Annual Report
For yield, price, last transaction,
and current balance, 24 hours,
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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 Capital
Opportunity Fund.
T. Rowe Price
Capital Opportunity
Fund
December 31, 1994
Fellow Shareholders
This is our first report since the inception of your Fund on November 30,
1994, and we would like to welcome you as shareholders. Since your Fund is in
its infancy, a detailed discussion of investment activity is premature at this
juncture. Instead, we would like to discuss the Fund's investment objective
and strategy, review performance for its brief period of operation, and
provide you with an overview of the stock market environment and our outlook
for 1995.
Your Fund's investment objective is to achieve superior returns by
utilizing a flexible investment approach. The Fund will look to invest in
companies we believe are best positioned for capital appreciation and will not
be limited by a particular investment style, industry, or company size. Once
an attractive investment opportunity is identified, the Fund will establish
relatively large positions, sometimes representing 5% or more of total assets.
Typically, the Fund will be concentrated in the stocks of approximately 30 to
50 companies, far fewer than the average stock fund. This aggressive approach
and the Fund's likely above-average level of volatility make it most
appropriate for long-term investors with the ability to accept risk.
Investment Performance
We are encouraged by our initial results during the final month of 1994.
Considering your Fund's flexible investment approach, the Lipper Capital
Appreciation Fund average is the most appropriate benchmark for purposes of
comparison. We have also included the performance of the unmanaged Standard &
Poor's 500 Stock Index in the table on this page. We are pleased that your
Fund substantially outperformed both the S&P 500 and its peer group average
during this brief period.
Market Environment
Last year was difficult for most investors. Although the returns for most
stock market indexes were down only slightly, they did not fully capture the
price volatility of many industry groups and individual stocks. Financial,
retail, energy, and gaming sectors experienced significant price corrections
Performance Comparison
1 Month Ended 12/31/94
(Since Inception)
____________________
Capital Opportunity Fund 4.3%
S&P 500 1.5
Lipper Capital Appreciation
Fund Average 0.9
during the year. Concerns about rising interest rates and inflation, a
possible slowdown in the rate of corporate profit growth in 1995, and the
impact these might have on mutual fund cash inflows all combined to constrain
investors' enthusiasm for equities. These issues could continue to occupy the
attention of investors in 1995.
Outlook
With so many individual stocks having experienced substantial price declines,
we intend to capitalize on attractive investment opportunities as they occur.
As far as the broad stock market is concerned, we expect returns in 1995 to be
fairly modest by historical measures.
Once again, we welcome you as shareholders and look forward to
presenting a more detailed discussion of your Fund's performance and
investment activity in the next report, after we have been in operation a
while longer.
Respectfully submitted,
John H. Laporte
President
John F. Wakeman
Chairman of the Investment
Advisory Committee
January 20, 1995
Statement of Net Assets
T. Rowe Price Capital Opportunity Fund / December 31, 1994
Common Stocks - 81.7%
FINANCIAL - 6.2%
Value
______
BANK & TRUST - 2.9%
1,600 shs. NationsBank . . . . . . . . . . $ 72,200
