Semiannual Report
Capital
Opportunity
Fund
June 30, 1998
T. Rowe Price
REPORT HIGHLIGHTS
Capital Opportunity Fund
o The U.S. stock market continued its impressive rally, fueled by economic
growth, low inflation, low interest rates, and strong investment flows.
o Your fund posted solid results in the past six and 12 months, besting its
Lipper peer group average but modestly lagging the S&P 500 Stock Index.
o Over the past 18 months, the fund has benefited from our decision to
increase exposure to large-cap stocks.
o While overall stock market valuations are historically high, and the Asian
crisis remains a wild card, we remain positive on the long-term outlook for
U.S. stocks and the fund.
Fellow Shareholders
Building on the momentum of the past few years, the U.S. stock market continued
to generate strong gains during the first half of 1998. The underpinnings of the
market's advance remained the same: robust economic growth, low inflation, low
interest rates, and solid mutual fund cash flows. Volatility also increased,
which should not be a surprise given the dramatic gains in recent years and
historically high valuations.
Performance Comparison
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Periods Ended 6/30/98 6 Months 12 Months
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Capital Opportunity Fund 14.68% 27.92%
S&P 500 17.71 30.16
Lipper Capital Appreciation
Funds Average 12.85 22.12
In this favorable but challenging environment, your fund achieved solid results.
For the 6- and 12-month periods ended June 30, the fund gained 14.68% and
27.92%, respectively, outpacing its peer group average but modestly lagging the
unmanaged S&P 500 Stock Index. Over the past 12 to 18 months, the fund has
benefited from our decision to increase the median market capitalization of its
holdings in order to participate in the outperformance of large-cap stocks.
However, the fund's remaining bias toward small- and mid-cap stocks continued to
constrain results relative to the narrow group of large-cap stocks that powered
the S&P 500's advance. Investors favored the earnings predictability and
liquidity of the large-caps. Many attractive small- and mid-cap stocks
languished despite excellent business fundamentals and compelling valuations.
MARKET ENVIRONMENT
It is difficult not to be impressed with the U.S. economy's ability to continue
growing in spite of the advanced stage of this business cycle. Long-term
interest rates and inflation pressures remain well in hand despite a
historically low unemployment rate of 4.5% and solid, but moderating, economic
growth. Consumer confidence levels remain high. With this backdrop, it is not
surprising that retail stocks were among the biggest gainers during the first
half of the year. Despite notable patches of weakness, technology stocks in
general were strong, led by telecommunications equipment vendors who are well
positioned to capitalize on deregulation trends. Other strong sectors in the
first half included cable and media stocks, which continued to benefit from
rapid consolidation, and health care stocks, which rebounded from depressed
levels. Weak sectors included oil and gas, chemicals, metals, and certain
technology areas. After a spectacular two-year run-up, oil service stocks came
crashing down as oil prices slumped 35% during the period.
The U.S. stock market continued to surprise investors with its ability to
withstand negative news and keep advancing. While the underpinnings of the
market remained intact, they had to weather many challenges in the first half,
including the resurfacing of the Asian economic crisis and slowing earnings
growth among the S&P 500.
Currency and banking problems in Asia first rattled our market last fall, but
the true impact of the region's economic distress on U.S. companies did not
begin to show up until the first half of 1998, especially during the second
quarter. Early in the crisis, the technology sector-especially the chip makers
and semiconductor capital-equipment vendors-was hardest hit. But as the crisis
widened to include Japan, many other industries were affected. Looking forward
through the rest of this year, the ultimate effect of the Asian crisis remains a
wild card.
Clearly, if profit growth for the S&P 500 continues to struggle in the second
half because of slowing economic growth and competition from cheaper imports,
the market's legendary buoyancy would face its heaviest challenge yet. The
impressive double-digit earnings growth of U.S. blue chips has fueled this leg
of the bull market since 1995. But the anemic 3.8% earnings growth of the first
quarter was the slowest since the 1990-91 recession, and second quarter earnings
were expected to be no more robust, as of this writing.
INVESTMENT REVIEW
As long-time shareholders know, performance in any period can be influenced
significantly by a handful of stocks because of our concentrated approach.
