Annual Report
Capital
Opportunity
Fund
December 31, 1999
T. Rowe Price
Report Highlights
- --------------------------------------------------------------------------------
Capital Opportunity Fund
o Stocks surged to record highs in 1999, with blue chip averages posting
double-digit returns for the fifth year in a row.
o The fund's healthy 11.50% gain in the past six months surpassed its Lipper
peer group average and the S&P 500.
o The fund enjoyed strong performance from numerous technology, media,
telecommunications, and retail holdings.
o Though interest rates have been rising and stock valuations are high, we
remain cautiously optimistic about the market.
UPDATES AVAILABLE
For updates on T. Rowe Price funds following the end of each calendar quarter,
please see our Web site at www.troweprice.com.
Fellow Shareholders
The bull market kept charging ahead in 1999, with the Standard & Poor's 500
Stock Index gaining more than 20% for an unprecedented fifth straight year. Most
major averages ended the year at record highs, and the Russell 2000 Index of
smaller companies outperformed the S&P 500 (although only slightly) for the
first time since 1993. Technology stocks led the way again among large-caps and
small-caps, U.S. and foreign stocks. We are encouraged by the Capital
Opportunity Fund's strong six-month performance, as this is the first full
reporting period since we changed the fund's investment process on May 1, 1999.
Performance Comparison
---------------------------------------------------------------------------
Periods Ended 12/31/99 6 Months 12 Months
---------------------------------------------------------------------------
Capital Opportunity Fund 11.50% 11.50%
S&P 500 Stock Index 7.71 21.04
Lipper Multi-Cap
Core Funds Average 10.96 22.45
Your fund's 1999 return primarily reflected its previous investment
program. In the first half of the year, fund performance was flat while the
S&P 500 rose more than 12%. Results improved markedly after midyear, as is
evident in the Performance Comparison table. The goal of our new investment
program, described in the last report, is to improve the fund's relative
performance by utilizing the best thinking of T. Rowe Price's individual
equity analysts in each industry sector. So far, so good. Your fund's
11.50% return in the second half exceeded that of the S&P 500 and also
edged out its new Lipper peer group, which we are introducing with this
report. Lipper Inc. has changed its system of categorizing funds, and as a
result, the Capital Opportunity Fund has been placed in the Multi-Cap Core
Funds category. Previously, Lipper assigned a fund to a category based on
its objective as outlined in its prospectus. The new categories are based
on the major characteristics of each fund's actual portfolio holdings, such
as market capitalization, price/earnings ratios and other valuation
measures, earnings growth rates, and so on.
MARKET ENVIRONMENT
Foreign economies rebounded and U.S. growth accelerated, driving interest
rates sharply higher but also boosting corporate profits. World markets
rallied on the belief that technology, telecommunications, and the Internet
would enable, enhance, and perhaps prolong global growth while limiting
inflation. Nonetheless, the Federal Reserve raised interest rates three
times last year, concerned that job growth was outpacing the long-term
growth rate of the labor force, increasing inflationary pressures. The
yield on the 30-year Treasury bond also increased, ending the year near
6.5%, up from about 5% as 1999 began. These higher rates took a toll on
equity prices in the third quarter, but by year-end exuberance had returned
to Wall Street.
To date, investors' faith in the New Economy has been well placed, and we
agree there is much reason for optimism. For example, the Internet has had
a tremendous impact on the business models of established companies. Early
in 1999, many large-cap stocks were punished because of a perceived
vulnerability to Internet competition. As the year progressed, many of
these proved to investors that they were adept at using the Internet as a
marketing and distribution tool as well as a powerful mechanism for
improving internal efficiency.
Nonetheless, much in this environment concerned us. In our opinion, the
striking increase in the value of technology stocks is warranted in some
cases but has been severely overdone in others. A series of weak earnings
reports early in 2000 led to a sharp and fast drop in tech stock prices,
and while the sector recovered quickly, we think it remains very sensitive
to bad news. The real risk is that a normal correction meant to reprice
only unprofitable or speculative issues could lead to a more widespread and
significant correction in technology stocks and ultimately the entire
market. In addition, it will take time to fully gauge the long-term
beneficiaries (and casualties) of the growth of the Internet.
With global demand rising and pushing prices of commodities-especially
oil-higher, investors also bid up the value of selected cyclical stocks,
which offer the potential for sharp earnings growth. The stocks of more
steady growth companies, such as pharmaceuticals, and interest
rate-sensitive stocks, such as financials, generally struggled.
PORTFOLIO REVIEW
A number of stocks purchased last spring as a result of our new investment
process added tremendously to performance for the year and the second half.
With technology leading the market, it's not surprising that many of these
were tech stocks, led by Cisco Systems, Microsoft, Oracle, Nokia, SCI
Systems, JDS Uniphase, and America Online. Each of these companies is a
leader in its industry and is positioned at the vanguard of the New
Economy. Cisco, the leading supplier of networking equipment for the
Internet, was our top contributor over the past six and 12 months. Oracle
was the third-best contributor to fund performance in both periods. This
supplier of database systems has a powerful new set of products for
Internet applications. Microsoft placed in the top-five contributors for
both periods despite a potentially adverse development in its federal
antitrust trial, as investors focused on the expected strength of its new
product cycle, starting with the launch of Windows 2000 in February. Nokia,
the Finnish maker of cellular-phone handsets and telecom infrastructure,
continued to take market share from rivals and was a major contributor for
the year and the second half. SCI Systems is benefiting from the global
trend toward outsourcing the manufacture of technology components. JDS
Uniphase soared as investors came to appreciate its position as a leader in
fiber-optic networking technology.
