Fellow Shareholders
The Capital Appreciation Fund eked out a small gain in the quarter ended
June 30, but was marginally in the red for the first half of 1994. Compared
with both the unmanaged broad market indices and the Lipper Capital
Appreciation Fund Average, we are having a very good year. Are we ecstatic?
No, and we doubt that you are, either. We'd rather be making high returns
for shareholders. Are we discouraged? No, and we hope you are not. When
better times arrive, our performance should get back on track. In the
meantime, we are pleased to have successfully minimized losses.
Performance Comparison
Periods Ended 6/30/94
3 Months 6 Months
Capital Appreciation Fund 0.2% -0.6%
S&P 500 0.4 -3.4
Lipper Capital Appreciation
Fund Average -4.4 -7.6
Market Environment
Yogi Berra said it best: it was deja vu all over again. In the second
quarter, like the first, the stock market was fine for two months and then
wilted. Rising interest rates were the nemesis in the first quarter, and
concern over dollar weakness, primarily versus the Japanese yen, led to the
June decline. Many think that a strong economy and a weak dollar will force
the Federal Reserve to raise interest rates yet again. This, in turn, would
likely lead investors to sell bonds to avoid losses and then to sell
equities as they look less attractive than higher-yielding bonds.
Meanwhile, economic growth and the corporate earnings that flow from
that growth continue to look very good. But the markets have disparaged
even this news. Strong growth has triggered worries about higher inflation
even though there is little evidence of this.
Our working hypothesis is that economic growth will ebb and flow, but
will be healthy for at least a year. Further, we think that interest rates
are probably going to trend higher over the next year or two, but not soar.
For ourselves and our shareholders, we emphasize this: financial, monetary,
and economic cycles are interrelated and tend to self-correct. It seems
foolish to focus too much intellectual energy analyzing an environment that
is nearly impossible for us to predict except in the broadest terms. If our
hypothesis of a healthy economy is right, then the stock market should,
over time, return to health as well.
Portfolio Highlights
Our big winner of the first quarter, Kemper, was flat in the second. We
trimmed about half of our position despite being optimistic that the
company would eventually be sold. Locking in profits has long been a
management objective and seemed appropriate in this situation. American
Cyanamid was the largest contributor to second quarter performance. The
company, whose stock we began buying in January, is restructuring both
operationally and financially.
Electric utilities were major losers, as the industry suffered from
rising interest rates and possible future competition. In past years, your
Fund has had several big utility winners; recent weakness gave us the
chance to add to positions.
While not a major loser, Eastman Kodak convertible bonds were our
biggest disappointment this year. What had been our largest position _ 5%
of net assets _ was "called" by the company (redeemed for cash), thus
short-circuiting a promising investment.
The Fund's asset allocation (shown on the next page) was little
changed from the first quarter report. Common stocks were slightly higher
(52% versus 50%) and convertibles were two percentage points lower. Our
substantial cash position continued to cushion the effect of market
declines on the Fund's share price.
Chart Number 1 (see appendix)
Outlook
Despite six months of dreary performance, the stock market remains
expensive compared with historic benchmarks _ price-to-earnings, dividend
yield, and price-to-book. Recent investor pessimism (a contrary indicator)
only partially offsets this negative in our view. Therefore, we anticipate
only gradually committing our cash reserves to purchase attractive
individual securities. If, indeed, the wind of investor opinion has
changed from optimism to pessimism, we will need to become more aggressive
buyers. But there is no great hurry. The two cardinal rules of investing
are foremost in our thinking: (1) don't lose your money, and (2) don't
forget rule #1.
Thank you for your interest, comments, and the expression of
confidence represented by your investment in the Fund.