Although the fund did have one major disappointment, for the most part our top
holdings produced solid results during the past 6- and 12-month periods.
When we review key contributors to fund performance, the benefits of our
decision to increase exposure to large-cap names are clearly evident. Your
fund's biggest gainers included Warner-Lambert, which participated in the strong
advance of the pharmaceutical group; MCI, which is completing its merger into
WorldCom; and Safeway, a supermarket chain.
. . .The benefits of our decision to increase exposure to large-cap names are
clearly evident.
Several small-cap stocks made significant contributions for both the 6- and
12-month periods. ADVO, a direct marketing company, continued its impressive
earnings rebound after struggling in the mid-1990s. The company is benefiting
from a favorable retail and advertising environment, along with an improved cost
structure due to lower postage and paper prices. MemberWorks, a membership-based
consumer services concern, has more than doubled in price over the past year as
the company continues to achieve impressive membership growth and improved
profitability.
The fund also benefited from the acquisition of several of its holdings during
the first half. Source Services, a professional staffing concern and a long-time
favorite of the fund, was acquired by Romac International. The merger appears to
be an excellent combination and has been well-received by investors. Another
core holding, Mid Ocean Limited, a Bermuda-based reinsurance company, agreed to
be acquired by EXEL, as the industry continues to experience a wave of
consolidation. Finally, Camco International, an oil service company, agreed to
be acquired by Schlumberger.
Although the fund was able to avoid major mistakes for most of the past year,
our largest holding, Cendant, a member-based consumer and business services
provider, fell 50% during the first half. Formed by the merger of two of our
former holdings, HFS and CUC International, the company had been the fund's
biggest contributor during the second half of 1997. Unfortunately, the initial
excitement surrounding the merger faded quickly as accounting irregularities at
CUC cast a cloud over the Cendant story. The exact scope of the problems remains
unclear. The only positive news out of the Cendant debacle is that your fund had
begun to take profits prior to the stock's collapse, slightly reducing its
impact on our portfolio.
Other disappointing investments included Ikon Office Solutions and OEA. We
eliminated both companies as changing industry dynamics and poor management
execution gave us little confidence in an earnings rebound for either company
anytime soon.
PORTFOLIO STRATEGY
Traditionally, we have discussed in detail at least one of the fund's major
holdings in this section to provide you with a better understanding of how the
Capital Opportunity Fund uses its flexible charter to capitalize on attractive
investment opportunities. For this report, we decided instead to discuss several
strategic issues concerning the fund's management style. Over the past two
years, the strong market gains have been increasingly concentrated in large-cap,
blue chip consumer stocks and select technology companies. This dramatic
narrowing of the market has made beating the S&P 500 a very challenging task.
The fund's decision to increase the average size of the companies we invest in
is an opportunistic move designed to enhance returns in the current environment.
In recent periods, the fund has become slightly less concentrated.
Your fund has historically had a small- to mid-cap bias in the belief that with
fewer Wall Street analysts following these companies we have a greater
likelihood of finding undervalued stocks. In addition, the majority of the
research coverage that is provided by Wall Street is not objective, as analysts'
opinions are heavily influenced by their firms' investment banking relationships
with the companies they cover. Though the fund's market capitalization has
drifted upward recently, we continue to believe that small- and mid-cap
companies remain a fertile field for investing. Currently, the valuation gap
between the "Nifty Fifty"-type stocks and many small- and mid-cap stocks is
quite large. However, the trend of narrow market leadership shows little sign of
tiring. We will continue to monitor this issue and attempt to maintain the
proper balance in the fund and to capitalize on the most attractive investments
on a risk/return basis.
In recent periods, the fund has become slightly less concentrated as the number
of stocks we hold has increased from roughly 50 to 60, and the average weighting
of each stock has declined somewhat. This decision is a function of increased
market volatility, especially in the technology sector, and we believe it is
prudent at this time.