AOL, the tenth-best contributor in the second half, has confounded the
skeptics by maintaining and extending its lead among on-line media and
Internet service providers. In the ultimate marriage of distribution and
content-and the largest corporate merger ever-AOL announced plans in early
January to acquire Time Warner. Stratospheric Internet valuations made the
acquisition possible. At the same time, many investors feel the deal
affirmed those valuations (at least in AOL's case), and marked the triumph
of New Media over Old Media. Should the merger close, AOL would guarantee
its participation in broadband Internet services through Time Warner's
cable systems, the second-largest in the nation.
The fund also benefited from our decision to add GE in the first half as
the shares experienced uncharacteristic weakness. GE is reinventing itself
using the Internet and was our second-best contributor over the past six
months and fourth-best for the year thanks to its strong second-half
performance.
Leading retailers Wal-Mart and Home Depot, also added in the first half,
round out the list of top contributors in the past six months. We were
pleased with these results since many other retailers were mauled by a
perception (which in some cases proved accurate) that their strategy or
positioning was no longer competitive in an Internet world.
Sector Diversification
---------------------------------------------------------------------------
Consumer Nondurables 16%
Technology 21%
Financial 13%
Consumer Services & Cyclicals 12%
Energy & Utilities 12%
Business Services & Transportation 12%
Capital Equipment, Process Industries, and Basic Materials 11%
Reserves 2%
Based on net assets as of 12/31/99.
As always, some stocks were disappointments. Bank of America was our worst
contributor in the second half, hurt by rising interest rates. Waste
Management was our second-largest loser in the six-month period, even
though we cut our position significantly as problems unfolded. The company
now has new management, and the stock is attractively valued if our
estimate of the company's earnings power is correct. However, Waste
Management must rebuild reporting systems and also regain market share and
credibility. We will meet with the new management and monitor the company's
progress. Our third-worst contributor for the second half was Philip
Morris, hurt by ongoing tobacco litigation. Philip Morris is one of the
best-managed companies in the world, with top brands in food, beverages,
and cigarettes. The company's U.S. tobacco business accounts for more than
half of its earnings, but at current prices investors are assigning no
value whatsoever-or even negative value-to that business.
Ironically, some negative contributors to performance were companies whose
operating results have been solid. Tyco International is a prime example.
The company has been an aggressive acquirer of various businesses, but it
has built leadership roles in fire control systems and security (ADT),
telecommunications equipment (AMP and AT&T's transoceanic cable business),
and hospital supply (US Surgical and other businesses). The company was the
subject of significant controversy in the second half as certain short
sellers argued that it had employed aggressive and improper accounting for
acquisitions. The company, its independent accountants, and several
external accountants vigorously defended the propriety of Tyco's
accounting.
Ultimately the SEC elected to address the controversy by conducting an
informal, voluntary inquiry that should take several months. The company is
cooperating fully with the SEC and claims to welcome the chance to settle
the issue. We think the inquiry will not reveal major problems and, perhaps
more important, Tyco appears to be generating excellent internal growth, is
run very efficiently, and will generate several billion dollars of free
cash flow this year. We chose to maintain a meaningful position in Tyco.
OUTLOOK
Rising interest rates and stretched valuations in technology could limit
returns from the broad market averages this year, but we remain cautiously
optimistic. We believe the market leaders in most industry sectors will
continue to be rewarded. In addition, valuations in several key sectors,
including health care, financials, and consumer nondurables, have become
increasingly attractive as those stocks have lagged the market.
We spend little time forecasting interest rates, the economy, or the
markets. Instead, we believe our analysts can enhance returns and lower
risk over time by identifying companies that are poised for above-average
growth. We hope and fully expect that the Capital Opportunity Fund's
improved relative performance in the past six months is a harbinger of
things to come, and we appreciate your continued support.
Respectfully submitted,
William J. Stromberg
President and Chairman of the Investment Advisory Committee
January 21, 2000
T. Rowe Price Capital Opportunity Fund
- --------------------------------------------------------------------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
12/31/99
---------------------------------------------------------------------------
Microsoft 4.6%
GE 4.2
Cisco Systems 2.8
MCI WorldCom 2.4
Exxon Mobil 2.2
---------------------------------------------------------------------------
Citigroup 1.8
Wal-Mart 1.8
Lucent Technologies 1.7
Intel 1.7
Oracle 1.5
---------------------------------------------------------------------------
America Online 1.5
Home Depot 1.5
Tyco International 1.4
Sprint PCS 1.3
Procter & Gamble 1.3
---------------------------------------------------------------------------
American International Group 1.2
Dell Computer 1.2
Coca-Cola 1.2
Hewlett-Packard 1.1
MediaOne Group 1.1
---------------------------------------------------------------------------
Royal Dutch Petroleum 1.0
Bristol-Myers Squibb 1.0
IBM 1.0
Nokia 0.9
Johnson & Johnson 0.9
---------------------------------------------------------------------------
Total 42.3%
Note: Table excludes reserves.
