Item 1. Report to Shareholders
T. Rowe Price Capital Appreciation Fund
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December 31, 2003
Certified Annual Report
This report is certified under the Sarbanes-Oxley Act of 2002, which requires
that public companies, including mutual funds, affirm that the information
provided in their annual and semiannual shareholder reports fully and fairly
represents their financial position.
T. Rowe Price Capital Appreciation Fund
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Certified Annual Report
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.
[Graphic Omitted]
Capital Appreciation Fund
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As of 12/31/03
Lipper Multi-Cap Value Funds Index $27,613
Capital Appreciation Fund $33,235
S&P 500 Stock Index $28,563
S&P 500 Lipper Multi-Cap Capital Appreciation
Stock Index Value Funds Index Fund
12/93 $10,000 $10,000 $10,000
12/94 10,132 10,011 10,380
12/95 13,940 13,115 12,722
12/96 17,140 15,868 14,862
12/97 22,859 20,138 17,270
12/98 29,392 21,453 18,267
12/99 35,576 22,727 19,558
12/00 32,337 24,916 23,894
12/01 28,493 25,239 26,346
12/02 22,196 20,795 26,489
12/03 28,563 27,613 33,235
Average Annual Compound Total Return
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Periods Ended 12/31/03 1 Year 5 Years 10 Years
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Capital Appreciation Fund 25.47% 12.72% 12.76%
S&P 500 Stock Index 28.68 -0.57 11.07
Lipper Multi-Cap Value Funds Index 32.78 5.18 10.69
Returns do not reflect taxes that the shareholder may pay on fund distributions
or the redemption of fund shares. Past performance cannot guarantee future
results.
T. Rowe Price Capital Appreciation Fund
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Certified Annual Report
Dear Shareholder,
We are pleased to report that your fund returned a solid 25.47% during the 12
months ended December 31, 2003. The fund trailed its Lipper Multi-Cap Value
Funds Index and the S&P 500 Stock Index, as you can see from the table on the
previous page. The fund benefited from the improving economy, but its combined
bond and reserve position, which provides income and stability to the portfolio,
detracted relative to 2003's surging stock market.
As you know, the fund's investment objective is to maximize long-term capital
appreciation by investing primarily in common stocks. In addition, the fund may
hold fixed income and other securities including convertible securities,
corporate and government debt, foreign securities, and futures and options to
help preserve principal value in uncertain or declining markets.
[Graphic Omitted]
Major Index Returns
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Period Ended 12/31/03
12-Month Return
S&P 500 Stock Index 29%
S&P MidCap 400 Index 36%
Russell 2000 Index 47%
Nasdaq Composite Index 50%
The Major Index Returns table shows how various domestic stock markets performed
over the past 12 months. As you can see, domestic stocks registered solid
returns, with the technology-heavy Nasdaq Composite and the small-cap Russell
2000 showing the best results. Mid-cap stocks also outperformed large-cap
stocks, as represented by the S&P 500 Stock Index.
The Security Diversification table shows how the fund's assets were allocated as
of December 31, 2003. Common and preferred stocks were the largest allocation at
64% of net assets, up from 60% a year earlier. Our allocation to convertible
bonds and convertible preferreds fell to 14% from 24% at the end of 2002.
Reserves rose to 19% from 9%.
Security Diversification
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Percent of Net Assets
12/31/02 12/31/03
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Common Stocks and Preferred Stocks 60% 64%
Reserves 9 19
Convertible Bonds/Convertible Preferreds 24 14
Bonds 7 3
The Best and Worst Contributors table shows the largest contributors to the
fund's performance during the year. Mining companies Newmont Mining and Phelps
Dodge were the top positive contributors, while pharmaceutical companies
Schering-Plough and Merck were major detractors.
Best and Worst Contributors
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12 Months Ended 12/31/03
Best Contributors
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Newmont Mining
Phelps Dodge
Ryder System
Lucent Technologies
Tyco International
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Worst Contributors
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Schering-Plough
Merck
Verizon Communications
AT&T *
Petrie Stores Liquidation Trust
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* Position eliminated
Finally, I'm sure you are aware that mutual fund companies have recently come
under scrutiny for their trading policies. The investigations have led to
allegations that executives of several mutual fund companies permitted or
engaged in improper mutual fund trading. In addition, certain intermediaries
that process fund transactions are alleged to have assisted some investors in
executing improper mutual fund trades. I want T. Rowe Price shareholders to
know that we emphatically condemn the abuses that have been revealed or alleged
against other firms in our industry. Our firm has not entered and will not enter
into any agreements with any investors or intermediaries that authorize
after-hours trading or excessive short-term trading in any of our funds. T. Rowe
Price investors can be assured that our firm unequivocally opposes illegal or
inappropriate trading of any nature and has policies and procedures in place
designed to protect the best interests of our long-term shareholders. No T. Rowe
Price executives or portfolio managers or investment personnel of the T. Rowe
Price mutual funds have engaged in any inappropriate trading of T. Rowe Price
mutual funds. You may find out more about our trading policies and the steps we
take to protect your interests by visiting our Web site (troweprice.com). These
policies are also spelled out in your fund's prospectus.
We thank you for your continued support.