OUTLOOK
Over the past several reports, we have stated that it is unrealistic to expect
the market's 20%-plus annual gains to continue. So far, our expectations have
proved to be too conservative. The stock market environment has been nearly
perfect, with a blend of steady growth, low inflation, strong earnings, and
continued investment flows. Given the historically high valuation levels for the
overall market, there is little room for error should any of these favorable
trends reverse.
The outlook for stable interest rates is encouraging, since inflationary
pressures remain low despite a historically tight labor market. The Asian crisis
appears to be slowing the U.S. economy to a more modest level of growth, and the
rise of the U.S. dollar against the Japanese yen seems to have limited the
Federal Reserve's ability to increase interest rates. Mutual fund cash flows
have been solid as investors have taken a long-term perspective despite the
recent market volatility.
Although the Asian crisis may be a positive for interest rates, its impact on
the earnings of blue chip, multinational companies is more worrisome. Given the
slowing demand for U.S. exports and the rising dollar, earnings growth for the
S&P 500 was expected to slow to the low- or mid-single digits during the first
half. As we enter the second half and look forward to 1999, it will be important
to monitor whether the Asian flu proves to be the 24-hour variety or develops
into pneumonia.
Clearly, the Asian situation is somewhat of a wild card in the near term, but we
are encouraged by the fund's improved results over the past 12 months and remain
positive on the long-term outlook for U.S. stocks and the Capital Opportunity
Fund.
Respectfully submitted,
John F. Wakeman
Chairman of the Investment Advisory Committee
July 24, 1998
T. Rowe Price Capital Opportunity Fund
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Portfolio Highlights
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TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
6/30/98
- --------------------------------------------------------------------------------
Romac International 3.2%
Affiliated Computer Services 3.0
MCI 2.7
Warnaco Group 2.7
Analogic 2.5
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BISYS Group 2.4
Tyco International 2.4
ADVO 2.4
USA Waste Services 2.3
Fred Meyer 2.3
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Mid Ocean Limited 2.1
Catalina Marketing 2.1
Snyder Communications 2.1
Safeway 2.0
Warner-Lambert 2.0
- --------------------------------------------------------------------------------
PartnerRe Holdings 2.0
BE Aerospace 2.0
International Specialty Products 1.9
Eltron International 1.8
Imax 1.8
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Interim Services 1.8
Corporate Express 1.8
News Corporation 1.7
Hilton 1.6
Prime Resources Group 1.5
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Total 54.1%
T. Rowe Price Capital Opportunity Fund
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Portfolio Highlights
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CONTRIBUTIONS TO THE CHANGE IN NET ASSET VALUE PER SHARE
6 Months Ended 6/30/98
Ten Best Contributors
- ----------------------------------------------------
Romac International 23(cents)
Affiliated Computer Services 18
Warner-Lambert 16
MemberWorks** 15
ADVO 14
MCI 14
Warnaco Group 13
Tyco International 13
Mid Ocean Limited 13
News Corporation 10
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Total 149(cents)
Ten Worst Contributors
- ----------------------------------------------------
Cendant -18(cents)
Smith International* 7
OEA** 6
Imax* 6
Patriot American Hospitality** 5
Ikon Office Solutions** 5
Avis Rent A Car 3
Stanley Works 3
Unifi** 3
Gilead Sciences* 3
- ----------------------------------------------------
Total -59(cents)
12 Months Ended 6/30/98
Ten Best Contributors
- ----------------------------------------------------
Romac International 33(cents)
MemberWorks** 27
ADVO 22
MCI* 21
Safeway 20
Affiliated Computer Services* 20
Tyco International 18
Mid Ocean Limited 18
Warner-Lambert* 18
Snyder Communications 16
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Total 213(cents)
Ten Worst Contributors
- ----------------------------------------------------
OEA** -16(cents)
First Data 11
Smith International* 7
Imax* 6
American Stores** 5
EEX 5
Great Lakes Chemical 4
Ikon Office Solutions** 4
Dayton Mining** 4
Electromagnetic Sciences** 4
- ----------------------------------------------------
Total -66(cents)
* Position added
** Position eliminated
T. Rowe Price Capital Opportunity Fund
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Performance Comparison
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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 a broad-based average or index. The index
return does not reflect expenses, which have been deducted from the fund's
return.