T. Rowe Price Capital Opportunity Fund
- --------------------------------------------------------------------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
CONTRIBUTIONS TO THE CHANGE IN NET ASSET VALUE PER SHARE
6 Months Ended 12/31/99
Ten Best Contributors
---------------------------------------------------------------------------
Cisco Systems 21(cents)
GE 20
Oracle 20
Microsoft 18
Home Depot 10
Wal-Mart 10
Intel 9
Nokia 8
JDS Uniphase * 8
America Online 8
---------------------------------------------------------------------------
Total 132(cents)
Ten Worst Contributors
---------------------------------------------------------------------------
Bank of America -9(cents)
Waste Management 6
Philip Morris 6
Tyco International 5
American Home Products 4
Bank One ** 4
Boston Scientific 3
IBM 3
DuPont 2
MCI WorldCom 2
---------------------------------------------------------------------------
Total -44(cents)
12 Months Ended 12/31/99
Ten Best Contributors
---------------------------------------------------------------------------
Cisco Systems * 25(cents)
Microsoft * 23
Oracle * 22
GE * 21
Xilinx ** 12
United HealthCare 12
Nokia * 11
Univision Communications ** 11
Home Depot * 10
SCI Systems * 9
---------------------------------------------------------------------------
Total 156(cents)
Ten Worst Contributors
---------------------------------------------------------------------------
Network Associates ** -29(cents)
Romac International ** 22
United Road Services ** 17
Imax ** 13
Parametric Technology ** 12
Rite Aid ** 10
XL Capital 9
Allied Waste Industries 8
Richfood Holdings ** 7
Safeway 6
---------------------------------------------------------------------------
Total -133(cents)
* Position added
** Position eliminated
T. Rowe Price Capital Opportunity Fund
- --------------------------------------------------------------------------------
Performance Comparison
- --------------------------------------------------------------------------------
This chart shows the value of a hypothetical $10,000 investment in the fund
over the past 10 fiscal year periods or since inception (for funds lacking
10-year records). The result is compared with benchmarks, which may include
a broad-based market index and a peer group average or index. Market
indexes do not include expenses, which are deducted from fund returns as
well as mutual fund averages and indexes.
CAPITAL OPPORTUNITY FUND
---------------------------------------------------------------------------
Lipper Capital
Multi-Cap Core Opportunity
S&P 500 Funds Average Fund
11/30/94 10,000 10,000 10,000
12/94 10,148 10,099 10,430
12/95 13,962 13,232 15,281
12/96 17,168 15,931 17,841
12/97 22,895 20,367 20,673
12/98 29,435 23,928 23,712
12/99 35,633 28,743 26,439
Average Annual Compound Total Return
- --------------------------------------------------------------------------------
This table shows how the fund would have performed each year if its actual
(or cumulative) returns for the periods shown had been earned at a constant
rate.
Since Inception
Periods Ended 12/31/99 1 Year 3 Years 5 Years Inception Date
---------------------------------------------------------------------------
Capital
Opportunity Fund 11.50% 14.01% 20.45% 21.07% 11/30/94
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original
purchase.
T. Rowe Price Capital Opportunity Fund
- --------------------------------------------------------------------------------
Financial Highlights For a share outstanding throughout each period
- --------------------------------------------------------------------------------
Year
Ended
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
NET ASSET VALUE
Beginning of period $ 18.11 $ 16.62 $ 15.75 $ 14.13 $ 10.43
Investment activities
Net investment income
(loss) (0.01) (0.07) 0.01 -* 0.01*
Net realized and
unrealized gain (loss) 1.86 2.44 2.45 2.36 4.83
Total from
investment activities 1.85 2.37 2.46 2.36 4.84
Distributions
Net investment income -- -- -- -- (0.01)
Net realized gain (4.27) (0.88) (1.59) (0.74) (1.13)
Total distributions (4.27) (0.88) (1.59) (0.74) (1.14)
NET ASSET VALUE
End of period $ 15.69 $ 18.11 $ 16.62 $ 15.75 $ 14.13
----------------------------------------------------
Ratios/Supplemental Data
Total return (diamond) 11.50% 14.70% 15.87% 16.76%* 46.51%*
Ratio of total expenses
to average net assets 1.26% 1.35% 1.35% 1.35%* 1.35%*
Ratio of net investment
income (loss) to average
net assets (0.06%) (0.44%) 0.04% 0.02%* 0.08%*
Portfolio turnover rate 133.1% 73.8% 85.0% 107.3% 136.9%
Net assets, end of period
(in thousands) $109,057 $124,812 $109,055 $125,077 $ 61,923
(diamond) Total return reflects the rate that an investor would have earned on
an investment in the fund during each period, assuming reinvestment
of all distributions.