Respectfully,
James S. Riepe
Chairman
January 21, 2004
T. Rowe Price Capital Appreciation Fund
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Certified Annual Report
Financial Highlights For a share outstanding throughout each period
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Year
Ended
12/31/03 12/31/02 12/31/01 12/31/00 12/31/99
NET ASSET VALUE
Beginning of period $ 14.21 $ 14.64 $ 13.95 $ 12.51 $ 13.22
Investment activities
Net investment
income (loss) 0.25 0.33 0.39 0.44 0.51
Net realized and
unrealized gain (loss) 3.36 (0.25) 1.03 2.27 0.41
Total from
investment activities 3.61 0.08 1.42 2.71 0.92
Distributions
Net investment income (0.26) (0.28) (0.38) (0.45) (0.50)
Net realized gain (0.06) (0.23) (0.35) (0.82) (1.13)
Total distributions (0.32) (0.51) (0.73) (1.27) (1.63)
NET ASSET VALUE
End of period $ 17.50 $ 14.21 $ 14.64 $ 13.95 $ 12.51
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Ratios/Supplemental Data
Total return^ 25.47% 0.54%* 10.26% 22.17% 7.07%
Ratio of total expenses
to average net assets 0.83% 0.85% 0.86% 0.87% 0.88%
Ratio of net investment
income (loss) to average
net assets 1.85% 2.39% 2.85% 3.22% 3.44%
Portfolio turnover rate 17.9% 17.6% 25.1% 32.4% 28.3%
Net assets,
end of period
(in millions) $ 2,942 $ 1,853 $ 1,405 $ 914 $ 856
* Includes 0.07% effect of payment from the manager - See Note 4.
^ 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.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Capital Appreciation Fund
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Certified Annual Report December 31, 2003
Portfolio of Investments (ss.) Shares/Par Value
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($ 000s)
COMMON STOCKS 64.1%
CONSUMER DISCRETIONARY 10.4%
Hotels, Restaurants & Leisure 0.9%
Mandalay Resort Group 320,000 14,310
Marriott, Class A 260,000 12,012
26,322
Household Durables 2.6%
Fortune Brands 420,000 30,026
Newell Rubbermaid 2,095,000 47,703
77,729
Leisure Equipment & Products 0.5%
Hasbro 660,000 14,045
14,045
Media 4.9%
Comcast, Class A * 622,414 20,459
Disney 587,000 13,695
Meredith 585,000 28,554
New York Times, Class A 400,000 19,116
Time Warner * 1,350,000 24,286
Washington Post, Class B 48,000 37,987
144,097
Specialty Retail 1.5%
GAP 500,000 11,605
Home Depot 855,000 30,344
Petrie Stores Liquidation Trust * 2,585,000 1,719
43,668
Total Consumer Discretionary 305,861
CONSUMER STAPLES 2.8%
Food & Staples Retailing 1.0%
CVS 861,000 31,100
31,100
Tobacco 1.8%
Altria Group 822,000 44,733
Loews 289,500 7,307
52,040
Total Consumer Staples 83,140
ENERGY 6.7%
Energy Equipment & Services 1.0%
Baker Hughes 920,000 29,587
29,587
Oil & Gas 5.7%
Amerada Hess 920,000 48,917
ChevronTexaco 246,300 21,278
Devon Energy 203,150 11,632
Imperial Oil 384,000 17,057
Marathon Oil 825,000 27,299
Murphy Oil 610,000 39,839
166,022
Total Energy 195,609
FINANCIALS 7.3%
Insurance 7.3%
Hartford Financial Services 192,700 11,375
Loews 611,000 30,214
Marsh & McLennan 1,050,000 50,285
Prudential 661,000 27,610
SAFECO 1,018,000 39,631
St. Paul Companies 531,000 21,054
UnumProvident 696,500 10,984
White Mountains Insurance Group 51,700 23,779
Total Financials 214,932
HEALTH CARE 4.2%
Health Care Equipment & Supplies 0.7%
Baxter International 717,000 21,883
21,883
Pharmaceuticals 3.5%
Bristol-Myers Squibb 617,000 17,646
Merck 806,000 37,237
Schering-Plough 1,212,000 21,077
Wyeth 618,000 26,234
102,194
Total Health Care 124,077
INDUSTRIALS & BUSINESS SERVICES 8.1%
Aerospace & Defense 0.9%
Honeywell International 761,000 25,440
25,440
Air Freight & Logistics 2.1%
Ryder System 1,820,000 62,153
62,153
Commercial Services & Supplies 2.1%
R.R. Donnelley 400,000 12,060
ServiceMaster 2,485,000 28,950
Waste Management 750,000 22,200
63,210
Industrial Conglomerates 2.0%
3M 302,000 25,679
Tyco International 1,263,000 33,470
59,149
Marine 0.4%
Overseas Shipholding Group 309,000 10,521
10,521
Road & Rail 0.6%
Burlington Northern Santa Fe 593,000 19,184
19,184
Total Industrials & Business Services 239,657
INFORMATION TECHNOLOGY 2.9%
Communications Equipment 0.6%
Motorola 1,180,000 16,603
16,603
Computer & Peripherals 1.1%
Hewlett-Packard 1,421,000 32,640
32,640
IT Services 0.6%
