Item 1. Report to Shareholders
T. Rowe Price Capital Opportunity Fund
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June 30, 2004
Certified Semiannual 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 Opportunity Fund
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Certified Semiannual Report (Unaudited)
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
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6 Months Year
Ended Ended
6/30/04 12/31/03 12/31/02 12/31/01 12/31/00 12/31/99
NET ASSET VALUE
Beginning of
period $ 12.03 $ 9.23 $ 11.91 $ 13.26 $ 15.69 $ 18.11
Investment
activities
Net investment
income (loss) 0.01* 0.03 0.03 0.01 (0.01) (0.01)
Net realized
and unrealized
gain (loss) 0.47 2.81 (2.68) (1.35) (0.94) 1.86
Total from
investment
activities 0.48 2.84 (2.65) (1.34) (0.95) 1.85
Distributions
Net investment
income - (0.04) (0.03) (0.01) - -
Net realized
gain - - - - (1.48) (4.27)
Total
distributions - (0.04) (0.03) (0.01) (1.48) (4.27)
NET ASSET VALUE
End of period $ 12.51 $ 12.03 $ 9.23 $ 11.91 $ 13.26 $ 15.69
--------------------------------------------------------------
Ratios/
Supplemental
Data
Total return^ 3.99%* 30.78% (22.25)% (10.10)% (6.32)% 11.50%
Ratio of
total expenses
to average
net assets 1.28%!* 1.41% 1.37% 1.25% 1.15% 1.26%
Ratio of net
investment income
(loss) to average
net assets 0.24%!* 0.30% 0.27% 0.08% (0.05)% (0.06)%
Portfolio
turnover rate 48.5%! 47.5% 48.2% 53.6% 64.7% 133.1%
Net assets,
end of period
(in thousands) $ 85,032 $ 75,835 $ 57,340 $ 76,786 $ 93,422 $ 109,057
^ 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 1.15% contractual expense limitation in
effect through 4/30/06, and a 1.35% contractual expense limitation in effect
through 4/30/05.
! Annualized
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Capital Opportunity Fund
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Certified Semiannual Report (Unaudited) June 30, 2004
PORTFOLIO OF INVESTMENTS (1) Shares/$ Par Value
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(Cost and value in $ 000s)
COMMON STOCKS 98.6%
CONSUMER DISCRETIONARY 10.6%
Auto Components 0.1%
TRW Automotive * 4,100 77
77
Automobiles 0.7%
GM 8,600 401
Harley-Davidson 2,700 167
568
Hotels, Restaurants & Leisure 1.8%
Carnival 6,200 291
Fairmont Hotels 1,400 38
International Game Technology 5,200 201
McDonald's 11,000 286
Multimedia Games * 3,500 94
Panera Bread, Class A * 4,700 169
Rare Hospitality International * 5,000 124
Starbucks * 3,200 139
Station Casinos 1,400 68
WMS Industries * 800 24
Yum! Brands * 2,300 85
1,519
Household Durables 0.6%
Fortune Brands 3,235 244
Newell Rubbermaid 10,100 238
Stanley Works 600 27
509
Internet & Catalog Retail 0.6%
eBay * 5,300 487
487
Leisure Equipment & Products 0.3%
Brunswick 3,500 143
Hasbro 6,700 127
270
Media 3.0%
Clear Channel Communications 6,100 226
Comcast, Class A * 2,200 62
Disney 2,000 51
EchoStar Communications, Class A * 5,500 169
Gannett 2,750 233
McGraw-Hill 1,500 115
Meredith 600 33
New York Times, Class A 2,200 98
News Corporation ADR 6,000 197
Scripps, Class A 600 63
Time Warner * 40,000 703