* Excludes expenses in excess of a 1.35% voluntary expense limitation
in effect through 12/31/96
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Capital Opportunity Fund
- --------------------------------------------------------------------------------
December 31, 1999
Statement of Net Assets Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Common Stocks 98.4%
FINANCIAL 12.6%
Bank and Trust 4.8%
Bank of America 14,000 $ 703
Bank of New York 21,900 876
Chase Manhattan 10,460 813
First Tennessee National 9,600 273
FirStar 38,600 815
Mellon Financial 5,600 191
State Street 5,340 390
U.S. Bancorp 13,480 321
Wells Fargo 20,330 822
5,204
Insurance 2.9%
ACE Limited 6,400 107
American General 4,110 312
American International Group 12,325 1,333
Aon 2,050 82
Hartford Financial Services Group 3,730 177
Loews 1,300 79
Marsh & McLennan 6,010 575
MGIC Investment 900 54
Unumprovident 5,500 176
XL Capital (Class A) 5,302 275
3,170
Financial Services 4.9%
American Express * 3,850 640
Associates First Capital (Class A) 5,600 154
Capital One Financial 2,200 106
Citigroup 35,430 1,969
Fannie Mae 9,500 593
Freddie Mac 9,200 433
Heller Financial 2,000 40
Household International 3,200 119
MBNA 8,200 224
Morgan Stanley Dean Witter 6,160 879
Providian Financial 1,300 $ 118
SLM Holding 1,500 63
5,338
Total Financial 13,712
UTILITIES 5.8%
Telephone Services 4.2%
ALLTEL 2,600 215
AT&T 14,800 751
AT&T Liberty Group Media * 11,700 664
Centurytel 4,000 189
GTE * 10,300 727
McLeod USA * 4,100 241
SBC Communications 15,500 756
Sprint 15,700 1,057
4,600
Electric Utilities 1.6%
DQE 4,500 156
Duke Energy 5,500 276
Entergy 5,700 147
Niagara Mohawk * 17,600 245
PECO Energy 7,300 254
Reliant Energy 8,200 187
Scottish Power ADR * 2,262 63
Texas Utilities 5,500 196
Unicom 5,800 194
1,718
Total Utilities 6,318
CONSUMER NONDURABLES 16.4%
Beverages 2.2%
Anheuser-Busch 4,020 285
Coca-Cola 22,060 1,285
Coca-Cola Enterprises 3,500 70
PepsiCo 21,860 771
2,411
Food Processing 1.3%
Bestfoods 2,350 $ 124
Campbell 3,330 129
ConAgra 4,310 97
General Mills 9,800 350
Heinz 7,060 281
Quaker Oats 2,400 157
Ralston Purina 4,510 126
Sara Lee 7,830 173
1,437
Hospital Supplies/Hospital Management 1.7%
Abbott Laboratories 10,700 389
Baxter International 6,200 389
Beckman Coulter 3,100 158
Biomet * 5,400 216
Boston Scientific * 8,100 177
Medtronic 5,700 208
Millipore 4,900 189
Omnicare 6,200 74
1,800
Pharmaceuticals 7.6%
American Home Products 11,900 469
Amgen * 8,600 516
Bristol-Myers Squibb 17,300 1,110
Eli Lilly 9,900 658
Express Scripts (Class A) * 1,000 64
Genentech * 4,000 538
Johnson & Johnson 10,800 1,006
Merck 14,500 972
Mylan Laboratories 9,000 227
Pfizer 27,800 902
Pharmacia & Upjohn 5,200 234
Schering-Plough 13,200 557
Teva Pharmaceutical Industries ADR 4,800 344
Warner-Lambert 8,700 713
8,310
Health Care Services 0.5%
Aetna 600 $ 34
CIGNA 1,500 121
Data Critical * 1,700 25
IMS Health 2,900 79
United HealthCare 2,700 143
Wellpoint Health Networks * 2,700 178
580
Cosmetics 0.4%
Gillette 9,400 387
387
Biotechnology 0.1%
Affymetrix * 800 136
136
Miscellaneous Consumer Products 2.6%
Armstrong World 700 23
Clorox 1,950 98
Colgate-Palmolive 4,900 319
Fortune Brands 4,980 165
Liz Claiborne 500 19
NIKE (Class B) 4,200 208
Philip Morris 19,410 450
Procter & Gamble 12,540 1,374
Stanley Works 1,800 54
Viad 1,900 53
Wesley Jessen VisionCare * 2,300 87
2,850
Total Consumer Nondurables 17,911
CONSUMER SERVICES 10.4%
General Merchandisers 2.9%
Costco Wholesale * 2,300 210
Dayton Hudson 8,700 639
Dollar General 5,250 119
May Department Stores 3,400 110
Neiman Marcus Group * 2,800 78
TJX 3,300 67
Wal-Mart 27,800 1,922
3,145
Specialty Merchandisers 3.3%
Albertson's 3,969 $ 128
Circuit City Stores 2,800 126
CVS 5,600 224
Federated Department Stores * 1,200 61
Home Depot 23,250 1,594
Kohl's * 2,400 173
Kroger * 14,800 279
Lowes 4,000 239
Nordstrom 4,900 128
Safeway * 4,900 174
Staples * 5,800 120
The Gap 5,100 235
Toys "R" Us * 3,900 56
3,537
Entertainment and Leisure 2.4%
Carnival (Class A) 6,400 306
Disney 9,400 275
McDonald's * 11,200 451
MediaOne Group * 15,600 1,198
Papa John's * 1,600 42
Viacom (Class B) * 6,100 369
2,641
Media and Communications 1.7%
CBS * 6,600 422
Clear Channel Communications * 3,300 295
Comcast (Class A Special) 6,600 333
Dun & Bradstreet 1,700 50
McGraw-Hill 1,900 117
Meredith 700 29
R.R. Donnelley 2,400 60
Time Warner 6,300 456
Tribune * 2,300 127
1,889
Restaurants 0.1%
Outback Steakhouse * 1,400 37
Tricon Global Restaurants * 900 35
72
Total Consumer Services 11,284
CONSUMER CYCLICALS 2.0%
Automobiles and Related 1.5%
Dana 17,900 $ 536
Delphi Automotive Systems 4,612 73
Ford Motor 11,000 588
GM 6,000 436
Goodyear Tire & Rubber 1,900 53
1,686
Miscellaneous Consumer Durables 0.5%
Black & Decker 1,300 68
Eastman Kodak 4,600 305
Masco 5,700 144
517
Total Consumer Cyclicals 2,203
TECHNOLOGY 21.5%
Electronic Components 4.5%
Altera * 7,400 367
Analog Devices * 6,800 632
EMC * 4,000 437
Intel 22,500 1,851