Electronic Data Systems 750,000 18,405
18,405
Semiconductor & Semiconductor Equipment 0.6%
Texas Instruments 600,000 17,628
17,628
Total Information Technology 85,276
MATERIALS 13.4%
Chemicals 5.1%
Agrium 1,843,100 30,338
Cabot * 230,000 7,323
Dow Chemical 340,000 14,134
DuPont 160,000 7,342
Great Lakes Chemical 830,000 22,568
Hercules * 145,000 1,769
IMC Global 169,000 1,678
Imperial Chemical ADR 585,000 8,377
Octel ! 990,000 19,493
Potash Corp./Saskatchewan 440,000 38,051
151,073
Containers & Packaging 0.1%
Longview Fibre 222,000 2,742
2,742
Metals & Mining 7.1%
Alcoa 430,000 16,340
Newmont Mining 2,295,000 111,560
Nucor 655,000 36,680
Phelps Dodge 572,000 43,523
208,103
Paper & Forest Products 1.1%
MeadWestvaco 120,000 3,570
Potlatch 710,000 24,687
Weyerhaeuser 50,000 3,200
31,457
Total Materials 393,375
TELECOMMUNICATION SERVICES 1.7%
Diversified Telecommunication Services 1.7%
Sprint 1,335,000 21,921
Verizon Communications 780,000 27,362
Total Telecommunication Services 49,283
UTILITIES 6.6%
Electric Utilities 4.3%
FirstEnergy 1,376,946 48,468
Pinnacle West Capital 296,000 11,846
PPL 320,572 14,025
TXU 1,075,000 25,499
Unisource Energy 1,139,000 28,088
127,926
Gas Utilities 0.4%
NiSource 547,000 12,001
12,001
Multi-Utilities & Unregulated Power 1.9%
Duke Energy 2,195,000 44,888
El Paso Energy 1,220,000 9,992
54,880
Total Utilities 194,807
Total Common Stocks (Cost $1,385,607) 1,886,017
CONVERTIBLE PREFERRED STOCKS 6.3%
Amerada Hess * 270,000 14,620
Baxter International 55,000 3,039
El Paso Energy Capital Trust I 127,000 4,286
Ford Motor Company Capital Trust II 435,000 24,295
Hercules Trust II 6,500 5,200
IMC Global 190,100 14,094
Newell Financial Trust I 330,000 15,042
Owens-Illinois 325,000 10,351
Rouse 582,000 35,677
Scottish RE Group * 560,000 15,123
Travelers Property Casualty 685,000 16,782
Unocal Capital Trust 435,000 22,834
UnumProvident 110,000 3,725
Total Convertible Preferred Stocks (Cost $158,473) 185,068
PREFERRED STOCKS 0.1%
Entergy-GSU 15,451 791
Pacific Gas & Electric * 20,000 601
Southern California Edison 5,000 489
Total Preferred Stocks (Cost $1,028) 1,881
CONVERTIBLE BONDS 8.2%
America Online, Zero Coupon, 12/6/19 18,000,000 11,339
Corning, Zero Coupon, 11/8/15 38,500,000 29,759
Crown Castle International, 4.00%, 7/15/10 ! 11,200,000 14,970
Duane Reade, 2.1478%, 4/16/04 9,215,000 5,220
GAP, 144A, 5.75%, 3/15/09 6,000,000 9,215
Inco, LYONs, 144A, Zero Coupon, 3/29/21 2,500,000 2,693
Liberty Media, Class B, 3.25%, 3/15/31 7,900,000 8,203
Loews, 3.125%, 9/15/07 24,100,000 22,967
Lowes, LYONs, 144A, Zero Coupon, 2/16/21 3,500,000 3,194
Lucent Technologies, 8.00%, 8/1/31 27,700,000 29,693
Oak Industries, 4.875%, 3/1/08 2,800,000 2,764
Roche Holdings, LYONs,
144A, Zero Coupon, 5/6/12 - 7/25/21 91,000,000 55,610
Scottish Annuity & Life, 4.50%, 12/1/22 1,453,000 1,700
Teck, 3.75%, 7/15/06 18,600,000 17,521
Tyco International
144A, 2.75%, 1/15/18 8,250,000 10,575
144A, 3.125%, 1/15/23 4,125,000 5,656
USF&G, Zero Coupon, 3/3/09 15,550,000 12,403
Total Convertible Bonds (Cost $209,622) 243,482
CORPORATE BONDS 0.6%
BellSouth Telecommunications, 5.85%, 11/15/45 3,000,000 2,788
Potlatch, 10.00%, 7/15/11 3,000,000 3,360
XM Satellite Radio
12.00%, 6/15/10 5,375,000 6,087
STEP, 14.00%, 12/31/09 6,000,000 5,370
Total Corporate Bonds (Cost $16,631) 17,605
U.S. GOVERNMENT AGENCY OBLIGATIONS
(EXCLUDING MORTGAGE-BACKED) 2.1%
U.S. Government Agency Obligations (+/-) 0.4%
Federal National Mortgage Assn., 5.125%, 2/13/04 11,000,000 11,050
U.S. Treasury Obligations 1.7%
3.00%, 1/31 - 2/29/04 50,000,000 50,117
Total U.S. Government Agency Obligations
(excluding Mortgage-Backed) (Cost $60,977) 61,167
SHORT-TERM INVESTMENTS 18.1%
Money Market Fund 18.1%
T. Rowe Price Reserve Investment Fund, 1.13% #! 531,720,116 531,720
Total Short-Term Investments (Cost $531,720) 531,720
Total Investments in Securities
99.5% of Net Assets (Cost $2,364,058) $2,926,940
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(ss.) Denominated in USD unless otherwise noted
# Seven-day yield
* Non-income producing
(+/-) The issuer is a publicly-traded company that operates under a
congressional charter; its securities are neither issued nor guaranteed by
the U.S. government.