Capital Opportunity Fund
- --------------------------------------------------------------------------------
As of 6/30/98
S&P 500 Index Lipper Capital Capital
Appreciation Opportunity
Funds Average Fund
11/30/94 10,000 10,000 10,000
6/95 12,200 11,785 13,210
6/96 15,372 14,630 17,108
6/97 20,705 16,992 18,532
6/98 26,951 20,900 23,708
Average Annual Compound Total Return
- --------------------------------------------------------------------------------
This table shows how the fund would have performed each year if its actual (or
cumulative) returns for the periods shown had been earned at a constant rate.
Since Inception
Periods Ended 6/30/98 1 Year 3 Years Inception Date
- --------------------------------------------------------------------------------
Capital Opportunity Fund 27.92% 21.52% 27.25% 11/30/94
Investment return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
T. Rowe Price Capital Opportunity Fund
- --------------------------------------------------------------------------------
Unaudited
For a share outstanding throughout each period
- --------------------------------------------------------------------------------
Financial Highlights
6 Months Year 11/30/94
Ended Ended Through
6/30/98 12/31/97 12/31/96 12/31/95 12/31/94
NET ASSET VALUE
Beginning of period $ 16.62 $ 15.75 $ 14.13 $ 10.43 $ 10.00
Investment activities
Net investment income (0.03) 0.01 -* 0.01* 0.02*
Net realized and
unrealized gain (loss) 2.47 2.45 2.36 4.83 0.41
Total from
investment activities 2.44 2.46 2.36 4.84 0.43
Distributions
Net investment income -- -- -- (0.01) --
Net realized gain -- (1.59) (0.74) (1.13) --
Total distributions -- (1.59) (0.74) (1.14) --
NET ASSET VALUE
End of period $ 19.06 $ 16.62 $ 15.75 $ 14.13 $ 10.43
----------------------------------------------------
Ratios/Supplemental Data
Total return(C) 14.68% 15.87% 16.76%* 46.51%* 4.30%*
Ratio of expenses to
average net assets 1.35%! 1.35% 1.35%* 1.35%* 1.35%*!
Ratio of net investment
income to average
net assets (0.32)%! 0.04% 0.02%* 0.08%* 2.71%*!
Portfolio turnover rate 38.2% 85.0% 107.3% 136.9% 134.5%!
Net assets,
end of period
(in thousands) $127,837 $109,055 $125,077 $ 61,923 $ 2,437
(C) Total return reflects the rate that an investor would have earned on an
investment in the fund during each period, assuming reinvestment of all
distributions.
* Excludes expenses in excess of a 1.35% voluntary expense limitation in
effect through 12/31/96.
! Annualized.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Capital Opportunity Fund
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Unaudited June 30, 1998
Statement of Net Assets
Shares/Par Value
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In thousands
Common Stocks 94.2%
FINANCIAL 8.9%
Bank and Trust 2.9%
BANC ONE 22,000 $ 1,228
BankBoston 20,000 1,113
Washington Mutual 30,000 1,302
3,643
Insurance 4.1%
Mid Ocean Limited 35,000 2,747
PartnerRe Holdings 50,000 2,550
5,297
Financial Services 1.9%
Fannie Mae 20,000 1,215
Freddie Mac 25,000 1,177
2,392
Total Financial 11,332
CONSUMER NONDURABLES 10.0%
Beverages 1.4%
PepsiCo 42,500 1,750
1,750
Pharmaceuticals 2.8%
Gilead Sciences * 30,000 962
Warner-Lambert 37,500 2,601
3,563
Health Care Services 1.9%
Concentra Managed Care * 50,000 1,299
Health Management Systems* 100,000 1,131
2,430
Miscellaneous Consumer Products 3.9%
Mattel 30,000 1,270
Newell 20,000 996
Service Corp. International 30,000 1,286
Stanley Works 35,000 1,455
5,007
Total Consumer Nondurables 12,750
CONSUMER SERVICES 20.1%
General Merchandisers 6.0%
Fred Meyer * 68,200 $ 2,899
Neiman-Marcus * 30,600 1,329
Warnaco Group (Class A) 80,000 3,395
7,623
Specialty Merchandisers 4.7%
General Nutrition * 60,000 1,871
Rite Aid 40,000 1,503
Safeway * 64,000 2,604
5,978
Entertainment and Leisure 3.3%
Hilton 70,000 1,995
Imax * 100,000 2,269
4,264
Media and Communications 6.1%
ADVO * 107,000 3,016
Catalina Marketing * 52,500 2,726
News Corporation ADR 75,000 2,119
7,861
Total Consumer Services 25,726
CONSUMER CYCLICALS 1.8%
Automobiles and Related 1.3%
AutoZone * 50,000 1,597
1,597
Building and Real Estate 0.5%
Crescent Real Estate Equities, REIT 20,000 672