Respectfully submitted,
(signature)
Richard P. Howard
President and Chairman of the
Investment Advisory Committee
July 19, 1994
Twenty-Five Largest Holdings
T. Rowe Price Capital Appreciation Fund / June 30, 1994
Percent of
Company Net Assets
U.S. Treasury Notes<F1> 3.9 %
Manville 3.3
Petrie Stores 3.1
Philip Morris 2.9
Rockefeller Center 2.8
American Cyanamid 2.5
Loews 2.2
Automatic Data Processing 2.1
Eli Lilly 1.9
Washington Post 1.9
Federated Department Stores 1.8
Atlantic Richfield 1.8
Texaco 1.7
Kemper 1.6
Reebok 1.4
Polaroid 1.3
Champion International 1.3
Newmont Mining 1.3
Chris-Craft Industries 1.3
Pennzoil 1.2
Price Company 1.2
Weyerhaeuser 1.2
Public Service of New Mexico 1.2
CIGNA 1.1
Unitrin 1.1
Total 47.1%
<F1>33% of these notes mature in less than 12 months.
Performance Contributions<F1>
Six Months Ended June 30, 1994
Cents-
Percent of Per-Share
Sector Net Assets Contribution
Basic Materials 2 % - 4 cents
Business Services & Transportation 5 - 5
Consumer Cyclicals 9 - 13
Consumer Nondurables 12 5
Consumer Services 12 - 8
Energy 9 2
Financial 10 7
Process Industries 4 1
Technology 1 - 6
Utilities 6 - 3
U.S. Government/Options 4 - 4
Subtotal 74 - 28
Miscellaneous 2 5
Reserves & Income 24 16
Total Portfolio 100 % - 7 cents
<F1> Includes preferred stocks and debt securities.
Note: Performance contribution numbers reflect principal change only.
Dividends and interest received on all Fund holdings are included in
"Reserves & Income."
Contributions to the Net Asset Value Per Share
T. Rowe Price Capital Appreciation Fund
Three Months Ended June 30, 1994
Ten Best Contributors
American Cyanamid 6 cents
Eli Lilly 3
Telefonica de Espana 2
Scott Paper 2
Chris-Craft 1
Atlantic Richfield 1
Macy (R.H.)<F2> 1
CIGNA 1
Murphy Oil 1
Upjohn 1
Total 19 cents
Ten Worst Contributors
Manville -3 cents
Reebok 2
Entergy 2
Newmont Mining 2
Public Service of New Mexico 2
Homestake Mining 2
Rockefeller Center 1
Loews 1
Overseas Shipholding Group 1
Sun Company 1
Total -17 cents
<F1> Position added
<F2> Position eliminated
Six Months Ended June 30, 1994
Ten Best Contributors
Kemper 13 cents
American Cyanamid<F1> 5
Macy (R.H.) 2
Scott Paper 2
Telefonica de Espana 2
Rite Aid 1
Murphy Oil 1
Meredith 1
Monsanto 1
Coca-Cola Enterprises 1
Total 29cents
Ten Worst Contributors
Petrie Stores -6 cents
Manville 4
Rockefeller Center 4
Overseas Shipholding Group 3
Teledyne 2
Entergy 2
Loews 2
American Express 2
Philip Morris 2
Washington Post 2
Total -29 cents
Statement of Net Assets (Value in thousands)
T. Rowe Price Capital Appreciation Fund / June 30, 1994 (Unaudited)
Common Stocks _ 51.9%
FINANCIAL _7.6%
Value
INSURANCE _ 5.6%
250,000 shs. American Premier Underwriters $ 6,281
33,000 <F1> Fund American Enterprises 2,326
70,000 Kemper 4,235
150,000 Loews 12,788
160,000 Unitrin 6,400
5,000 <F1> White River 168
32,198