Viacom, Class B 15,100 540
Washington Post, Class B 87 81
2,571
Multiline Retail 1.1%
Dollar Tree Stores * 2,840 78
Family Dollar Stores 7,270 221
Kohl's * 2,600 110
Target 13,660 580
989
Specialty Retail 2.4%
Abercrombie & Fitch, Class A 4,700 182
Best Buy 3,150 160
Christopher & Banks 4,500 80
Home Depot 17,610 620
Lowe's 6,490 341
O'Reilly Automotive * 1,690 76
PETsMART 1,270 41
Ross Stores 7,000 187
Staples 3,490 102
TJX 9,300 225
2,014
Total Consumer Discretionary 9,004
CONSUMER STAPLES 10.3%
Beverages 2.7%
Anheuser-Busch 4,415 238
Coca-Cola 21,550 1,088
Cott * 4,800 155
PepsiCo 15,455 833
2,314
Food & Staples Retailing 2.8%
CVS 4,000 168
Sysco 5,700 204
Wal-Mart 30,540 1,611
Walgreen 10,400 377
2,360
Food Products 0.8%
Campbell Soup 5,040 135
General Mills 4,985 237
Heinz 1,345 53
Hershey Foods 2,200 102
Kellogg 3,340 140
667
Household Products 2.3%
Clorox 2,695 145
Colgate-Palmolive 4,035 236
Kimberly-Clark 3,400 224
Procter & Gamble 25,050 1,364
1,969
Personal Products 0.4%
Gillette 8,040 341
341
Tobacco 1.3%
Altria Group 21,420 1,072
1,072
Total Consumer Staples 8,723
ENERGY 6.5%
Energy Equipment & Services 1.2%
Baker Hughes 3,720 140
BJ Services * 1,340 61
FMC Technologies * 2,590 75
Grant Prideco * 4,800 89
Nabors Industries * 800 36
Schlumberger 6,540 415
Transocean, Class C * 5,740 166
982
Oil & Gas 5.3%
Anadarko Petroleum 2,154 126
ChevronTexaco 9,686 912
ConocoPhillips 5,830 445
Devon Energy 850 56
EOG Resources 1,170 70
Exxon Mobil 55,228 2,453
Murphy Oil 2,550 188
Occidental Petroleum 1,630 79
TotalFinaElf ADR 1,930 185
Williams Companies 1,600 19
4,533
Total Energy 5,515
FINANCIALS 20.2%
Capital Markets 4.2%
AmeriTrade * 29,100 330
E*TRADE Group * 15,600 174
Eaton Vance 2,000 76
Federated Investors, Class B 1,600 49
Franklin Resources 2,800 140
Goldman Sachs Group 4,300 405
Investor's Financial Services 4,800 209
J.P. Morgan Chase 17,200 667
Lehman Brothers 2,900 218
Mellon Financial 2,300 68
Merrill Lynch 8,400 453
Morgan Stanley 9,400 496
State Street 5,400 265
3,550
Commercial Banks 5.4%
Bank of America 12,698 1,075
Bank One 15,800 806
Comerica 14,100 774
First Horizon National 1,300 59
U.S. Bancorp 37,100 1,022
Wachovia 9,400 418
Wells Fargo 8,100 464
4,618
Consumer Finance 0.9%
American Express 10,000 514
SLM Corporation 6,000 242
756
Diversified Financial Services 2.5%
Citigroup 40,200 1,869
Moody's 1,400 91
Principal Financial Group 4,800 167
2,127
Insurance 5.2%
American International Group 21,000 1,497
Assurant 2,700 71
Conseco * 5,200 104
Genworth Financial, Class A * 8,500 195
Hartford Financial Services 3,300 227
Marsh & McLennan 4,700 213
Prudential 6,400 297
SAFECO 14,000 616
Saint Paul Companies 24,359 988
UnumProvident 6,100 97
XL Capital 1,100 83
4,388
Real Estate 0.4%
Duke Realty, REIT 4,000 127
Simon Property Group, REIT 1,500 77
United Dominion Realty Trust, REIT 5,200 103
307
Thrifts & Mortgage Finance 1.6%
Fannie Mae 6,300 450
Freddie Mac 8,900 563
MGIC Investment 2,600 197
Radian Group 4,100 197
1,407
Total Financials 17,153
HEALTH CARE 12.8%
Biotechnology 1.3%
Amgen * 11,500 628
Biogen Idec * 2,800 177
Cephalon * 1,060 57