! Affiliated company-See Note 2.
144A Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be resold in transactions exempt from registration only to
qualified institutional buyers-total of such securities at period-end
amounts to $86,943,000 and represents 3.0% of net assets.
ADR American Depository Receipts
LYONs Liquid Yield Option Notes
STEP Stepped coupon bond for which the coupon rate of interest will adjust on
specified future date.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Capital Appreciation Fund
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Certified Annual Report December 31, 2003
Statement of Assets and Liabilities
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($ 000s)
Assets
Investments in securities, at value
Affiliated companies (cost $558,019) $ 566,183
Other companies (cost $ 1,806,039) 2,360,757
Total investments in securities 2,926,940
Other assets 19,066
Total assets 2,946,006
Liabilities
Total liabilities 4,171
NET ASSETS $ 2,941,835
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Net Assets Consist of:
Undistributed net realized gain (loss) $ 12,059
Net unrealized gain (loss) 562,882
Paid-in-capital applicable to 168,068,461 shares of
no par value capital stock outstanding;
shares authorized 2,366,894
NET ASSETS $ 2,941,835
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NET ASSET VALUE PER SHARE $ 17.50
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The accompanying notes are an integral part of these financial statements.
T. Rowe Price Capital Appreciation Fund
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Certified Annual Report
Statement of Operations
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($ 000s)
Year
Ended
12/31/03
Investment Income (Loss)
Income
Dividend $ 43,752
Interest 15,796
Other 299
Total income 59,847
Expenses
Investment management 13,817
Shareholder servicing 4,113
Prospectus and shareholder reports 285
Custody and accounting 180
Registration 121
Legal and audit 20
Trustees 15
Miscellaneous 20
Total expenses 18,571
Expenses paid indirectly (6)
Net expenses 18,565
Net investment income (loss) 41,282
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 25,915
Foreign currency transactions (13)
Net realized gain (loss) 25,902
Change in net unrealized gain (loss)
Securities 473,578
Other assets and liabilities
denominated in foreign currencies 1
Change in net unrealized gain (loss) 473,579
Net realized and unrealized gain (loss) 499,481
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 540,763
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The accompanying notes are an integral part of these financial statements.
T. Rowe Price Capital Appreciation Fund
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Certified Annual Report
Statement of Changes in Net Assets
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($ 000s)
Year
Ended
12/31/03 12/31/02
Increase (Decrease) in Net Assets
Operations
Net investment income $ 41,282 $ 41,263
Net realized gain (loss) 25,902 31,711
Change in net unrealized gain or loss 473,579 (81,727)
Increase (decrease) in net assets from operations 540,763 (8,753)
Distributions to shareholders
Net investment income (42,429) (35,158)
Net realized gain (9,792) (28,874)
Decrease in net assets from distributions (52,221) (64,032)
Capital share transactions *
Shares sold 966,031 864,987
Distributions reinvested 49,785 61,219
Shares redeemed (415,757) (405,597)
Increase (decrease) in net assets from capital
share transactions 600,059 520,609
Net Assets
Increase (decrease) during period 1,088,601 447,824
Beginning of period 1,853,234 1,405,410
End of period $ 2,941,835 $ 1,853,234
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*Share information
Shares sold 62,005 57,771
Distributions reinvested 2,923 4,302
Shares redeemed (27,232) (27,730)
Increase (decrease) in shares outstanding 37,696 34,343
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Capital Appreciation Fund
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Certified Annual Report December 31, 2003
Notes to Financial Statements
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NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Capital Appreciation Fund (the fund) is registered under the
Investment Company Act of 1940 (the 1940 Act) as a diversified, open-end
management investment company and commenced operations on June 30, 1986. The
fund seeks maximum long-term capital appreciation by investing primarily in
common stocks, and it may also hold fixed-income and other securities to help
preserve principal value in uncertain or declining markets.
The accompanying financial statements were prepared in accordance with
accounting principles generally accepted in the United States of America, which
require the use of estimates made by fund management.
Valuation
The fund values its investments and computes its net asset value per share at
the close of the New York Stock Exchange (NYSE), normally 4 p.m. ET, each day
that the NYSE is open for business. Equity securities listed or regularly traded
on a securities exchange or in the over-the-counter market are valued at the
last quoted sale price, or official closing price for certain markets, at the
time the valuations are made. A security that 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 are valued at the mean of the latest bid and ask prices for domestic
securities and the last quoted sale price for international securities.