FINANCIAL SERVICES _1.8%
240,000 American Express 6,180
90,000 Dreyfus 4,365
10,545
BANK & TRUST _ 0.2%
150 Bank for International Settlements (CHF) 1,125
Total Financial 43,868
UTILITIES _ 3.9%
TELEPHONE _ 0.7%
101,489 Telefonica de Espana, ADR 4,085
ELECTRIC UTILITIES _ 3.2%
300,000 Centerior Energy 3,037
235,000 Entergy 5,816
110,000 General Public Utilities 2,888
580,000 <F1> Public Service of New Mexico 6,670
18,411
Total Utilities 22,496
CONSUMER NONDURABLES _ 11.1%
BEVERAGES _ 0.5%
160,000 Coca-Cola Enterprises 2,720
FOOD PROCESSING _ 0.7%
215,000 Pet 4,004
HOSPITAL SUPPLIES/ HOSPITAL MANAGEMENT _ 0.5%
3,300 <F1> Lynx Therapeutics 1
70,001 Manor Care 1,759
45,000 United States Surgical 1,001
2,761
PHARMACEUTICALS _ 5.2%
255,000 shs. American Cyanamid $ 14,280
190,000 Eli Lilly 10,806
165,000 Upjohn 4,806
29,892
MISCELLANEOUS CONSUMER PRODUCTS _ 4.2%
325,000 Philip Morris 16,737
260,000 Reebok 7,768
24,505
Total Consumer Nondurables 63,882
CONSUMER SERVICES _ 8.7%
GENERAL MERCHANDISERS _ 0.5%
140,000 <F1> Hills Stores Company 2,660
SPECIALTY MERCHANDISERS _ 3.0%
115,178 <F1> Federated Department Stores 2,303
552,000 Petrie Stores 13,593
82,000 Rite Aid 1,661
17,557
MEDIA & COMMUNICATIONS _ 5.2%
10,000 CBS 3,100
200,000 <F1> Chris-Craft Industries 7,225
120,000 Meredith 5,100
150,000 New York Times 3,581
46,000 Washington Post (Class B) 10,638
29,644
Total Consumer Services 49,861
CONSUMER CYCLICALS _ 1.4%
MISCELLANEOUS CONSUMER DURABLES _ 1.4%
241,200 Polaroid 7,688
10,000 Tandy 345
Total Consumer Cyclicals 8,033
TECHNOLOGY _ 1.4%
INFORMATION PROCESSING _ 0.5%
50,000 IBM 2,938
AEROSPACE & DEFENSE _ 0.9%
50,000 <F1> Litton Industries 1,681
230,000 <F1> Teledyne 3,680
5,361
Total Technology 8,299
BUSINESS SERVICES & TRANSPORTATION _ 2.4%
TRANSPORTATION SERVICES _ 2.4%
305,000 shs. Overseas Shipholding Group $ 5,566
150,000 PHH 5,344
120,000 Ryder System 3,015
Total Business Services & Transportation 13,925
ENERGY _ 9.1%
EXPLORATION & PRODUCTION _ 0.1%
80,000 Ranger Oil 530
GAS TRANSMISSION _ 0.2%
150,000 Noram Energy 900
INTEGRATED PETROLEUM-DOMESTIC _ 6.7%
100,000 Atlantic Richfield 10,212
50,000 Kerr-McGee 2,356
145,000 Murphy Oil 6,199
340,000 <F1> Oryx Energy 5,100
140,000 Pennzoil 7,175
140,000 Sun Company 3,763
100,000 Union Texas Petroleum 1,787
70,000 Unocal 2,004
38,596
INTEGRATED PETROLEUM- INTERNATIONAL _ 1.7%
165,000 Texaco 9,962
ENERGY SERVICES _ 0.4%
75,000 Helmerich & Payne 1,988
Total Energy 51,976
PROCESS INDUSTRIES _ 3.6%
DIVERSIFIED CHEMICALS _ 1.3%
50,000 Cabot 2,556
60,000 Monsanto 4,538
7,094
PAPER & PAPER PRODUCTS _ 0.2%
24,000 Scott Paper 1,254
FOREST PRODUCTS _ 1.2%
170,000 Weyerhaeuser 6,800
BUILDING & CONSTRUCTION _ 0.9%
750,000 Manville 5,250
Total Process Industries 20,398
BASIC MATERIALS _ 1.3%
MINING _ 1.3%
195,000 shs. Homestake Mining $ 3,656
100,000 Newmont Mining 4,025