672
Total Consumer Cyclicals 2,269
TECHNOLOGY 7.9%
Electronic Components 4.0%
Analog Devices * 30,000 737
Analogic 70,000 3,132
Xilinx * 35,000 1,191
5,060
Telecommunications Equipment 2.7%
MCI 60,000 $ 3,486
3,486
Aerospace and Defense 1.2%
AlliedSignal 35,000 1,553
1,553
Total Technology 10,099
CAPITAL EQUIPMENT 2.4%
Electrical Equipment 2.4%
Tyco International 48,132 3,032
Total Capital Equipment 3,032
BUSINESS SERVICES AND
TRANSPORTATION 30.1%
Computer Service and Software 8.6%
Affiliated Computer
Services (Class A) * 100,000 3,850
BISYS Group * 75,000 3,077
First Data 49,000 1,632
National Data 40,000 1,750
Synopsys * 15,000 687
10,996
Distribution Services 1.5%
U.S. Foodservice * 53,250 1,867
1,867
Environmental 2.3%
USA Waste Services * 60,000 2,963
2,963
Transportation Services 2.9%
Avis Rent A Car * 50,000 1,237
BE Aerospace * 86,000 2,521
3,758
Miscellaneous Business Services 14.8%
Acxiom * 36,500 914
Cendant * 85,000 1,774
Corporate Express * 177,300 2,244
Eltron International * 85,000 2,353
Interim Services * 70,000 2,249
M/A/R/C 71,000 $ 1,136
Renaissance Worldwide * 70,000 1,525
Romac International * 133,374 4,068
Snyder Communications * 60,000 2,640
18,903
Total Business Services and Transportation 38,487
ENERGY 3.5%
Energy Services 2.1%
Camco International 25,000 1,947
Smith International * 20,000 696
2,643
Exploration and Production 1.4%
EEX * 200,000 1,875
1,875
Total Energy 4,518
PROCESS INDUSTRIES 2.8%
Specialty Chemicals 2.8%
Great Lakes Chemical 30,000 1,183
International Specialty Products * 128,500 2,393
Total Process Industries 3,576
BASIC MATERIALS 2.4%
Mining 2.4%
Battle Mountain Gold 200,000 1,188
Prime Resources Group 281,800 1,955
Total Basic Materials 3,143
Miscellaneous Common Stocks 4.3% 5,510
Total Common Stocks (Cost $94,269) 120,442
Short-Term Investments 3.9%
Money Market Funds 3.9%
Government Reserve Investment Fund, 5.48% # 4,957,928 4,958
Total Short-Term Investments (Cost $4,958) 4,958
Total Investments in Securities
98.1% of Net Assets (Cost $99,227) $ 125,400
Other Assets Less Liabilities 2,437
NET ASSETS $ 127,837
----------
Net Assets Consist of:
Accumulated net investment income
- - net of distributions $ (147)
Accumulated net realized gain/loss
- - net of distributions 11,948
Net unrealized gain (loss) 26,173
Paid-in-capital applicable to
6,708,373 shares of $0.0001 par
value capital stock outstanding;
1,000,000,000 shares authorized 89,863
NET ASSETS $ 127,837
----------
NET ASSET VALUE PER SHARE $ 19.06
----------
* Non-income producing
# Seven-day yield
ADR American Depository Receipt
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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Unaudited
Statement of Operations
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In thousands
6 Months
Ended
6/30/98
Investment Income
Income
Dividend $ 366
Interest 252
Total income 618
Expenses
Investment management 504
Shareholder servicing 201
Custody and accounting 44
Prospectus and shareholder reports 31
Registration 11
Legal and audit 6
Directors 3
Miscellaneous 21
Total expenses 821
Net investment income (203)
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities 9,712
Change in net unrealized gain
or loss on securities 6,697
Net realized and
unrealized gain (loss) 16,409
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 16,206
---------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Capital Opportunity Fund
- --------------------------------------------------------------------------------
Unaudited
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
6 Months Year
Ended Ended
6/30/98 12/31/97
Increase (Decrease) in Net Assets
Operations
Net investment income $ (203) $ 46
Net realized gain (loss) 9,712 10,735
Change in net unrealized
gain or loss 6,697 4,648
Increase (decrease) in net
assets from operations 16,206 15,429
Distributions to shareholders
Net realized gain -- (9,517)
Capital share transactions*
Shares sold 25,407 25,621
Distributions reinvested -- 9,489
Shares redeemed (22,831) (57,044)
Increase (decrease) in
net assets from capital
share transactions 2,576 (21,934)
Net Assets