Genentech * 1,840 103
Genzyme * 900 43
Gilead Sciences * 1,450 97
MedImmune * 2,010 47
1,152
Health Care Equipment & Supplies 2.3%
Bausch & Lomb 400 26
Baxter International 4,300 148
Becton, Dickinson 2,000 104
Biomet 2,100 93
Boston Scientific * 7,200 308
C. R. Bard 1,800 102
Guidant 3,000 168
Hospira * 900 25
Medtronic 9,300 453
St. Jude Medical * 2,000 151
Stryker 3,200 176
Zimmer Holdings * 1,900 168
1,922
Health Care Providers & Services 1.9%
AmerisourceBergen 900 54
Anthem * 1,900 170
Cardinal Health 3,800 266
Caremark RX * 4,200 138
HCA 4,400 183
Laboratory Corporation of America * 4,900 195
Medco * 1,342 50
UnitedHealth Group 8,400 523
1,579
Pharmaceuticals 7.3%
Abbott Laboratories 8,500 347
Eli Lilly 9,600 671
Forest Laboratories * 5,100 289
Johnson & Johnson 24,100 1,342
Merck 17,200 817
Pfizer 62,700 2,149
Schering-Plough 5,070 94
Taro Pharmaceuticals, Class A * 500 22
Watson Pharmaceuticals * 1,700 46
Wyeth 11,900 430
6,207
Total Health Care 10,860
INDUSTRIALS & BUSINESS SERVICES 10.9%
Aerospace & Defense 2.1%
Boeing 5,200 266
General Dynamics 1,300 129
Honeywell International 11,000 403
Lockheed Martin 6,000 312
Northrop Grumman 1,800 97
Raytheon 2,600 93
Rockwell Collins 3,900 130
United Technologies 4,000 366
1,796
Air Freight & Logistics 1.1%
Expeditors International of Washington 600 30
UPS, Class B 11,600 872
902
Airlines 0.1%
Southwest Airlines 7,100 119
119
Commercial Services & Supplies 0.8%
Apollo Group, Class A * 1,500 133
ChoicePoint * 1,300 59
Manpower 1,800 91
Pitney Bowes 1,900 84
Robert Half International 2,240 67
Waste Management 9,000 276
710
Industrial Conglomerates 5.1%
General Electric Capital 104,700 3,392
Roper Industries 1,600 91
Tyco International 25,700 852
4,335
Machinery 1.3%
Danaher 5,000 259
Deere 2,200 154
Illinois Tool Works 3,900 374
ITT Industries 700 58
PACCAR 2,000 116
Pall 3,800 100
1,061
Road & Rail 0.4%
Burlington Northern Santa Fe 5,400 189
CSX 5,100 167
356
Total Industrials & Business Services 9,279
INFORMATION TECHNOLOGY 17.8%
Communications Equipment 3.5%
Andrew * 1,000 20
Avaya * 3,300 52
Cisco Systems * 56,200 1,332
Comverse Technology * 1,300 26
Corning * 13,500 176
Emulex * 4,800 69
F5 Networks * 1,500 40
JDS Uniphase * 6,400 24
Juniper Networks * 1,500 37
Lucent Technologies * 16,000 60
Motorola 18,100 330
Nortel Networks * 3,900 19
QLogic * 5,400 144
QUALCOMM 6,300 460
Research In Motion * 2,800 192
2,981
Computers & Peripherals 3.3%
Dell * 36,100 1,293
Hewlett-Packard 16,800 355
IBM 10,800 952
Lexmark International, Class A * 2,200 212
2,812
Electronic Equipment & Instruments 0.4%
CDW 2,600 166
Digital Theater Systems * 3,200 84
Ingram Micro, Class A * 3,400 49
Jabil Circuit * 3,100 78
377
Internet Software & Services 1.3%
InterActiveCorp * 11,900 359
MatrixOne * 11,700 81
Monster Worldwide * 2,050 53
Yahoo! * 16,200 588
1,081
IT Services 1.2%
Affiliated Computer Services, Class A * 4,000 212
Automatic Data Processing 8,200 343
DST Systems * 4,050 195
First Data 4,500 200
Fiserv * 2,200 86
1,036
Semiconductor & Semiconductor Equipment 3.4%
Analog Devices 4,600 217
Applied Materials * 7,300 143
Intel 53,100 1,465