Total Basic Materials 7,681
Miscellaneous _ 1.4% 8,003
Total Common Stocks (Cost _ $272,493) 298,422
Preferred Stocks _ 2.5%
46,292 Gulf States Utilities, 8.75%, Dep. Series D 2,303
4,800 <F1> Lynx Therapeutics, Series A 5
525,000 Manville, $2.70, Cum. Series B 12,272
Total Preferred Stocks (Cost _ $12,148) 14,580
Convertible Preferred Stocks _ 2.5%
10,000 GATX, $3.875, Series A 520
75,000 <F1> Kemper, Series E (144a) 4,744
55,000 <F1> Newmont Mining, $2.75 (144a) 3,224
182,000 Tandy, $2.14, Series C, PERCS 5,892
Total Convertible Preferred Stocks (Cost _ $13,047) 14,380
Convertible Bonds _ 13.7%
$ 4,000,000 American Brands, 5.75%, 4/11/05 4,545
30,000,000 Automatic Data Processing,
Zero Coupon,2/20/12 12,037
7,000,000 Champion International, Sub.Deb.,
6.50%,4/15/11 7,324
6,000,000 CIGNA, 8.20%, 7/10/10 6,548
8,500,000 Federated Department Stores,
Zero Coupon,2/15/04 8,075
500,000 Homestake Mining,Sub. Deb.,5.50%, 6/23/00 526
4,000,000 Petrie Stores, Sub. Deb., 8.00%, 12/15/10 4,420
5,200,000 Potomac Electric Power, Deb., 5.00%, 9/1/02 4,355
$5,000,000 Price Company, Sub. Deb., 5.50%, 2/28/12 $ 4,331
2,750,000 Price Company, Sub. Deb., 6.75%, 3/1/01 2,640
18,000,000 Rockefeller Center, Deb., 8.00%, 12/31/00 15,885
5,600,000 Rouse, 5.75%, 7/23/02 4,858
10,000,000 U.S. West, Zero Coupon, 6/25/11 3,013
Total Convertible Bonds (Cost _ $79,777) 78,557
Miscellaneous Convertible Bonds _ 0.7% (Cost _ $3,878) 3,975
Corporate Bonds _ 0.3%
1,700,000 Manville, Def. Sub. Deb.,
9.00%, 12/31/03 1,700
Total Corporate Bonds (Cost _ $1,415) 1,700
U.S. Government Obligations _ 3.9%
2,500,000 U.S. Treasury Notes, 3.875%, 3/31/95 2,475
5,000,000 U.S. Treasury Notes, 4.25%, 12/31/95 4,884
2,500,000 U.S. Treasury Notes, 4.25%, 5/15/96 2,419
2,500,000 U.S. Treasury Notes, 4.625%, 11/30/94 2,499
2,500,000 U.S. Treasury Notes, 4.625%, 8/15/95 2,473
2,500,000 U.S. Treasury Notes, 4.625%, 2/15/96 2,448
2,500,000 U.S. Treasury Notes, 5.125%, 11/15/95 2,478
2,500,000 U.S. Treasury Notes, 6.00%, 11/15/94 2,511
Total U.S. Government Obligations (Cost _ $22,730) 22,187
Index Notes _ 0.4%
169,600 <F1> Republic of Austria,
Stock Index Growth Notes, 8/15/96 2,099
Total Index Notes (Cost _ $1,822) 2,099
Options Purchased _ 0.1%
100 cts. Entergy 'B', 9/17/94 (a) $35 102
100 Federated Department Stores 'B',
8/20/94 (a)$25.00 50
500 cts. Federated Department Stores Put,
8/20/94 (a) $13.375 $ 1
375 Federated Department Stores Put,
8/20/94 (a) $15.61 3
375 Federated Department Stores Put, 8/20/94
(a) $15.61, capped (a) $10.61 4
100 Mellon "B", 9/17/94 (a) $60 45
100 Toys R Us, 12/17/94 (a) $35 29
740 Toys R Us, 12/17/94 (a) $40 537
Total Options Purchased (Cost _ $904) 771
Options Written _ 0.0%
1,078 Federated Department Stores Call,
8/20/94 (a) $19.77 (163)
Total Options Written (Cost _ $(268)) (163)
Short-Term Investments _ 24.2%