Debt securities are generally traded in the over-the-counter market. Securities
with original maturities of one year or more are valued at prices furnished by
dealers who make markets in such securities or by an independent pricing
service, which considers yield or price of bonds of comparable quality, coupon,
maturity, and type, as well as prices quoted by dealers who make markets in such
securities. Securities with original maturities of less than one year are valued
at amortized cost in local currency, which approximates fair value when combined
with accrued interest.
Investments in mutual funds are valued at the mutual fund's closing net asset
value per share on the day of valuation.
Other investments and those 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 the T. Rowe Price Valuation Committee,
established by the fund's Board of Trustees.
Most foreign markets close before the NYSE. Normally, developments that could
affect the values of securities that occur between the close of a foreign market
and the close of the NYSE will not be reflected in security valuations used by
the fund to compute its share price. However, if developments are so significant
that they will, in the judgment of the fund, clearly and materially affect
security values, such valuations may be adjusted to reflect the estimated fair
value of the securities as of the close of the NYSE, as determined in good faith
by the T. Rowe Price Valuation Committee, established by the fund's Board of
Trustees.
Currency Translation
Assets, including investments, and liabilities denominated in foreign currencies
are translated into U.S. dollar values each day at the prevailing exchange rate,
using the mean of the bid and ask prices of such currencies against U.S. dollars
as quoted by a major bank. Purchases and sales of securities, income, and
expenses are translated into U.S. dollars at the prevailing exchange rate on the
date of the transaction. The effect of changes in foreign currency exchange
rates on realized and unrealized security gains and losses is reflected as a
component of security gains and losses.
Rebates and Credits
Subject to best execution, the fund may direct certain security trades to
brokers who have agreed to rebate a portion of the related brokerage commission
to the fund in cash. Commission rebates are included in realized gain on
securities in the accompanying financial statements and totaled $66,000 for the
year ended December 31, 2003. Additionally, the fund earns credits on
temporarily uninvested cash balances at the custodian that reduce the fund's
custody charges. Custody expense in the accompanying financial statements is
presented before reduction for credits, which are reflected as expenses paid
indirectly.
Investment Transactions, Investment Income, and Distributions
Income and expenses are recorded on the accrual basis. Premiums and discounts on
debt securities are amortized for financial reporting purposes. Dividends
received from mutual fund investments are reflected as dividend income; capital
gain distributions are reflected as realized gain/loss. Dividend income and
capital gain distributions are recorded on the ex-dividend date. Investment
transactions are accounted for on the trade date. Realized gains and losses are
reported on the identified cost basis. Distributions to shareholders are
recorded on the ex-dividend date. Income distributions are declared and paid on
an annual basis. Capital gain distributions, if any, are typically declared and
paid on an annual basis.
Other
In the normal course of business, the fund enters into contracts that provide
general indemnifications. The fund's maximum exposure under these arrangements
is dependent on claims that may be made against the fund in the future and,
therefore, cannot be estimated; however, based on experience, the risk of
material loss from such claims is considered remote.
NOTE 2 - INVESTMENT TRANSACTIONS
Consistent with its investment objective, the fund engages in the following
practice 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.
Affiliated Companies
The fund may invest in certain securities that are considered affiliated
companies. As defined by the 1940 Act, an affiliated company is one in which the
fund owns 5% or more of the outstanding voting securities. At December 31, 2003,
the value of affiliated companies totaled $566,183,000, representing 19.3% of
the value of the fund's investments in securities. For the year then ended,
$4,164,000 (9.5%) of dividend income, and $215,000 (1.4%) of interest income,
reflected in the accompanying financial statements resulted from the fund's
transactions with affiliated companies.
Other
Purchases and sales of portfolio securities, other than short-term and U.S.
government securities, aggregated $539,489,000 and $277,248,000, respectively,
for the year ended December 31, 2003. Sales of U.S. government securities
aggregated $61,000,000 for the year ended December 31, 2003.
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 under Subchapter M of the
Internal Revenue Code and distribute to shareholders all of its taxable income
and gains. Federal income tax regulations differ from generally accepted
accounting principles; therefore, distributions determined in accordance with
tax regulations may differ significantly in amount or character from net
investment income and realized gains for financial reporting purposes. Financial
reporting records are adjusted for permanent book/tax differences to reflect tax
character. Financial records are not adjusted for temporary differences.
Distributions during the year ended December 31, 2003 were characterized as
follows for tax purposes:
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Ordinary income $ 44,062,000
Long-term capital gain 8,159,000
Total distributions $ 52,221,000
----------------
At December 31, 2003, the tax-basis components of net assets were as follows:
- --------------------------------------------------------------------------------
Unrealized appreciation $ 629,469,000
Unrealized depreciation (66,587,000)
Net unrealized appreciation (depreciation) 562,882,000
Undistributed long-term capital gain 12,059,000
Paid-in capital 2,366,894,000
Net assets $ 2,941,835,000
-----------------
For the year ended December 31, 2003, the fund recorded the following permanent
reclassifications to reflect tax character. Reclassifications to paid-in capital
relate primarily to a tax practice that treats a portion of the proceeds from
each redemption of capital shares as a distribution of taxable net investment
income and/or realized capital gain. Results of operations and net assets were
not affected by these reclassifications.