FINANCIAL SERVICES - 3.3%
4,300 Money Store . . . . . . . . . . 79,550
Total Financial 151,750
CONSUMER NONDURABLES - 17.1%
HOSPITAL SUPPLIES/HOSPITAL
MANAGEMENT - 4.7%
2,100 Columbia/HCA Healthcare . . . . 76,650
1,200 * Foundation Health . . . . . . . 37,200
113,850
PHARMACEUTICALS - 1.9%
600 Pfizer. . . . . . . . . . . . . 46,350
MISCELLANEOUS CONSUMER PRODUCTS - 10.5%
2,200 Brunswick . . . . . . . . . . . 41,525
10,000 * ERO . . . . . . . . . . . . . . 82,500
2,750 Newell. . . . . . . . . . . . . 57,750
3,600 * TSC . . . . . . . . . . . . . . 75,600
257,375
Total Consumer Nondurables 417,575
CONSUMER SERVICES - 24.3%
GENERAL MERCHANDISERS - 6.4%
1,400 Dayton Hudson . . . . . . . . . 99,050
2,700 * Hills Stores Company. . . . . . 56,025
155,075
ENTERTAINMENT & LEISURE - 3.4%
3,200 Sbarro. . . . . . . . . . . . . 83,200
MEDIA & COMMUNICATIONS - 14.5%
500 Capital Cities/ABC. . . . . . . 42,625
2,100 CBS . . . . . . . . . . . . . . 116,287
4,500 * DIMAC . . . . . . . . . . . . . 56,813
4,100 Vodafone ADR. . . . . . . . . . 137,862
353,587
Total Consumer Services 591,862
TECHNOLOGY - 3.0%
ELECTRONIC SYSTEMS - 3.0%
3,500 shs.* Silicon Valley Group. . . . . . $ 72,188
Total Technology 72,188
CAPITAL EQUIPMENT - 1.7%
ELECTRICAL EQUIPMENT - 1.7%
800 Hubbell (Class A) . . . . . . . 41,000
Total Capital Equipment 41,000
BUSINESS SERVICES & TRANSPORTATION - 14.8%
COMPUTER SERVICE & SOFTWARE - 9.4%
1,700 Adobe Systems . . . . . . . . . 50,575
1,100 Autodesk. . . . . . . . . . . . 43,587
3,000 * Envoy . . . . . . . . . . . . . 61,500
1,200 First Financial Management. . . 73,950
229,612
DISTRIBUTION SERVICES - 5.4%
2,100 Alco Standard . . . . . . . . . 131,775
Total Business Services & Transportation 361,387
ENERGY - 4.0%
ENERGY SERVICES - 4.0%
6,000 * Oceaneering International . . . 61,500
700 Schlumberger. . . . . . . . . . 35,262
Total Energy 96,762
PROCESS INDUSTRIES - 4.1%
PAPER & PAPER PRODUCTS - 2.5%
3,100 Albany International (Class A). 59,675
BUILDING & CONSTRUCTION - 1.6%
4,400 Manville. . . . . . . . . . . . 39,600
Total Process Industries 99,275
BASIC MATERIALS - 2.9%
MINING - 2.9%
25,000 * Dayton Mining (CAD) . . . . . . 72,180
Total Basic Materials 72,180
Miscellaneous - 3.6% 87,000
Total Common Stocks (Cost $1,895,227) 1,990,979
Convertible Bonds - 4.7%
$ 92,000 DAKA International,
7.00%, 3/15/03 . . . . . . . $ 114,080
Total Convertible Bonds (Cost $114,833) 114,080
Short-Term Investments - 22.0%
COMMERCIAL PAPER - 22.0%
100,000 Delaware Funding,
5.88%, 1/23/95 . . . . . . . 99,477
100,000 New South Wales Treasury,
5.95%, 1/9/95. . . . . . . . 99,835
100,000 Preferred Receivables Funding,
5.95%, 1/11/95 . . . . . . . 99,802
132,000 President & Fellows Harvard
College, 6.00%, 1/3/95 . . . 131,912
105,000 UBS Finance (Delaware),
6.00%, 1/3/95. . . . . . . . 104,930
Total Short-Term Investments (Cost $535,956) 535,956
Total Investments in Securities -
108.4% (Cost $2,546,016) $2,641,015
Other Assets Less Liabilities. . . . . . . . . . (203,626)
Net Assets Consisting of:
Accumulated net investment
income - net of distributions . . . $ 5,921
Accumulated realized gains/
losses - net of distributions . . . (3,271)
Net unrealized gain. . . . . . . . . . 94,999
Paid-in-capital applicable to
233,740 shares of $0.0001
par value capital stock
outstanding; 1,000,000,000
shares authorized . . . . . . . . . 2,339,740
_________
NET ASSETS . . . . . . . . . . . . . . $2,437,389
__________
__________
NET ASSET VALUE PER SHARE. . . . . . . $10.43
______
______
* Non-income producing
CAD Canadian dollar
The accompanying notes are an integral part of these financial statements.