KLA-Tencor * 1,090 54
Linear Technology 4,200 166
Maxim Integrated Products 4,700 246
Novellus Systems * 4,400 138
Texas Instruments 8,300 201
Xilinx 6,600 220
2,850
Software 4.7%
Adobe Systems 1,900 88
Citrix Systems * 1,300 26
Intuit * 4,600 178
Mercury Interactive * 1,700 85
Microsoft 89,700 2,562
Moneygram International * 2,000 41
NetIQ * 5,600 74
Network Associates * 7,900 143
Oracle * 50,700 605
Siebel Systems * 3,200 34
VERITAS Software * 3,300 91
Verity * 5,000 68
3,995
Total Information Technology 15,132
MATERIALS 3.7%
Chemicals 1.4%
Agrium 7,800 113
Cabot 2,400 98
Dow Chemical 9,235 376
DuPont 4,800 213
Great Lakes Chemical 800 22
IMC Global 1,800 24
Millennium Chemicals * 4,700 81
Minerals Technologies 600 35
Potash Corp./Saskatchewan 2,200 213
1,175
Metals & Mining 1.7%
Alcoa 7,300 241
BHP Billiton (AUD) 8,500 74
International Steel * 2,800 83
Newmont Mining 6,800 264
Nucor 9,300 714
Steel Dynamics * 1,800 52
1,428
Paper & Forest Products 0.6%
Bowater 1,200 50
International Paper 5,200 232
MeadWestvaco 3,400 100
Potlatch 2,300 96
Weyerhaeuser 1,300 82
560
Total Materials 3,163
TELECOMMUNICATION SERVICES 3.2%
Diversified Telecommunication Services 1.9%
NTL * 2,600 150
Qwest Communications International * 12,100 43
SBC Communications 7,200 174
Sprint 25,900 456
Verizon Communications 21,600 782
1,605
Wireless Telecommunication Services 1.3%
Crown Castle International * 12,100 178
Nextel Communications, Class A * 18,700 499
NII Holdings, Class B * 3,200 108
Rogers Wireless Communications * 4,600 124
Spectrasite * 2,100 91
Western Wireless, Class A * 5,400 156
1,156
Total Telecommunication Services 2,761
UTILITIES 2.6%
Electric Utilities 2.0%
American Electric Power 3,100 99
Edison International 3,900 100
El Paso Electric * 4,300 67
Entergy 2,300 129
Exelon 5,700 190
FirstEnergy 7,600 284
PG&E * 5,300 148
Pinnacle West Capital 2,800 113
PPL 4,100 188
Southern Company 3,300 96
Teco Energy 5,100 61
TXU 6,000 243
1,718
Gas Utilities 0.1%
NiSource 6,100 126
126
Multi-Utilities & Unregulated Power 0.5%
Constellation Energy Group 1,900 72
Duke Energy 14,300 290
Dynegy, Class A * 10,400 44
406
Total Utilities 2,250
Total Common Stocks (Cost $73,750) 83,840
SHORT-TERM INVESTMENTS 1.5%
Money Market Fund 1.4%
T. Rowe Price Government Reserve
Investment Fund,1.04% # 1,144,043 1,144
1,144
U.S. Treasury Obligations 0.1%
U.S. Treasury Bills, 1.03%, 7/15/04 ++ 100,000 100
100
Total Short-Term Investments (Cost $1,244) 1,244
Total Investments in Securities
100.1% of Net Assets (Cost $74,994) $ 85,084
----------
Futures Contracts
($ 000s)
Contract Unrealized
Expiration Value Gain (Loss)
-------------- ----------- ------------
Long, 20 S&P 500 MINI
contracts, $80 par of
1.03% U.S. Treasury Bills
pledged as initial margin 9/04 $ 1,141 $ 9
Net payments (receipts)
of variation margin to date (5)
Variation margin receivable
(payable)on open futures
contracts $ 4
---------
(1) Denominated in U.S. dollars unless otherwise noted
# Seven-day yield
* Non-income producing
++ All or a portion of this security is pledged to cover margin requirements
on futures contracts at June 30, 2004.