COMMERCIAL PAPER _ 17.9%
$ 5,000,000 ANZ Delaware, 4.50%, 8/18/94 4,944
10,000,000 Asset Securitization Cooperative, 4(2),
4.35 - 4.43%, 7/26 - 8/8/94 9,916
5,000,000 Bankers Trust New York 4.20%, 10/4/94 4,895
5,000,000 BMW U.S. Capital, 4.48%, 8/23/94 4,944
5,000,000 BNP U.S. Finance, 3.38%, 7/8/94 4,913
5,000,000 BP Oil New Zealand, 4.45%, 9/12/94 4,944
5,000,000 Commerzbank United States Finance,
3.41%, 8/19/94 4,889
5,000,000 Commonwealth Bank of Australia,4.57%,9/23/94 4,944
5,000,000 Countrywide Funding, 4.38%, 7/15/94 4,986
5,000,000 Daimler-Benz North America, 4.30%, 7/19/94 4,983
5,000,000 Dover, 4(2), 4.28%, 7/19/94 4,983
5,000,000 Great Lakes Chemical, 4.30%, 7/22/94 4,983
3,242,000 Harvard University, 4.30%, 7/1/94 3,242
5,997,000 Mobil Australia, 4.43%, 8/16/94 5,934
5,000,000 National Australia Funding (Delaware),
4.27%, 7/25/94 4,975
10,000,000 Preferred Receivables Funding, 4.27 - 4.50%,
7/19 - 9/1/94 9,922
$ 5,000,000 Statoil (Den Norske Stats Oljeselskap),
4.28%, 7/20/94 $ 4,982
5,000,000 Unilever Capital, 4(2), 4.53%, 7/5/94 4,966
5,000,000 Western Australian Treasury, 4.43%, 8/18/94 4,945
103,290
MEDIUM-TERM NOTES _ 6.3%
5,000,000 Bear Stearns, VR, 4.56%, 12/13/94 5,000
1,000,000 Citicorp, VR, 5.963%, 2/13/95 1,011
5,000,000 Corporate Asset Fund, VR (144a),
4.316%, 12/12/94 4,999
5,000,000 First National Bank, VR, 4.39%, 1/9/95 4,997
5,000,000 Goldman Sachs Group, VR, 4.517%, 12/2/94 5,000
5,000,000 Merrill Lynch, VR, 4.388%, 9/2/94 5,000
5,000,000 Morgan Stanley Group, VR, 4.713%, 7/13/95 5,004
5,000,000 Wells Fargo, VR, 5.013%, 8/31/94 5,012
36,023
Total Short-Term Investments (Cost _ $139,313) 139,313
Total Investments in Securities _ 100.2%
(Cost _ $547,259) $575,821
Other Assets less Liabilities _ (0.2)% $(1,364)
Net Assets Consisting of:
Accumulated net investment income -
net of distributions $ 7,889
Accumulated realized gains/losses -
net of distributions 22,272
Net unrealized appreciation of investments 28,567
Paid-in-capital applicable to 45,610,830
shares of no par value shares of
beneficial interest outstanding;
unlimited number of shares 515,729
Net Assets - 100.0% $ 574,457
Net Asset Value Per Share $ 12.59
<F1> Non-income producing
4(2) Commercial Paper sold within terms of a private placement
memorandum, exempt from registration under section 4.2 of the
Securities Act of 1933, as amended, and may be sold only to
dealers in that program or other "accredited investors."
144a Security was purchased pursuant to Rule 144a under the
Securities Act of 1933 and may not be resold subject to that
rule except to qualified institutional buyers - total of such
securities at period-end amounts to 1.4% of net assets.
PERCS Participating Equity Redemption Certificates
VR Variable rate
(CHF) Swiss franc denominated
The accompanying notes are an integral part of these financial statements.