Statement of Operations
T. Rowe Price Capital Opportunity Fund / From November 30, 1994 (Commencement
of Operations) to December 31, 1994
INVESTMENT INCOME
Income
Interest . . . . . . . . . . . . . . . . . . . $5,074
Dividends (net of foreign taxes of $197) . . . 2,573
_______
Total income . . . . . . . . . . . . . . . . . 7,647
_______
Expenses
Custody and accounting . . . . . . . . . . . . 7,000
Organization . . . . . . . . . . . . . . . . . 818
Directors. . . . . . . . . . . . . . . . . . . 417
Legal and auditing . . . . . . . . . . . . . . 333
Shareholder servicing. . . . . . . . . . . . . 200
Less: expenses reimbursed by Manager . . . . . (6,224)
_______
Total expenses . . . . . . . . . . . . . . . . 2,544
_______
Net investment income . . . . . . . . . . . . . 5,103
_______
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized loss on securities. . . . . . . . . (3,271)
Change in net unrealized gain or loss on securities. . . 94,999
_______
Net realized and unrealized gain . . . . . . . . 91,728
_______
INCREASE IN NET ASSETS FROM OPERATIONS . . . . . $96,831
_______
_______
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
T. Rowe Price Capital Opportunity Fund / From November 30, 1994 (Commencement
of Operations) to December 31, 1994
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income . . . . . . . . . . . . $5,103
Net realized loss. . . . . . . . . . . . . . . (3,271)
Change in net unrealized gain or loss. . . . . 94,999
__________
Increase in net assets from operations . . . . 96,831
__________
Capital share transactions1
Shares sold. . . . . . . . . . . . . . . . . . 2,253,160
Shares redeemed. . . . . . . . . . . . . . . . (12,602)
__________
Increase in net assets from capital
share transactions. . . . . . . . . . . . . 2,240,558
__________
Increase in net assets . . . . . . . . . . . . . 2,337,389
NET ASSETS
Beginning of period . . . . . . . . . . . . . . 100,000
__________
End of period . . . . . . . . . . . . . . . . . $2,437,389
__________
__________
1Capital share transactions (number of shares)
Shares sold. . . . . . . . . . . . . . . . . . 224,961
Shares redeemed. . . . . . . . . . . . . . . . (1,221)
__________
Increase in capital shares outstanding . . . . 223,740
__________
__________
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price Capital Opportunity Fund / December 31, 1994
Note 1 - Significant Accounting Policies
T. Rowe Price Capital Opportunity Fund (the Fund) is registered under the
Investment Company Act of 1940 as a non-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
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 market 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) 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) Discounts and Premiums - Discounts and premiums on debt securities are
amortized for both financial and tax reporting purposes.
D) Other - Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses
are reported on an identified cost basis. Dividend income and distributions to
shareholders are recorded by the Fund on the ex-dividend date. Income and
capital gain distributions are determined in accordance with federal income
tax regulations and may differ from those determined in accordance with
generally accepted accounting principles.
Note 2 - Organization
The Fund was organized on October 7, 1994, and had no operations prior to
November 30, 1994, other than those related to organiza-tional matters,
including the sale of 10,000 shares of its capital stock at $10.00 per share
on November 22, 1994, to T. Rowe Price Associates, Inc..
Note 3 - Investment Transactions
Purchases and sales of portfolio securities, other than short-term and U.S.
Government securities, aggregated $2,131,462 and $117,964, respectively, for
the period ended December 31, 1994 .
Note 4 - Federal Income Taxes
No provision for federal income taxes is required since the Fund intends to
qualify as a regulated investment company and distribute all of its taxable
income.
