCELLANEOUS U.S. GOVERNMENT
OBLIGATIONS/AGENCIES 7,915
TOTAL U.S. GOVERNMENT OBLIGATIONS/AGENCIES
(COST $28,961) 28,398
Index Notes--0.3%
153,500 shs. * Republic of Austria, 8/15/96......... 1,957
TOTAL INDEX NOTES (COST $1,636) 1,957
Options Purchased--0.5%
50 cts. Mellon "B" Put,
3/18/95 @ $40.00................... 70
400 Toys "R" Us Put,
3/18/95 @ $35.00................... 190
1,420 Toys "R" Us Put,
3/18/95 @ $40.00................... 1,349
560 Toys "R" Us Put,
6/17/95 @ $35.00................... 280
560 Toys "R" Us Put,
6/17/95 @ $40.00................... 518
800 Waste Management "B" Put,
5/19/95 @ $25.00................... 45
2,452
MISCELLANEOUS OPTIONS 667
TOTAL OPTIONS PURCHASED (COST $1,697) 3,119
Short-Term Investments--19.4%
BANK NOTES--1.6%
$10,000,000 Banque Nationale de Paris,
5.81%, 1/9/95...................... 10,000
COMMERCIAL PAPER--15.7%
10,000,000 Asset Securitization Cooperative,
4(2), 5.45%, 1/18/95............... 9,870
5,000,000 Ciesco L.P., 5.10%, 2/16/95.......... 4,872
10,000,000 Delaware Funding,
5.88%, 1/23/95....................... 9,948
10,000,000 Finnish Export Credit Limited,
6.02%, 2/28/95..................... 9,851
5,000,000 First National Bank of Maryland,
5.80%, 1/9/95...................... 4,997
10,000,000 Ford Credit Europe,
5.78%, 1/30/95..................... 9,900
5,000,000 General Electric Capital,
5.10%, 2/6/95...................... 4,879
5,000,000 Hanson Finance (U.K.),
5.40%, 1/17/95..................... 4,933
$6,600,000 Koch Industries, 4(2),
6.25%, 1/3/95...................... $6,595
10,000,000 MCA Funding, 4(2),
5.50%, 1/25/95..................... 9,861
2,500,000 Merrill Lynch & Co., VR,
6.125%, 9/6/95..................... 2,500
10,000,000 Miles, 4(2), 5.50%, 2/7/95........... 9,852
88,000 President & Fellows Harvard
College, 6.00%, 1/3/95............. 88
5,000,000 R.R. Donnelly, 4(2),
6.00%, 1/17/95..................... 4,970
10,000,000 Smith Barney Shearson,
5.45%, 1/9/95...................... 9,883
102,999
CERTIFICATES OF DEPOSIT--1.2%
8,000,000 Societe Generale, 5.80%, 3/1/95...... 8,002
MEDIUM-TERM NOTES--0.9%
1,000,000 Citicorp, VR, 6.9625%, 2/13/95....... 1,011
5,000,000 Morgan Stanley Group, VR,
6.525%, 7/13/95.................... 5,003
6,014
TOTAL SHORT-TERM INVESTMENTS
(COST $127,015) 127,015
- -----------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES--100.8%
(COST $638,694) 660,218
- -----------------------------------------------------------------
Other Assets Less Liabilities (5,219)
NET ASSETS CONSISTING OF:
Accumulated net investment income-
net of distributions.................... $464
Accumulated realized gains/losses-
net of distributions.................... 9,602
Net unrealized gain....................... 21,528
Paid-in-capital applicable to 54,130,589
shares of no par value
capital stock outstanding;
unlimited shares authorized............. 623,405
--------
NET ASSETS $654,999
--------
--------
NET ASSET VALUE PER SHARE $12.10
--------
--------
- ------------------------------------------------------------
* Non-income producing
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 1.5% of net
assets.