Statement of Operations
T. Rowe Price Capital Appreciation Fund /
Six Months Ended June 30, 1994 (Unaudited)
Amounts in Thousands
INVESTMENT INCOME
Income
Dividends $4,914
Interest 5,492
Total income $10,406
Expenses
Investment management fees 1,885
Shareholder servicing fees & expenses 983
Custodian and accounting fees & expenses 84
Prospectus & shareholder reports 63
Registration fees & expenses 36
Legal & auditing fees 16
Trustees' fees & expenses 9
Proxy & annual meeting 8
Miscellaneous 8
Total expenses 3,092
Net investment income 7,314
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain 13,640
Change in net unrealized appreciation
or depreciation (24,564)
Net loss on investments (10,924)
DECREASE IN NET ASSETS FROM OPERATIONS $(3,610)
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
T. Rowe Price Capital Appreciation Fund (Unaudited)
Six Months Ended Year Ended
June 30,1994 Dec. 31, 1993
Amounts in Thousands
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income $7,314 $10,807
Net realized gain on investments 13,640 22,125
Change in net unrealized appreciation or
depreciation of investments (24,564) 34,379
Increase (decrease) in net assets
from operations (3,610) 67,311
Distributions to shareholders
Net investment income _ (7,294)
Net realized gain on investments _ (13,366)
Decrease in net assets from distributions
to shareholders _ (20,660)
Capital share transactions
Sold 8,316 and 18,222 shares 105,994 219,700
Distributions reinvested of 0 and 1,592 shares _ 20,008
Redeemed 5,053 and 8,997 shares (64,171) (109,387)
Increase in net assets from capital
share transactions 41,823 130,321
Total increase 38,213 176,972
NET ASSETS
Beginning of period 536,244 359,272
End of period $574,457 $536,244
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price Capital Appreciation Fund / June 30, 1994
(Unaudited)
Note 1 - Significant Accounting Policies
T. Rowe Price Capital Appreciation Fund (the Fund) is registered under the
Investment Company Act of 1940 as a diversified, open-end management
investment company.
A) Valuation - Equity securities listed or regularly traded on a
securities exchange (including Nasdaq) are valued at the last
quoted sales price on the day the valuations are made. A security
which is listed or traded on more than one exchange is valued at
the quotation on the exchange determined to be the primary market
for such security. Other equity securities and those listed
securities that are not traded on a particular day are valued at a
price within the limits of the latest bid and asked prices deemed
by the Board of Trustees, or by persons delegated by the Board,
best to reflect fair value. In the absence of a last sale price,
purchased and written options are valued at the latest bid and
asked prices, respectively.
Debt securities are generally traded in the over-the-counter
market and are valued at a price deemed best to reflect fair value
as quoted by dealers who make markets in these securities or by an
independent pricing service. Short-term debt securities are
valued at their cost which, when combined with accrued interest,
approximates fair value.
For purposes of determining the Fund's net asset value per share,
all assets and liabilities initially expressed in foreign
currencies are converted into U.S. dollars at the mean of the bid
and offer prices of such currencies against U.S. dollars quoted by
a major bank.
Assets and liabilities for which the above valuation procedures
are inappropriate or are deemed not to reflect fair value are
stated at fair value as determined in good faith by, or under the
supervision of, the officers of the Fund, as authorized by the
Board of Trustees.
B) Currency translation - Foreign currency amounts are translated
into U.S. dollars at prevailing exchange rates as follows: assets
and liabilities at the rate of exchange at the end of the
respective period, purchases and sales of securities and income
and expenses at the rate of exchange prevailing on the dates of
such transactions. The effect of changes in foreign exchange
rates on realized and unrealized security gains or losses is
reflected as a component of such gains or losses.
C) Other - Income and expenses are recorded on the accrual basis.
Investment transactions are accounted for on the trade date.
Realized gains and losses are reported on an identified cost
basis. Dividend income and distributions to shareholders are
recorded by the Fund on the ex-dividend date. Income and capital
gain distributions are determined in accordance with federal
income tax regulations which may differ from generally accepted
accounting principles.
Note 2 - Financial Instruments
As a part of its investment program, the Fund engages in the following
activities, the nature and risk of which are set forth more fully in the
Fund's Prospectus and Statement of Additional Information.
A) Written Options - Call and put options give the holder the
right to purchase or sell, respectively, a security or currency at
a specified price until a certain date. Transactions in call
options written and related premiums received during the six
months ended June 30, 1994, were as follows:
Face Amount
Subject to
Options Premiums
Options Outstanding at
Beginning of Period 107,750 $268,000
Options Exercised,
Expired or Closed _ _
Options Outstanding
at End of Period 107,750 $268,000
B) Other - Purchases and sales of portfolio securities, other than
short-term and U.S. Government securities, aggregated $147,618,000 and
$106,738,000, respectively, for the six months ended June 30, 1994.
Note 3 - Federal Income Taxes
No provision for federal income taxes is required since the Fund intends to
continue to qualify as a regulated investment company and distribute all of
its taxable income.