ADR American Depository Receipts
AUD Australian dollar
REIT Real Estate Investment Trust
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Capital Opportunity Fund
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Certified Semiannual Report (Unaudited) June 30, 2004
STATEMENT OF ASSETS AND LIABILITIES
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(In thousands except shares and per share amounts)
Assets
Investments in securities, at value (cost $74,994) $ 85,084
Other assets 655
Total assets 85,739
Liabilities
Total liabilities 707
NET ASSETS $ 85,032
---------------
Net Assets Consist of:
Undistributed net investment income (loss) $ 94
Undistributed net realized gain (loss) (16,142)
Net unrealized gain (loss) 10,099
Paid-in-capital applicable to 6,796,356 shares
of $0.0001 par value capital stock outstanding;
1,000,000,000 shares authorized 90,981
NET ASSETS $ 85,032
---------------
NET ASSET VALUE PER SHARE $ 12.51
---------------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Capital Opportunity Fund
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Certified Semiannual Report (Unaudited)
STATEMENT OF OPERATIONS
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($ 000s)
6 Months
Ended
6/30/04
Investment Income (Loss)
Dividend income $ 595
Expenses
Investment management 261
Shareholder servicing 126
Custody and accounting 68
Prospectus and shareholder reports 24
Registration 19
Legal and audit 7
Directors 2
Miscellaneous 3
Reductions/repayments pursuant to expense limitation
Investment management fees (waived) repaid (9)
Total expenses 501
Net investment income (loss) 94
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 2,015
Futures 22
Net realized gain (loss) 2,037
Change in net unrealized gain (loss)
Securities 1,007
Futures (22)
Change in net unrealized gain (loss) 985
Net realized and unrealized gain (loss) 3,022
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 3,116
---------------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Capital Opportunity Fund
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Certified Semiannual Report (Unaudited)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
($ 000s)
6 Months Year
Ended Ended
6/30/04 12/31/03
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 94 $ 197
Net realized gain (loss) 2,037 (1,982)
Change in net unrealized gain (loss) 985 19,537
Increase (decrease) in net
assets from operations 3,116 17,752
Distributions to shareholders
Net investment income - (251)
Capital share transactions *
Shares sold 12,599 12,654
Distributions reinvested - 244
Shares redeemed (6,518) (11,904)
Increase (decrease) in
net assets from capital
share transactions 6,081 994
Net Assets
Increase (decrease) during period 9,197 18,495
Beginning of period 75,835 57,340
End of period $ 85,032 $ 75,835
-----------------------------------
(Including undistributed net investment income
of $94 at 6/30/04 and $0 at 12/31/03)
*Share information
Shares sold 1,024 1,227
Distributions reinvested - 21
Shares redeemed (531) (1,156)
Increase (decrease) in shares outstanding 493 92
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Capital Opportunity Fund
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Certified Semiannual Report (Unaudited) June 30, 2004
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 (the 1940 Act) as a diversified, open-end
management investment company and commenced operations on November 30, 1994. The
fund seeks superior capital appreciation over time by investing primarily in
U.S. common stocks.
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, for certain markets, the official closing price at
the time the valuations are made, except for OTC Bulletin Board securities,
which are valued at the mean of the latest bid and asked prices. 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 asked prices for domestic securities and the last quoted sale price for
international securities. Debt 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. Financial futures contracts are valued
at closing settlement prices.
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 Directors.
Most foreign markets close before the close of trading on the NYSE. If the fund
determines that developments between the close of a foreign market and the close
of the NYSE will, in its judgment, materially affect the value of some or all of
its portfolio securities, which in turn will affect the fund's share price, the
fund will adjust the previous closing prices to reflect the 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 Directors.