Increase (decrease) during period 18,782 (16,022)
Beginning of period 109,055 125,077
End of period $ 127,837 $ 109,055
---------------------------------
*Share information
Shares sold 1,410 1,600
Distributions reinvested -- 586
Shares redeemed (1,263) (3,564)
Increase (decrease)
in shares outstanding 147 (1,378)
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Capital Opportunity Fund
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Unaudited June 30, 1998
Notes to Financial Statements
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Capital Opportunity Fund, Inc. (the fund) is registered under the
Investment Company Act of 1940 as a nondiversified, open-end management
investment company and commenced operations on November 30, 1994.
The accompanying financial statements are prepared in accordance with generally
accepted accounting principles for the investment company industry; these
principles may require the use of estimates by fund management.
Valuation Equity securities listed or regularly traded on a securities exchange
are valued at the last quoted sales price on the day the valuations are made. A
security which is listed or traded on more than one exchange is valued at the
quotation on the exchange determined to be the primary market for such security.
Listed securities not traded on a particular day and securities regularly traded
in the over-the-counter market are valued at the mean of the latest bid and
asked prices. Other equity securities are valued at a price within the limits of
the latest bid and asked prices deemed by the Board of Directors, or by persons
delegated by the Board, best to reflect fair value.
Investments in mutual funds are valued at the closing net asset value per share
of the mutual fund on the day of valuation.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair value
as determined in good faith by or under the supervision of the officers of the
fund, as authorized by the Board of Directors.
Currency Translation Assets and liabilities are translated into U.S. dollars at
the prevailing exchange rate at the end of the reporting period. Purchases and
sales of securities and income and expenses are translated into U.S. dollars at
the prevailing exchange rate on the dates of such transactions. The effect of
changes in foreign exchange rates on realized and unrealized security gains and
losses is reflected as a component of such gains and losses.
Other Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses are
reported on the identified cost basis. Dividend income and distributions to
shareholders are recorded by the fund on the ex-dividend date. Income and
capital gain distributions are determined in accordance with federal income tax
regulations and may differ from those determined in accordance with generally
accepted accounting principles.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term securities,
aggregated $47,666,000 and $42,970,000, respectively, for the six months ended
June 30, 1998.
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, 1998, the aggregate cost of investments for federal income tax and
financial reporting purposes was $99,227,000, and net unrealized gain aggregated
$26,173,000, of which $28,984,000 related to appreciated investments and
$2,811,000 to depreciated investments.
NOTE 4 - RELATED PARTY TRANSACTIONS
The investment management agreement between the fund and T. Rowe Price
Associates, Inc. (the manager) provides for an annual investment management fee,
of which $62,000 was payable at June 30, 1998. The fee is computed daily and
paid monthly, and consists of an individual fund fee equal to 0.45% of average
daily net assets and a group fee. The group fee is based on the combined assets
of certain mutual funds sponsored by the manager or Rowe Price-Fleming
International, Inc. (the group). The group fee rate ranges from 0.48% for the
first $1 billion of assets to 0.30% for assets in excess of $80 billion. At June
30, 1998, and for the six months then ended, the effective annual group fee rate
was 0.32%. The fund pays a pro-rata share of the group fee based on the ratio of
its net assets to those of the group.