At June 30, 1994, the aggregate cost of investments for federal
income tax and financial reporting purposes was $547,259,000 and
net unrealized appreciation aggregated $28,562,000, of which
$41,318,000 related to appreciated investments and $12,756,000 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, computed daily and paid monthly, consisting of an Individual Fund Fee
equal to 0.30% of average daily net assets and a Group Fee. The Group Fee
is based on the combined assets of certain mutual funds sponsored by the
Manager or Rowe Price-Fleming International, Inc. (the Group). The Group
Fee rate ranges from 0.48% for the first $1 billion of assets to 0.31% for
assets in excess of $34 billion. The effective annual Group Fee rate at
June 30, 1994 and for the six months then ended was 0.34%. The Fund pays a
pro rata portion of the Group Fee based on the ratio of the Fund's net
assets to those of the Group.
Additionally, the management fee is subject to a performance
adjustment dependent upon the investment performance of the Fund
as compared to the Standard & Poor's 500 Stock Index over a
running 36-month period, as set forth in the investment management
agreement. The performance adjustment for the six months ended
June 30, 1994, increased management fees by $97,000.
T. Rowe Price Services, Inc. (TRPS) and Retirement Plan Services,
Inc. (RPS) are wholly owned subsidiaries of the Manager. TRPS
provides transfer and dividend disbursing agent functions and
shareholder services for all accounts. RPS provides subaccounting
and recordkeeping services for certain retirement accounts
invested in the Fund. The Manager, under a separate agreement,
calculates the daily share price and maintains the financial
records of the Fund. For the six months ended June 30, 1994, the
Fund incurred fees totalling approximately $904,000 for these services
provided
by related parties. At June 30, 1994, these investment
management and service fees payable were $530,000.
<TABLE>
<CAPTION>
Financial Highlights
T. Rowe Price Capital Appreciation Fund (Unaudited)
For a share outstanding throughout each period
Six Months
Ended Year Ended December 31,
June 30, 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.66 $11.39 $11.02 $9.98 $10.82 $10.42
Investment Activities
Net investment income 0.16 0.26 0.51 0.44 0.37<F3> 0.46<F2>
Net realized and
unrealized gain (loss) (0.23) 1.52 0.52 1.67 (0.51) 1.75
Total from Investment Activities (0.07) 1.78 1.03 2.11 (0.14) 2.21
Distributions
Net investment income _ (0.18) (0.50) (0.43) (0.39) (0.45)
Net realized gain _ (0.33) (0.16) (0.64) (0.31) (1.36)
Total Distributions _ (0.51) (0.66) (1.07) (0.70) (1.81)
NET ASSET VALUE, END OF PERIOD $12.59 $12.66 $11.39 $11.02 $9.98 $10.82
RATIOS / SUPPLEMENTAL DATA
Total Return (0.6)% 15.7% 9.4% 21.6% (1.3)% 21.4%
Ratio of Expenses to
Average Net Assets 1.11%<F1> 1.09% 1.08% 1.20% 1.25%<F3> 1.50%<F2>
Ratio of Net Investment
Income to Average Net Assets 2.63%<F1> 2.37% 4.28% 3.90% 3.44% 3.85%
Portfolio Turnover Rate 50.2%<F1> 39.4% 30.3% 50.7% 49.9% 98.9%
Net Assets, End of Period
(in thousands) $574,457 $536,244 $359,272 $215,693 $141,923 $133,175
<FN>
<F1> Annualized.
<F2> Excludes expenses in excess of a 1.50% voluntary expense
limitation in effect through December 31, 1989.
<F3> Excludes expenses in excess of a 1.25% voluntary expense
limitation in effect through December 31, 1993.
</FN>
</TABLE>
Shareholder Services
To help shareholders monitor their current investments and make
decisions that accurately reflect their financial goals, T. Rowe
Price offers a wide variety of information and services _ at no
extra cost.
Knowledgeable Service Representatives
By Phone _ Shareholder Service Representatives are available from
8:00 a.m. to 10:00 p.m., Monday - Friday, and weekends from 9:00
a.m. to 5:00 p.m E.T. Call 1-800-225-5132 to speak directly with
a representative who will be able to assist you with your
accounts.