PERCS Participating Equity Redemption Certificate
VR Variable Rate
CHF Swiss franc
FRF French franc
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of Operations
T. Rowe Price Capital Appreciation Fund / Year Ended December 31, 1994
(Amounts in
thousands)
INVESTMENT INCOME
Income
Interest.................................... $13,149
Dividends................................... 10,706
------------
Total income.................................. 23,855
------------
Expenses
Investment management....................... 4,163
Shareholder servicing....................... 1,902
Custody and accounting...................... 174
Prospectus and shareholder reports.......... 111
Registrations............................... 85
Proxy and annual meeting.................... 38
Legal and auditing.......................... 32
Trustees.................................... 18
Miscellaneous............................... 14
------------
Total expenses.............................. 6,537
------------
Net investment income......................... 17,318
------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Securities.................................. 36,103
Options..................................... (762)
Foreign currency transactions............... (9)
------------
Net realized gain .......................... 35,332
------------
Change in net unrealized gain or loss on:
Securities.................................. (33,579)
Options..................................... 1,972
Other assets and liabilities denominated
in foreign currencies..................... 4
------------
Change in net unrealized gain or loss....... (31,603)
------------
Net realized and unrealized gain ........... 3,729
------------
INCREASE IN NET ASSETS FROM
OPERATIONS.................................. $21,047
------------
------------
- -----------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of Changes in Net Assets
T. Rowe Price Capital Appreciation Fund
Year Ended
December 31,
---------------------
1994 1993
---------- ----------
(Amounts in
thousands)
Operations
Net investment income................................. $17,318 $10,807
Net realized gain..................................... 35,332 22,125
Change in net unrealized gain or loss................. (31,603) 34,379
Increase in net assets from operations................ 21,047 67,311
Distributions to shareholders
Net investment income................................. (17,429) (7,294)
Net realized gain..................................... (34,365) (13,366)
Decrease in net assets from distributions............. (51,794) (20,660)
Capital share transactions/1/
Shares sold........................................... 215,254 219,700
Distributions reinvested.............................. 50,316 20,008
Shares redeemed....................................... (116,068) (109,387)
Increase in net assets from capital share transactions 149,502 130,321
Increase in net assets.................................. 118,755 176,972
NET ASSETS
Beginning of year....................................... 536,244 359,272
End of year............................................. $654,999 $536,244
- ------------------------------------------------------------------------------
/1/Capital share transactions (number of shares)
Shares sold........................................... 16,627 18,222
Distributions reinvested.............................. 4,162 1,592
Shares redeemed....................................... (9,006) (8,997)
Increase in capital shares outstanding................ 11,783 10,817
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
Notes to Financial Statements
T. Rowe Price Capital Appreciation Fund / December 31, 1994
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Capital Appreciation 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 (including Nasdaq) 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. Other equity securities and those listed
securities that are not traded
on a particular day are valued at a price within the limits of the latest bid
and asked prices deemed by the Board of Trustees, or by persons delegated by
the Trustees, best to reflect fair value. In the absence of a last sale price,
purchased options are valued at the latest
bid price.
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 Trustees.
B) Currency translation - Assets and liabilities are converted into U.S.
dollars at the prevailing exchange rate at the end of the reporting period.
Purchases and sales of securities and income and expenses are translated into
U.S. dollars at the prevailing exchange rate on the dates of such
transactions. The effect of changes in foreign exchange rates on realized and
unrealized security gains or losses is reflected as a component of such gains
or losses.
C) 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
Consistent with its investment objective, the Fund engages in the following
practices to manage exposure to certain risks and enhance performance. The
investment objective, policies, program, risk factors and following practices
of the Fund are described more fully in the Fund's Prospectus and Statement of
Additional Information.
A) Options - Call and put options give the holder the right to purchase or
sell, respectively, a security at a specified price on a certain date. Risks
arise from possible illiquidity of the options market and from movements in
security values. Options are reflected in the accompanying Statement of Net
Assets at market value. Transactions in options written and related premiums
received during the year ended December 31, 1994, were as follows:
<PAGE>
Face Amount
Subject
to Options Premiums
----------- ----------
Options Outstanding at
Beginning of Year $107,750 $268,000
Options Written - -
Options Exercised - -
Options Expired (107,750) (268,000)
----------- ----------
Options Outstanding at
End of Year $- $-
----------- ----------
----------- ----------
B) Other - Purchases and sales of portfolio securities, other than short-term
and U.S. Government securities, aggregated $312,273,000 and $187,731,000,
respectively, for the year ended December 31, 1994.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the Fund intends to
continue to qualify as a regulated investment company and distribute all of
its taxable income.