- --------------------------------------------------------------------------------
Undistributed net investment income $ 461,000
Undistributed net realized gain (3,931,000)
Paid-in capital 3,470,000
At December 31, 2003, the cost of investments for federal income tax purposes
was $2,364,058,000.
NOTE 4 - RELATED PARTY TRANSACTIONS
The fund is managed by T. Rowe Price Associates, Inc. (the manager or Price
Associates), a wholly owned subsidiary of T. Rowe Price Group, Inc. The
investment management agreement between the fund and the manager provides for an
annual investment management fee, which is computed daily and paid monthly. The
fee consists of an individual fund fee, equal to 0.30% of the fund's average
daily net assets, and the fund's pro-rata share of a group fee. The group fee is
calculated based on the combined net assets of certain mutual funds sponsored by
Price Associates (the group) applied to a graduated fee schedule, with rates
ranging from 0.48% for the first $1 billion of assets to 0.295% for assets in
excess of $120 billion. The fund's portion of the group fee is determined by the
ratio of its average daily net assets to those of the group. At December 31,
2003, the effective annual group fee rate was 0.32%, and investment management
fee payable totaled $1,482,000.
In addition, the fund has entered into service agreements with Price Associates
and two wholly owned subsidiaries of Price Associates (collectively, Price).
Price Associates computes the daily share price and maintains the financial
records of the fund. T. Rowe Price Services, Inc., provides shareholder and
administrative services in its capacity as the fund's transfer and dividend
disbursing agent. T. Rowe Price Retirement Plan Services, Inc., provides
subaccounting and recordkeeping services for certain retirement accounts
invested in the fund. Expenses incurred pursuant to these service agreements
totaled $3,087,000 for the year ended December 31, 2003, of which $310,000 was
payable at period-end.
The fund may invest in the T. Rowe Price Reserve Investment Fund and the T. Rowe
Price Government Reserve Investment Fund (collectively, the Reserve Funds),
open-end management investment companies managed by Price Associates. The
Reserve Funds are offered as cash management options only to mutual funds,
trusts, and other accounts managed by Price Associates and/or its affiliates,
and are not available to the public. The Reserve Funds pay no investment
management fees. During the year ended December 31, 2003, dividend income from
the Reserve Funds totaled $4,115,000.
On October 1, 2002, Price Associates paid the fund $1.3 million to fully
reimburse the effect of not exercising a put option on a convertible bond. The
payment increased total return for the year ended December 31, 2002 by 0.07%.
T. Rowe Price Capital Appreciation Fund
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Certified Annual Report
Report of Independent Auditors
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To the Board of Trustees and Shareholders of
T. Rowe Price Capital Appreciation Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, 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 Appreciation
Fund (the "Fund") at December 31, 2003, 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 of America. 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 of America, 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, 2003 by correspondence with the custodian, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
January 26, 2004
T. Rowe Price Capital Appreciation Fund
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Certified Annual Report
Tax Information (Unaudited) for the Tax Year Ended 12/31/03
- --------------------------------------------------------------------------------
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 include:
o $4,425,000 from short-term capital gains
o $9,297,000 from long-term capital gains, of which $6,541,000 was subject to
the 15% rate gains category, and $2,756,000 to the 20% rate gains category.
For taxable non-corporate shareholders, $33,367,000 of the fund's income and
short-term capital gains represents qualified dividend income subject to the 15%
rate category.
For corporate shareholders, $32,097,000 of the fund's income and
short-term capital gains qualified for the dividends-received deduction.
Information on Proxy Voting
- --------------------------------------------------------------------------------
A description of the policies and procedures that the T. Rowe Price Capital
Appreciation Fund uses to determine how to vote proxies relating to portfolio
securities is available, without charge, upon request by calling 1-800-225-5132.
It also appears in the fund's Statement of Additional Information (Form 485B),
which can be found on the SEC's Web site, www.sec.gov.
T. Rowe Price Capital Appreciation Fund
- --------------------------------------------------------------------------------
Certified Annual Report
About the Fund's Trustees and Officers
- --------------------------------------------------------------------------------
Your fund is governed by a Board of Trustees that meets regularly to review
investments, performance, expenses, and other business matters, and is
responsible for protecting the interests of shareholders. The majority of the
fund's trustees are independent of T. Rowe Price Associates, Inc. (T. Rowe
Price); "inside" trustees are officers of T. Rowe Price. The Board of Trustees
elects the fund's officers, who are listed in the final table. The business
address of each trustee and officer is 100 East Pratt Street, Baltimore, MD
21202. The Statement of Additional Information includes additional information
about the fund trustees and is available without charge by calling a T. Rowe
Price representative at 1-800-225-5132.
Independent Trustees
Name
(Date of Birth) Principal Occupation(s) During Past 5 Years
Year Elected * and Directorships of Other Public Companies
Anthony W. Deering Director, Chairman of the Board, President, and
(1/28/45) Chief Executive Officer, The Rouse Company,
2001 real estate developers; Director, Mercantile Bank
(4/03 to present)
Donald W. Dick, Jr. Principal, EuroCapital Advisors, LLC, an
(1/27/43) acquisition and management advisory firm
1986
David K. Fagin Director, Golden Star Resources Ltd., Canyon
(4/9/38) Resources Corp. (5/00 to present), and Pacific Rim
1988 Mining Corp. (2/02 to present); Chairman and
President, Nye Corp.