In order for the Fund's capital accounts and distributions to
shareholders to reflect the tax character of certain transactions, $818 of
undistributed net investment income was reclassified as a decrease to
paid-in-capital during the period ended December 31, 1994. The results of
operations and net assets were not affected by the reclassification.
At December 31, 1994, the aggregate cost of investments for federal
income tax and financial reporting purposes was $2,546,016 and net unrealized
gain aggregated $94,999, of which $119,229 related to appreciated investments
and $24,230 to depreciated investments.
Note 5 - 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. 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.
Under the terms of the investment management agreement, the Manager is
required to bear any expenses through December 31, 1996, which would cause the
Fund's ratio of expenses to average net assets to exceed 1.35%. Thereafter
through December 31, 1998, the Fund is required to reimburse the Manager for
these expenses, provided that average net assets have grown or expenses have
declined sufficiently to allow reimbursement without causing the Fund's ratio
of expenses to average net assets to exceed 1.35%. Pursuant to this agreement,
$1,443 of management fees were not accrued by the Fund for the period ended
December 31, 1994, and $6,224 other expenses were borne by the Manager.
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 $5,200 for
the period ended December 31, 1994, all of which was payable at year end.
Financial Highlights
T. Rowe Price Capital Opportunity Fund / From November 30, 1994 (Commencement
of Operations) to December 31, 1994
For a share outstanding
throughout the period
______________________
NET ASSET VALUE, BEGINNING OF PERIOD . . $10.00
______
Investment Activities
Net investment income . . . . . . . 0.02*
Net realized and unrealized gain. . 0.41
______
Total from Investment Activities. . 0.43
______
NET ASSET VALUE, END OF PERIOD . . . . . $10.43
______
______
RATIOS/SUPPLEMENTAL DATA
Total Return . . . . . . . . . . . . . . 4.3%*
Ratio of Expenses to Average
Net Assets. . . . . . . . . . . . . 1.35%!*
Ratio of Net Investment Income
to Average Net Assets . . . . . . . 2.71%!*
Portfolio Turnover Rate. . . . . . . . . 134.5%!
Net Assets, End of Period. . . . . . . . $2,437,389
! Annualized
* Excludes expenses in excess of a 1.35% voluntary expense limitation in
effect through December 31, 1996.
Report of Independent Accountants
To the Shareholders and Board of Directors
of T. Rowe Price Capital Opportunity Fund, Inc.
We have audited the accompanying statement of net assets of T. Rowe
Price Capital Opportunity Fund, Inc. as of December 31, 1994, and the related
statement of operations, the statement of changes in net assets and the
financial highlights for the period November 30, 1994 (commencement of
operations) to December 31, 1994. 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 audit.
We conducted our audit 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 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 Capital Opportunity Fund, Inc. as of December 31,
1994, the results of its operations, the changes in its net assets and
financial highlights for the period stated in the first paragraph in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
January 23, 1995
Shareholder Services
To help shareholders monitor their current investments and make decisions that
accu-rately 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 8:00 a.m. to
10:00 p.m., Monday - Friday, and weekends from 9:00 a.m. to 5:00 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 (registered trademark) (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. Addition-
ally, 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 (registered trademark) 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.
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.
Quarterly 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.
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.
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
Adjustable Rate
U.S. Government
Short-Term Bond
Short-Term Global Income
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
Emerging Markets Bond
High Yield
International Bond
Tax-Free High Yield
CONSERVATIVE
GROWTH
Balanced
Capital Appreciation
Dividend Growth
Equity Income
Equity Index
Growth & Income
Spectrum Growth
Value
GROWTH
Blue Chip Growth
European Stock
Growth Stock
International Stock
Japan
Mid-Cap Growth
New Era
Small-Cap Value
AGGRESSIVE GROWTH
Capital Opportunity
International Discovery
Latin America
New America Growth
New Asia
New Horizons
OTC
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.