Jabil Circuit * 4,720 345
LSI Logic * 1,000 68
Maxim Integrated Products * 5,600 264
National Semiconductor * 6,700 287
Sanmina * 3,370 336
Texas Instruments 3,700 358
4,945
Telecommunications 9.6%
3Com * 4,700 221
Allegiance Telecom * 2,400 221
Cisco Systems * 28,900 3,095
JDS Uniphase * 6,000 968
Lucent Technologies 24,900 1,863
MCI WorldCom * 50,184 2,661
NEXTLINK Communications * 2,400 199
Nortel Networks 7,300 737
Sprint PCS * 3,900 $ 400
Tellabs * 1,700 109
10,474
Aerospace and Defense 0.3%
General Dynamics 1,600 85
Lockheed Martin 7,500 164
Northrop 500 27
Raytheon (Class B) 1,400 37
313
Information Processing 3.2%
COMPAQ Computer 18,310 495
Dell Computer * 25,840 1,317
IBM 10,130 1,094
SCI Systems * 5,340 439
Unisys * 3,500 112
3,457
Office Automation 0.2%
Ceridian * 1,800 39
Xerox 7,100 161
200
Specialized Computer 0.4%
Sun Microsystems * 6,400 495
495
Electronic Systems 3.3%
Applied Materials * 3,500 443
Hewlett-Packard 10,660 1,215
KLA-Tencor * 1,800 201
Nokia ADR 5,400 1,026
PE Biosystems 900 108
PerkinElmer 700 29
Solectron * 6,100 580
3,602
Total Technology 23,486
CAPITAL EQUIPMENT 7.2%
Electrical Equipment 5.6%
GE 29,450 $ 4,557
Tyco International 39,400 1,532
6,089
Machinery 1.6%
Danaher 2,400 116
Deere 10,900 473
FMC * 1,300 74
Kennametal 13,800 464
Mannesmann (EUR) 2,300 556
Milacron 4,400 68
1,751
Total Capital Equipment 7,840
BUSINESS SERVICES AND
TRANSPORTATION 13.2%
Computer Service and Software 10.8%
America Online * 22,000 1,660
Automatic Data Processing 4,900 264
BMC Software * 4,800 383
Citrix Systems * 1,700 209
Computer Associates 7,150 500
Computer Sciences * 200 19
Electronic Data Systems 300 20
First Data 3,900 192
Galileo International 2,400 72
General Instrument * 10,200 867
Lexmark International Group (Class A) * 1,800 163
Microsoft * 42,700 4,984
Oracle * 15,000 1,680
Synopsys * 700 47
Yahoo! * 1,700 736
11,796
Distribution Services 0.3%
AmeriSource Health * 1,700 $ 26
Tech Data * 11,140 302
328
Environmental 0.1%
Allied Waste * 13,400 118
118
Transportation Services 0.0%
CNF Transportation 700 24
24
Miscellaneous Business Services 0.6%
Equifax 2,500 59
FDX * 2,100 86
Omnicom 2,800 280
Waste Management 14,800 254
679
Railroad 1.1%
Burlington Northern Santa Fe 8,600 209
Kansas City Southern Industries 10,000 746
Norfolk Southern 9,600 197
1,152
Airlines 0.3%
AMR * 1,500 101
Delta 1,200 60
Southwest Airlines 3,950 64
USAir * 600 19
244
Total Business Services and Transportation 14,341
ENERGY 5.7%
Integrated Petroleum - Domestic 0.5%
Amerada Hess 1,700 97
Atlantic Richfield 1,100 95
Conoco (Class B) 3,993 99
Kerr-McGee 800 50
Occidental Petroleum 3,800 82
USX-Marathon 6,800 168
591
Integrated Petroleum - International 4.1%
Chevron 8,200 $ 710
Exxon Mobil 29,854 2,405
Royal Dutch Petroleum ADR 18,870 1,141
Texaco 3,460 188
4,444
Energy Services 0.5%
Baker Hughes 5,400 114
Halliburton * 3,000 121
McDermott International 800 7
Schlumberger 5,300 298
Transocean Sedco Forex 1,026 34
574
Exploration and Production 0.4%
Anadarko Petroleum 1,300 44
Burlington Resources 1,700 56
Union Pacific Resources 1,600 21
Unocal * 9,450 317
438
Gas and Gas Transmission 0.2%
Enron 4,700 209
209
Total Energy 6,256
PROCESS INDUSTRIES 2.7%
Diversified Chemicals 1.1%
Air Products and Chemicals 2,700 91
Cabot 9,600 195
Dow Chemical 1,400 187
DuPont 7,460 491
Praxair 2,000 101
W. R. Grace * 10,900 151
1,216
Forest Products 0.3%
International Paper 1,100 62
Louisiana Pacific 900 13
Potlatch 1,300 58
Weyerhaeuser 2,600 187
320
Specialty Chemicals 0.7%
3M 2,000 $ 196
Avery Dennison 1,500 109
Great Lakes Chemical 3,500 134
Millennium Chemicals 3,500 69
Solutia 7,700 119
Waters * 2,500 132
759
Paper and Paper Products 0.6%
Champion International 1,200 74
Fort James 6,050 166
Kimberly-Clark 6,500 424
Smurfit-Stone Container * 900 22
686
Total Process Industries 2,981
BASIC MATERIALS 0.9%
Metals 0.6%
Alcan Aluminum (CAD) 2,500 103
Alcoa 3,200 265
Inco * 2,900 68
Nucor 800 44
Phelps Dodge 2,130 143
Reynolds Metals 600 46
669
Mining 0.2%
Barrick Gold 3,800 67
Battle Mountain Gold 9,100 19
Newmont Mining 4,600 113
199
Miscellaneous Materials 0.1%
Williams Companies 4,100 125
125
Total Basic Materials 993
MISCELLANEOUS 0.0%
Miscellaneous 0.0%
Drugstore.Com * 600 $ 22
Total Miscellaneous 22
Total Common Stocks (Cost $92,395) 107,347
Short-Term Investments 2.2%
U.S. Government Obligations 0.3%
U.S. Treasury Bills, 5.08%, 2/10/00 $ 300,000 299
299
Money Market Funds 1.9%
Government Reserve Investment Fund, 4.80% # 2,038,179 2,038
2,038
Total Short-Term Investments (Cost $2,337) 2,337
Total Investments in Securities
100.6% of Net Assets (Cost $94,732) $ 109,684
Futures Contracts
In thousands
Contract Unrealized
Expiration Value Gain (Loss)
---------- -------- -----------
Long, 5 S&P 500
Index Contracts
contracts, $280,000
of U.S. Treasury Bills
pledged as initial margin 3/00 $ 1,855 $ 67
Net payments (receipts)
of variation margin to date (63)
Variation margin receivable