Karen N. Horn Managing Director and President, Global Private
(9/21/43) Client Services, Marsh Inc.; Managing Director
2003 and Head of International Private Banking,
Bankers Trust; Director, Eli Lilly and Company
F. Pierce Linaweaver President, F. Pierce Linaweaver & Associates,
(8/22/34) Inc., consulting environmental and civil engineers
2001
John G. Schreiber Owner/President, Centaur Capital Partners, Inc.,
(10/21/46) a real estate investment company; Senior Advisor
2001 and Partner, Blackstone Real Estate Advisors,
L.P.; Director, AMLI Residential Properties Trust,
Host Marriott Corp., and The Rouse Company
Hubert D. Vos ** Owner/President, Stonington Capital Corp.,
(8/2/33) a private investment company
1986
Paul M. Wythes ** Founding Partner, Sutter Hill Ventures, a
(6/23/33) venture capital limited partnership, providing
1994 equity capital to young high-technology companies
throughout the United States; Director,
Teltone Corp.
* Each independent trustee oversees 107 T. Rowe Price portfolios and serves
until retirement, resignation, or election of a successor.
** Retired from Board of Trustees effective December 31, 2003.
Inside Trustees
Name
(Date of Birth)
Year Elected *
[Number of T. Rowe Price Principal Occupation(s) During Past 5 Years and
Portfolios Overseen] Directorships of Other Public Companies
James A.C. Kennedy, CFA Director and Vice President, T. Rowe
(8/15/53) Price and T. Rowe Price Group, Inc.
1997
[39]
James S. Riepe Director and Vice President, T. Rowe Price;
(6/25/43) Vice Chairman of the Board, Director, and
1986 Vice President, T. Rowe Price Group, Inc.;
[107] Chairman of the Board and Director, T. Rowe Price
Global Asset Management Limited, T. Rowe Price
Global Investment Services Limited, T. Rowe Price
Investment Services, Inc., T. Rowe Price
Retirement Plan Services, Inc., and T. Rowe Price
Services, Inc.; Chairman of the Board, Director,
President, and Trust Officer, T. Rowe Price Trust
Company; Director, T. Rowe Price International,
Inc.; Chairman of the Board, Capital
Appreciation Fund
M. David Testa, CFA, CIC Chief Investment Officer, Director, and Vice
(4/22/44) President, T. Rowe Price; Vice Chairman of the
1997 Board, Chief Investment Officer, Director, and
[107] Vice President, T. Rowe Price Group, Inc.;
Chairman of the Board and Director, T. Rowe Price
International, Inc.; Director, T. Rowe Price
Global Asset Management Limited and T. Rowe Price
Global Investment Services Limited; Director and
Vice President, T. Rowe Price Trust Company; Vice
President, Capital Appreciation Fund
* Each inside trustees serves until retirement, resignation, or election of a
successor.
Officers
Name (Date of Birth)
Title and Fund(s) Served Principal Occupation(s)
Stephen W. Boesel (12/28/44) Vice President, T. Rowe Price, T. Rowe
President, Capital Appreciation Fund Price Group, Inc., and T. Rowe Price
Trust Company
Stephen V. Booth (6/21/61) Vice President, T. Rowe Price, T. Rowe
Vice President, Capital Price Group, Inc., and T. Rowe Price
Appreciation Fund Trust Company
Andrew M. Brooks (2/16/56) Vice President, T. Rowe Price and
Vice President, Capital T. Rowe Price Group, Inc.
Appreciation Fund
Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe
Price International for at least five years.
Officers (continued)
Name (Date of Birth)
Title and Fund(s) Served Principal Occupation(s)
Joseph A. Carrier (12/30/60) Vice President, T. Rowe Price, T. Rowe
Treasurer, Capital Appreciation Fund Price Group, Inc., and T. Rowe Price
Investment Services, Inc.
Arthur B. Cecil III, CFA (9/15/42) Vice President, T. Rowe Price and
Vice President, Capital T. Rowe Price Group, Inc.
Appreciation Fund
Roger L. Fiery III, CPA (2/10/59) Vice President, T. Rowe Price, T. Rowe
Vice President, Capital Price Group, Inc., T. Rowe Price
Appreciation Fund International, Inc., and T. Rowe Price
Trust Company
David R. Giroux, CPA (6/8/75) Vice President, T. Rowe Price and
Vice President, Capital T. Rowe Price Group, Inc.
Appreciation Fund
Henry H. Hopkins (12/23/42) Director and Vice President, T. Rowe
Vice President, Capital Price Group, Inc., T. Rowe Price
Appreciation Fund Investment Services, Inc., T. Rowe
Price Services, Inc., and T. Rowe Price
Trust Company; Vice President, T. Rowe
Price, T. Rowe Price International,
Inc., and T. Rowe Price Retirement
Plan Services, Inc.
David M. Lee, CFA (11/13/62) Vice President, T. Rowe Price and
Vice President, Capital T. Rowe Price Group, Inc.