A fund may also fair value securities in other situations, such as when a
particular foreign market is closed but the fund is open. In deciding whether to
make fair value adjustments, the fund reviews a variety of factors, including
developments in foreign markets, the performance of U.S. securities markets, and
the performance of instruments trading in U. S. markets that represent foreign
securities and baskets of foreign securities. The fund uses outside pricing
services to provide it with closing market prices and information used for
adjusting those prices. The fund cannot predict how often it will use closing
prices and how often it will adjust those prices. As a means of evaluating its
fair value process, the fund routinely compares closing market prices, the next
day's opening prices in the same markets, and adjusted prices.
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 asked 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 $3,000 for the
six months ended June 30, 2004. 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.
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. Payments ("variation margin") made or
received 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 other assets and other liabilities,
respectively, and in the change in net unrealized gain or loss in the
accompanying financial statements. Income distributions are declared and paid on
an annual basis. Capital gain distributions, if any, are declared and paid by
the fund, typically 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
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
During the six months ended June 30, 2004, 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 $24,877,000 and $18,946,000, respectively, for the six months ended
June 30, 2004.
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 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. The amount and
character of tax-basis distributions and composition of net assets are finalized
at fiscal year-end; accordingly, tax-basis balances have not been determined as
of June 30, 2004.
The fund intends to retain realized gains to the extent of available capital
loss carryforwards. As of December 31, 2003, the fund had $18,098,000 of unused
capital loss carryforwards, of which $8,374,000 expire in 2009, $6,883,000
expire in 2010, and $2,841,000 expire in 2011.
At June 30, 2004, the cost of investments for federal income tax purposes was
$74,994,000. Net unrealized gain aggregated $10,099,000 at period-end, of which
$13,206,000 related to appreciated investments and $3,107,000 related to
depreciated investments.
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 0.35% 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 June 30, 2004,
the effective annual group fee rate was 0.31%, and investment management fee
payable totaled $41,000.
The fund is also subject to a contractual expense limitation. During the
limitation period, the manager is required to waive its management fee and
reimburse the fund for any expenses, excluding interest, taxes, brokerage
commissions, and extraordinary expenses, that would otherwise cause the fund's
ratio of total expenses to average net assets (expense ratio) to exceed its
expense limitation. The fund's expense limitation was 1.35% through April 30,
2004 and lowered to 1.15% effective May 1, 2004 through April 30, 2006. Through
April 30, 2008, the fund is required to repay the manager for
expenses previously reimbursed and management fees waived to the extent its net
assets have grown or expenses have declined sufficiently to allow repayment
without causing the fund's expense ratio to exceed its expense limitation.
Pursuant to this agreement, at June 30, 2004, management fees waived in the
amount of $9,000 remain subject to repayment by the fund through April 30, 2008.
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 $135,000 for the six months ended June 30, 2004, of which $28,000 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 to mutual funds, trusts,
and other accounts managed by Price Associates and/or its affiliates, and are
not available for direct purchase by members of the public. The Reserve Funds
pay no investment management fees. During the six months ended June 30, 2004,
dividend income from the Reserve Funds totaled $5,000.
T. Rowe Price Capital Opportunity Fund
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Certified Semiannual Report
INFORMATION ON PROXY VOTING
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A description of the policies and procedures that the T. Rowe Price Capital
Opportunity 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.
Item 2. Code of Ethics.
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 is filed as an
exhibit to the registrant's annual Form N-CSR. No substantive amendments were
approved or waivers were granted to this code of ethics during the registrant's
most recent fiscal half-year.
Item 3. Audit Committee Financial Expert.
Disclosure required in registrant's annual Form N-CSR.
Item 4. Principal Accountant Fees and Services.
Disclosure required in registrant's annual Form N-CSR.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
Not applicable. The complete schedule of investments is included in Item 1 of
this Form N-CSR.
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. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 10. 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 11. Exhibits.
(a)(1) The registrant's code of ethics pursuant to Item 2 of Form N-CSR is filed
with the registrant's annual Form N-CSR.
(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.
(3) Written solicitation to repurchase securities issued by closed-end
companies: not applicable.
(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 Opportunity Fund, Inc.
By: /s/ James S. Riepe
James S. Riepe
Principal Executive Officer
Date: August 16, 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: August 16, 2004
By: /s/ Joseph A. Carrier
Joseph A. Carrier
Principal Financial Officer
Date: August 16, 2004