(payable) on open futures contracts 4
Other Assets Less Liabilities (631)
NET ASSETS $ 109,057
----------
Net Assets Consist of:
Accumulated net realized gain/loss
- - net of distributions $ 1,146
Net unrealized gain (loss) 15,019
Paid-in-capital applicable to 6,952,759
shares of $.0001 par value capital stock
outstanding; 1,000,000,000 shares authorized 92,892
NET ASSETS $ 109,057
----------
NET ASSET VALUE PER SHARE $ 15.69
----------
# Seven-day yield
* Non-income producing
ADR American Depository Receipt
CAD Canadian dollar
EUR Euro
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Capital Opportunity Fund
- --------------------------------------------------------------------------------
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
Year
Ended
12/31/99
Investment Income (Loss)
Income
Dividend $ 1,069
Interest 222
Total income 1,291
Expenses
Investment management 763
Shareholder servicing 376
Custody and accounting 102
Prospectus and shareholder reports 62
Registration 31
Legal and audit 15
Directors 6
Miscellaneous 4
Total expenses 1,359
Net investment income (loss) (68)
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 26,367
Futures 16
Foreign currency transactions (11)
Net realized gain (loss) 26,372
Change in net unrealized gain or loss
Securities (15,615)
Futures 67
Change in net unrealized gain or loss (15,548)
Net realized and unrealized gain (loss) 10,824
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 10,756
----------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Capital Opportunity Fund
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
Year
Ended
12/31/99 12/31/98
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ (68) $ (520)
Net realized gain (loss) 26,372 5,258
Change in net unrealized gain or loss (15,548) 11,091
Increase (decrease) in net
assets from operations 10,756 15,829
Distributions to shareholders
Net realized gain (23,916) (5,807)
Capital share transactions *
Shares sold 21,948 41,118
Distributions reinvested 23,137 5,668
Shares redeemed (47,680) (41,051)
Increase (decrease) in net
assets from capital
share transactions (2,595) 5,735
Net Assets
Increase (decrease) during period (15,755) 15,757
Beginning of period 124,812 109,055
End of period $ 109,057 $ 124,812
-----------------------
*Share information
Shares sold 1,230 2,323
Distributions reinvested 1,555 339
Shares redeemed (2,722) (2,333)
Increase (decrease) in
shares outstanding 63 329
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Capital Opportunity Fund
- --------------------------------------------------------------------------------
December 31, 1999
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Capital Opportunity Fund, Inc. (the fund) is registered under
the Investment Company Act of 1940 as a diversified, open-end management
investment company and commenced operations on November 30, 1994.
The accompanying financial statements are prepared in accordance with
generally accepted accounting principles for the investment company
industry; these principles may require the use of estimates by fund
management.
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 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. 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.
Short-term debt securities are valued at amortized cost which, when
combined with accrued interest, approximates fair value.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation. Financial futures
contracts are valued at closing settlement prices.
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.
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.
Premiums and Discounts Premiums and discounts on debt securities are
amortized for both financial reporting and tax purposes.
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. Credits earned on
daily uninvested cash balances at the custodian are used to reduce the
fund's custody charges. Payments ("variation margin") made or received by
the fund to settle the daily fluctuations in the value of futures contracts
are recorded as unrealized gains or losses until the contracts are closed.
Unrealized gains and losses on futures contracts are included in change in
net unrealized gain or loss in the accompanying financial statements.
NOTE 2 - INVESTMENT TRANSACTIONS
Consistent with its investment objective, the fund engages in the following
practices to manage exposure to certain risks or enhance performance. The
investment objective, policies, program, and risk factors of the fund are
described more fully in the fund's prospectus and Statement of Additional
Information.
Futures Contracts At December 31, 1999, the fund was a party to futures
contracts, which provide for the future sale by one party and purchase by
another of a specified amount of a specific financial instrument at an
agreed upon price, date, time, and place. Risks arise from possible
illiquidity of the futures market and from movements in security values.