Appreciation Fund
Patricia B. Lippert (1/12/53) Assistant Vice President, T. Rowe Price
Secretary, Capital Appreciation Fund and T. Rowe Price Investment
Services, Inc.
Heather K. McPherson, CPA (12/3/60) Employee, T. Rowe Price; formerly
Vice President, Capital Intern, Salomon Smith Barney (to 2001);
Appreciation Fund Vice President of Finance and
Administration, Putnam Lovell
Securities, Inc. (to 2000)
Charles M. Ober, CFA (4/20/50) Vice President, T. Rowe Price and
Vice President, Capital T. Rowe Price Group, Inc.
Appreciation Fund
Brian C. Rogers, CFA, CIC (6/27/55) Director and Vice President, T. Rowe
Vice President, Capital Price Group, Inc.; Vice President,
Appreciation Fund T. Rowe Price and T. Rowe Price Trust
Company
Robert M. Rubino, CPA (8/2/53) Vice President, T. Rowe Price and
Vice President, Capital T. Rowe Price Group, Inc.
Appreciation Fund
David J. Wallack (7/2/60) Vice President, T. Rowe Price and
Vice President, Capital T. Rowe Price Group, Inc.
Appreciation Fund
Julie L. Waples (5/12/70) Vice President, T. Rowe Price
Vice President, Capital
Appreciation Fund
Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe
Price International for at least five years.
Item 2. Code of Ethics.
As of the end of the period covered by this report, the registrant has adopted a
code of ethics, as defined in Item 2 of Form N-CSR, applicable to its principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. A copy of this code of
ethics is filed as an exhibit to this Form N-CSR. No substantive amendments were
approved or waivers were granted to this code of ethics during the period
covered by this report.
Item 3. Audit Committee Financial Expert.
The registrant's Board of Directors/Trustees has determined that Mr. David K.
Fagin qualifies as an audit committee financial expert, as defined in Item 3 of
Form N-CSR. Mr. Fagin is considered independent for purposes of Item 3 of Form
N-CSR.
Item 4. Principal Accountant Fees and Services.
(a) - (d) Aggregate fees billed to the registrant for the last two fiscal years
for professional services rendered by the registrant's principal accountant were
as follows:
2003 2002
Audit Fees $11,654 $10,070
Audit-Related Fees 706 --
Tax Fees 3,027 2,438
All Other Fees 124 168
Audit fees include amounts related to the audit of the registrant's annual
financial statements and services normally provided by the accountant in
connection with statutory and regulatory filings. Audit-related fees include
amounts reasonably related to the performance of the audit of the registrant's
financial statements, specifically the issuance of a report on internal
controls. Tax fees include amounts related to tax compliance, tax planning, and
tax advice. Other fees include the registrant's pro-rata share of amounts for
agreed-upon procedures in conjunction with service contract approvals by the
registrant's Board of Directors/Trustees.
(e)(1) The registrant's audit committee has adopted a policy whereby audit and
non-audit services performed by the registrant's principal accountant for the
registrant, its investment adviser, and any entity controlling, controlled by,
or under common control with the investment adviser that provides ongoing
services to the registrant require pre-approval in advance at regularly
scheduled audit committee meetings. If such a service is required between
regularly scheduled audit committee meetings, pre-approval may be authorized by
one audit committee member with ratification at the next scheduled audit
committee meeting. Waiver of pre-approval for audit or non-audit services
requiring fees of a de minimis amount is not permitted.
(2) No services included in (b) - (d) above were approved pursuant to
paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not applicable.
(g) The aggregate fees billed for the most recent fiscal year and the preceding
fiscal year by the registrant's principal accountant for non-audit services
rendered to the registrant, its investment adviser, and any entity controlling,
controlled by, or under common control with the investment adviser that provides
ongoing services to the registrant were $719,000 and $671,000, respectively, and
were less than the aggregate fees billed for those same periods by the
registrant's principal accountant for audit services rendered to the T. Rowe
Price Funds.
(h) All non-audit services rendered in (g) above were pre-approved by the
registrant's audit committee. Accordingly, these services were considered by the
registrant's audit committee in maintaining the principal accountant's
independence.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 9. Controls and Procedures.
(a) The registrant's principal executive officer and principal financial officer
have evaluated the registrant's disclosure controls and procedures within 90
days of this filing and have concluded that the registrant's disclosure controls
and procedures were effective, as of that date, in ensuring that information
required to be disclosed by the registrant in this Form N-CSR was recorded,
processed, summarized, and reported timely.
(b) The registrant's principal executive officer and principal financial officer
are aware of no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 10. Exhibits.
(a)(1) The registrant's code of ethics pursuant to Item 2 of Form N-CSR is
attached.
(a)(2) Separate certifications by the registrant's principal executive officer
and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 and required by Rule 30a-2(a) under the Investment Company Act of
1940, are attached.
(b) A certification by the registrant's principal executive officer and
principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940,
is attached.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
T. Rowe Price Capital Appreciation Fund
By /s/ James S. Riepe
James S. Riepe
Principal Executive Officer
Date February 13, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ James S. Riepe
James S. Riepe
Principal Executive Officer
Date February 13, 2004
By /s/ Joseph A. Carrier
Joseph A. Carrier
Principal Financial Officer
Date February 13, 2004