In Person _ Visit one of our investor center locations to meet
with a representative who can help you with your accounts. While
there, you can drop off applications or obtain prospec - tuses
and other literature.
Automated 24-Hour Services
Tele*Access(R) (1-800-638-2587) provides information such as
account balance, date and amount of your last transaction, latest
dividend payment, and fund prices and yields. Additionally, you
have the ability to request prospectuses, statements, account and
tax forms, reorder checks, and initiate purchase, redemption, and
exchange orders for identically registered accounts.
PC*Access(R) provides the same information as Tele*Access, but
on a personal computer via dial-up modem.
Account Services
Checking _ Write checks for $500 or more on any money market
and most bond fund accounts.
Automatic Investing _ Build your account over time by investing
directly from your bank account or paycheck with Automatic Asset
Builder. Additionally, Automatic Exchange enables you to set up
systematic investments from one fund account into another, such as
from a money fund into a stock fund. A low, $50 minimum makes it
easy to get started.
Automatic Withdrawal _ If you need money from your fund account
on a regular basis, you can establish scheduled, automatic
redemptions.
Dividend and Capital Gains Payment Options _ Reinvest all or
some of your distributions, or take them in cash. We give you
maximum flexibility and convenience.
Investment Information
Combined Statement _ A comprehensive overview of your T. Rowe
Price accounts. The summary page gives your earnings by tax
category, provides total portfolio value, and lists your
investments by type _ stock, bond, and money market. Detail pages
itemize account transactions by fund.
Quarterly Shareholder Reports _ Portfolio managers review the
performance of the funds in plain language and discuss T. Rowe
Price's economic outlook.
The T. Rowe Price Report _ A quarterly newsletter with relevant
articles on market trends, personal financial planning, and
T. Rowe Price's economic perspective.
Insights _ A library of information that includes reports on
mutual fund tax issues, investment strategies, and financial
markets.
Detailed Investment Guides _ Our widely acclaimed Asset Mix
Worksheet, College Planning Kit, Retirees Financial Guide,
Retirement Planning Kit (also available on disk for PC use), and
Guide to Risk-Adjusted Performance can help you determine and
reach your investment goals.
Discount Brokerage
You can trade stocks, bonds, options, precious metals, and other
securities at a substantial savings over regular commission rates.
Call a Shareholder Service Representative for more information.
T. Rowe Price No-Load Mutual Funds
Stability
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
California Tax-Free Money
New York Tax-Free Money
Summit Municipal Money Market
Tax-Exempt Money
Conservative Income
Adjustable Rate U.S. Government
Short-Term Bond
Short-Term Global Income
Summit Limited-Term Bond
U.S. Treasury Intermediate
Florida Insured Intermediate Tax-Free
Maryland Short-Term Tax-Free Bond
Summit Municipal Intermediate
Tax-Free Insured Intermediate Bond
Tax-Free Short-Intermediate
Income
Global Government Bond
GNMA
New Income
Spectrum Income
Summit GNMA
U.S. Treasury Long-Term
California Tax-Free Bond Georgia Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Tax-Free Income
Virginia Tax-Free Bond
Aggressive Income
High Yield
International Bond
Tax-Free High Yield
CONSERVATIVE Growth
Balanced Capital Appreciation Dividend Growth
Equity Income
Equity Index
Growth & Income
Spectrum Growth
Growth
Blue Chip Growth
European Stock
Growth Stock
International Stock
Japan Mid-Cap Growth
New Era
Small-Cap Value
Aggressive Growth
International Discovery
Latin America
New America Growth
New Asia
New Horizons OTC
Science & Technology
PERSONAL STRATEGY FUNDS
Personal Strategy Income
Personal Strategy Balanced
Personal Strategy Growth
Call if you want to know about any T. Rowe Price fund. We'll send
you a prospectus with more complete information, including
management fees and other expenses. Read it carefully before you
invest or send money.
APPENDIX
Chart Number 1:
A pie chart showing the percent of the Fund's assets investment
among common stocks 52.21%, preferred stocks 2.75%, convertibles
16.87%, bonds 2.86%, and reserves 25.31%.