Other Purchases and sales of portfolio securities, other than short-term
securities, aggregated $139,085,000 and $157,310,000, respectively, for the
year ended December 31, 1999.
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.
In order for the fund's capital accounts and distributions to shareholders
to reflect the tax character of certain transactions, the following
reclassifications, which were primarily due to tax equalization debits,
were made during the year ended December 31, 1999. The results of
operations and net assets were not affected by the increases/(decreases) to
these accounts.
---------------------------------------------------------------------------
Undistributed net investment income $68,000
Undistributed net realized gain (2,552,000)
Paid in capital 2,484,000
At December 31, 1999, the cost of investments for federal income tax
purposes was substantially the same as for financial reporting and totaled
$94,732,000. Net unrealized gain aggregated $14,952,000 at period-end, of
which $20,478,000 related to appreciated investments and $5,526,000 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 $60,000 was payable at December 31, 1999. The fee is computed
daily and paid monthly, and consists of an individual fund fee equal to
0.35% 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 0.295% for assets
in excess of $120 billion. At December 31, 1999, and for the year then
ended, the effective annual group fee rate was 0.32%. 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 $366,000 for the year ended December 31, 1999, of which
$40,000 was payable at period-end.
The fund may invest in the Reserve Investment Fund and Government Reserve
Investment Fund (collectively, the Reserve Funds), open-end management
investment companies managed by T. Rowe Price Associates, Inc. The Reserve
Funds are offered as cash management options only to mutual funds and other
accounts managed by T. Rowe Price and its affiliates and are not available
to the public. The Reserve Funds pay no investment management fees.
Distributions from the Reserve Funds to the fund for the year ended
December 31, 1999, totaled $220,000 and are reflected as interest income in
the accompanying Statement of Operations.
T. Rowe Price Capital Opportunity Fund
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
T. Rowe Price Capital Opportunity Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position
of T. Rowe Price Capital Opportunity Fund, Inc. (the "Fund") at December
31, 1999, and the results of its operations, the changes in its net assets
and the financial highlights for each of the fiscal periods presented, in
conformity with accounting principles generally accepted in the United
States. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1999 by correspondence with
custodians and brokers, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
January 20, 2000
T. Rowe Price Capital Opportunity Fund
- --------------------------------------------------------------------------------
Tax Information (Unaudited) for the Tax Year Ended 12/31/99
- --------------------------------------------------------------------------------
We are providing this information as required by the Internal Revenue Code. The
amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The fund's distributions to shareholders included:
o $7,248,000 from short-term capital gains,
o $19,152,000 from long-term capital gains, subject to the 20% rate gains
category.
For corporate shareholders, $911,000 of the fund's distributed income and
short-term capital gains qualified for the dividends-received deduction.
T. Rowe Price Shareholder Services
- --------------------------------------------------------------------------------
Investment Services And Information
KNOWLEDGEABLE SERVICE REPRESENTATIVES
By Phone 1-800-225-5132 Available Monday through Friday from 8 a.m. to 10
p.m. ET and weekends from 8:30 a.m. to 5 p.m. ET.
In Person Available in T. Rowe Price Investor Centers.
ACCOUNT SERVICES
Checking Available on most fixed income funds ($500 minimum).
Automatic Investing From your bank account or paycheck.
Automatic Withdrawal Scheduled, automatic redemptions.
Distribution Options Reinvest all, some, or none of your distributions.
Automated 24-Hour Services Including Tele*Access(registered trademark) and
the T. Rowe Price Web site on the Internet. Address: www.troweprice.com
BROKERAGE SERVICES*
Individual Investments Stocks, bonds, options, precious metals, and other
securities at a savings over full-service commission rates.**
INVESTMENT INFORMATION
Combined Statement Overview of all your accounts with T. Rowe Price.
Shareholder Reports Fund managers' reviews of their strategies and results.
T. Rowe Price Report Quarterly investment newsletter discussing markets and
financial strategies.
Performance Update Quarterly review of all T. Rowe Price fund results.
Insights Educational reports on investment strategies and financial
markets.
Investment Guides Asset Mix Worksheet, College Planning Kit, Diversifying
Overseas: A Guide to International Investing, Personal Strategy Planner,
Retirees Financial Guide, and Retirement Planning Kit.
* T. Rowe Price Brokerage is a division of T. Rowe Price Investment
Services, Inc., Member NASD/SIPC.
** Based on a September 1999 survey for representative-assisted stock
trades. Services vary by firm, and commissions may vary depending on
size of order.
T. Rowe Price Mutual Funds
- --------------------------------------------------------------------------------
STOCK FUNDS
Domestic
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Diversified Small-Cap Growth
Dividend Growth
Equity Income
Equity Index 500
Extended Equity Market Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Media & Telecommunications
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons*
Real Estate
Science & Technology
Small-Cap Stock
Small-Cap Value
Spectrum Growth
Tax-Efficient Growth
Total Equity Market Index
Value
International/Global
Emerging Markets Stock
European Stock
Global Stock
International Discovery
International Growth & Income
International Stock
Japan
Latin America
New Asia
Spectrum International
BOND FUNDS
Domestic Taxable
Corporate Income
GNMA
High Yield
New Income
Short-Term Bond
Short-Term U.S. Government
Spectrum Income
Summit GNMA
Summit Limited-Term Bond
U.S. Treasury Intermediate
U.S. Treasury Long-Term
Domestic Tax-Free
California Tax-Free Bond
Florida Intermediate Tax-Free
Georgia Tax-Free Bond
Maryland Short-Term
Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Summit Municipal Intermediate
Tax-Free High Yield
Tax-Free Income
Tax-Free Intermediate Bond
Tax-Free Short-Intermediate
Virginia Short-Term
Tax-Free Bond
Virginia Tax-Free Bond
International/Global
Emerging Markets Bond
Global Bond
International Bond
MONEY MARKET FUNDS!