At December 31, 1994, the aggregate
cost of investments for federal income tax
and financial reporting purposes was $638,694,000 and net unrealized gain
aggregated $21,524,000, of which $39,533,000 related to appreciated
investments and $18,009,000 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 $401,000 was payable at December 31, 1994. The fee is computed
daily and paid monthly, and consists of an Individual Fund Fee equal to 0.30%
of average daily net assets and a Group Fee. The Group Fee is based on the
combined assets of certain mutual funds sponsored by the Manager or Rowe-Price
Fleming International, Inc. (the Group). The Group Fee rate ranges from 0.48%
for the first $1 billion of assets to 0.31% for assets in excess of $34
billion. At December 31, 1994, and for the year then ended, the effective
annual Group Fee rate was 0.34%. The Fund pays a pro rata share of the Group
Fee based on the ratio of its net assets to those of the Group.
Additionally, the management fee is subject to a performance adjustment
dependent upon the investment performance of the Fund as compared to the
Standard & Poor's 500 Stock Index over a running 36-month period, as set forth
in the investment management agreement. The performance adjustment for the
year ended December 31, 1994 increased management fees by $333,000.
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 $1,742,000
for the year ended December 31, 1994, of which $179,000 was payable at
year-end.
<PAGE>
Financial Highlights
T. Rowe Price Capital Appreciation Fund
<TABLE>
<CAPTION>
For a share outstanding throughout each
--------------------------------------------
Year Ended December 31,
--------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF $12.66 $11.39 $11.02 $9.98 $10.82
YEAR................................
-------- -------- -------- -------- --------
Investment Activities
Net investment income............. 0.35 0.26 0.51 0.44 0.37*
Net realized and unrealized gain 0.13 1.52 0.52 1.67 (0.51)
(loss)..............................
-------- -------- -------- -------- --------
Total from Investment Activities.. 0.48 1.78 1.03 2.11 (0.14)
Distributions
Net investment income............. (0.35) (0.18) (0.50) (0.43) (0.39)
Net realized gain................. (0.69) (0.33) (0.16) (0.64) (0.31)
-------- -------- -------- -------- --------
Total Distributions............... (1.04) (0.51) (0.66) (1.07) (0.70)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR........ $12.10 $12.66 $11.39 $11.02 $9.98
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
- ---------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Total Return........................ 3.8% 15.7% 9.4% 21.6% (1.3)%*
Ratio of Expenses to Average Net 1.10% 1.09% 1.08% 1.20% 1.25%*
Assets..............................
Ratio of Net Investment Income
to Average Net Assets............. 2.91% 2.37% 4.28% 3.90% 3.44%*
Portfolio Turnover Rate............. 43.6% 39.4% 30.3% 50.7% 49.9%
Net Assets, End of Year (in $654,999 $536,244 $359,272 $215,693 $141,923
thousands)..........................
- ---------------------------------------------------------------------------------
<FN>
*Excludes expenses in excess of a 1.25% voluntary expense limitation in
effect through December 31, 1993.
</TABLE>
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Trustees
of T. Rowe Price Capital Appreciation Fund, Inc.
We have audited the accompanying statement of net assets of T. Rowe Price
Capital Appreciation Fund, Inc. as of December 31, 1994, and the related
statement of operations for the year then ended, the statement of changes in
net assets for each of the two years in the period then ended, and the
financial highlights for each of the five 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 conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of investments
owned as of December 31, 1994, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights,
referred to above, present fairly, in all material respects, the financial
position of T. Rowe Price Capital Appreciation Fund, Inc. as of December 31,
1994, 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 23, 1995
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