Taxable
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
Tax-Free
California Tax-Free Money
New York Tax-Free Money
Summit Municipal
Money Market
Tax-Exempt Money
BLENDED ASSET FUNDS
Balanced
Personal Strategy Balanced
Personal Strategy Growth
Personal Strategy Income
Tax-Efficient Balanced
T. ROWE PRICE NO-LOAD
VARIABLE ANNUITY
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
Mid-Cap Growth Portfolio
New America Growth Portfolio
Personal Strategy Balanced Portfolio
Prime Reserve Portfolio
* Closed to new investors.
! Investments in the funds are not insured or guaranteed by the FDIC or any
other government agency. Although the funds seek to preserve the value of
your investment at $1.00 per share, it is possible to lose money by
investing in the funds.
Please call for a prospectus. Read it carefully before investing.
The T. Rowe Price No-Load Variable Annuity [V6021] is issued by Security Benefit
Life Insurance Company. In New York, it [#FSB201(11-96)] is issued by First
Security Benefit Life Insurance Company of New York, White Plains, NY. T. Rowe
Price refers to the underlying portfolios' investment managers and the
distributors, T. Rowe Price Investment Services, Inc.; T. Rowe Price Insurance
Agency, Inc.; and T. Rowe Price Insurance Agency of Texas, Inc. The Security
Benefit Group of Companies and the T. Rowe Price companies are not affiliated.
The variable annuity may not be available in all states. The contract has
limitations. Call a representative for costs and complete details of the
coverage.
T. Rowe Price Advisory Services and Retirement Resources
- --------------------------------------------------------------------------------
Advisory Services,Retirement Resources
T. Rowe Price is your full-service retirement specialist. We have developed
unique advisory services that can help you meet the most difficult
retirement challenges. Our broad array of retirement plans is suitable for
individuals, the self-employed, small businesses, corporations, and
nonprofit organizations. We also provide recordkeeping, communications, and
investment management services, and our educational materials, self-help
planning guides, and software tools are recognized as among the industry's
best. For information or to request literature, call us at 1-800-638-5660,
or visit our Web site at www.troweprice.com.
ADVISORY SERVICES
T. Rowe Price Retirement Income ManagerSM helps retirees or those within
two years of retirement determine how much income they can take in
retirement. The program uses extensive statistical analysis and the input
of financial planning professionals to suggest an income plan that best
meets your objectives.
T. Rowe Price Rollover Investment Service offers asset allocation advice to
those planning a major change in their qualified retirement plans, such as
a 401(k) rollover from a previous employer or an IRA transfer.
RETIREMENT RESOURCES AT T. ROWE PRICE
Traditional, Roth, and Rollover IRAs
SEP-IRA and SIMPLE IRA
Profit Sharing
Money Purchase Pension
"Paired" Plans (Money Purchase
Pension and Profit Sharing Plans)
401(k) and 403(b)
457 Deferred Compensation
Planning and Informational Guides
Minimum Required Distributions Guide
Retirement Planning Kit
Retirees Financial Guide
Tax Considerations for Investors
Insights Reports
The Challenge of Preparing for Retirement
Financial Planning After Retirement
The Roth IRA: A Review
Software Packages
T. Rowe Price Retirement Planning
AnalyzerTM CD-ROM or diskette $19.95.
To order, please call
1-800-541-5760. Also available
on the Internet for $9.95.
T. Rowe Price Variable Annuity AnalyzerTM
CD-ROM or diskette, free. To order,
please call 1-800-469-5304.
T. Rowe Price Immediate Variable
Annuity (Income Account)
Investment Kits
We will be happy to send you one of our
easy-to-follow investment kits when you
are ready to invest in any T. Rowe Price
retirement vehicle, including IRAs, quali-
fied plans, small-business plans, or our
no-load variable annuities.
For fund and account information
or to conduct transactions,
24 hours, 7 days a week
By touch-tone telephone
Tele*Access 1-800-638-2587
By Account Access on the Internet
www.troweprice.com/access
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132
To open a brokerage account
or obtain information, call:
1-800-638-5660
Internet address:
www.troweprice.com
Plan Account Lines for retirement
plan participants:
The appropriate 800 number appears
on your retirement account statement.
T. Rowe Price Associates
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 appropriate
to the fund or funds covered in this
report.
Walk-In Investor Centers:
For directions, call 1-800-225-5132
or visit our Web site
Baltimore Area
Downtown
101 East Lombard Street
Owings Mills
Three Financial Center
4515 Painters Mill Road
Boston Area
386 Washington Street
Wellesley
Colorado Springs
4410 ArrowsWest Drive
Los Angeles Area
Warner Center
21800 Oxnard Street, Suite 270
Woodland Hills
Tampa
4200 West Cypress Street
10th Floor
Washington, D.C.
900 17th Street N.W.
Farragut Square
T. Rowe Price, Invest with Confidence (registered trademark)
T. Rowe Price Investment Services, Inc., Distributor. F08-050 12/31/99