Under the terms of a previous investment management agreement, the manager was
required to bear any expenses through December 31, 1996, which would have caused
the fund's ratio of expenses to average net assets to exceed 1.35%. Thereafter,
through December 31, 1998, the fund is required to reimburse the manager for
these expenses, provided that average net assets have grown or expenses have
declined sufficiently to allow reimbursement without causing the fund's ratio of
expenses to average net assets to exceed 1.35%. Pursuant to this agreement,
$35,000 of unaccrued 1995-1996 fees were repaid during the six months ended June
30, 1998, and $59,000 remains subject to reimbursement through December 31,
1998.
In addition, the fund has entered into agreements with the manager and two
wholly owned subsidiaries of the manager, pursuant to which the fund receives
certain other services. The manager computes the daily share price and maintains
the financial records of the fund. T. Rowe Price Services, Inc., is the fund's
transfer and dividend disbursing agent and provides shareholder and
administrative services to the fund. T. Rowe Price Retirement Plan Services,
Inc., provides subaccounting and recordkeeping services for certain retirement
accounts invested in the fund. The fund incurred expenses pursuant to these
related party agreements totaling approximately $191,000 for the six months
ended June 30, 1998, of which $41,000 was payable at period-end.
The fund may invest in the Reserve Investment Fund and Government Reserve
Investment Fund (collectively, the Reserve Funds), open-end management
investment companies managed by T. Rowe Price Associates, Inc. The Reserve Funds
are offered as cash management options only to mutual funds and other accounts
managed by T. Rowe Price and its affiliates and are not available to the public.
The Reserve Funds pay no investment management fees. Distributions from the
Reserve Funds to the fund for the six months ended June 30, 1998, totaled
$246,000 and are reflected as interest income in the accompanying Statement of
Operations.
T. Rowe Price Shareholder Services
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KNOWLEDGEABLE SERVICE REPRESENTATIVES
By Phone 1-800-225-5132 Available Monday through Friday from 8 a.m. to 10 p.m.
ET and weekends from 8:30 a.m. to 5 p.m. ET.
In Person Available in T. Rowe Price Investor Centers.
ACCOUNT SERVICES
Checking Available on most fixed income funds ($500 minimum).
Automatic Investing From your bank account or paycheck.
Automatic Withdrawal Scheduled, automatic redemptions.
Distribution Options Reinvest all, some, or none of your distributions.
Automated 24-Hour Services Including Tele*Access(registered trademark) and the
T. Rowe Price Web site on the Internet. Address: www.troweprice.com
DISCOUNT BROKERAGE*
Individual Investments Stocks, bonds, options, precious metals, and other
securities at a savings over regular commission rates.
INVESTMENT INFORMATION
Combined Statement Overview of all your accounts with T. Rowe Price.
Shareholder Reports Fund managers' reviews of their strategies and results.
T. Rowe Price Report Quarterly investment newsletter discussing markets and
financial strategies.
Performance Update Quarterly review of all T. Rowe Price fund results.
Insights Educational reports on investment strategies and financial markets.
Investment Guides Asset Mix Worksheet, College Planning Kit, Diversifying
Overseas: A Guide to International Investing, Personal Strategy Planner,
Retirees Financial Guide, and Retirement Planning Kit.
*A division of T. Rowe Price Investment Services, Inc. Member NASD/SIPC.
T. Rowe Price Mutual Funds
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STOCK FUNDS
Domestic
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Diversified Small-Cap Growth
Dividend Growth
Equity Income
Equity Index 500*
Extended Equity Market Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Media & Telecommunications**
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons***
Real Estate
Science & Technology
Small-Cap Stock
Small-Cap Value***
Spectrum Growth
Total Equity Market Index
Value
International/Global
Emerging Markets Stock
European Stock
Global Stock
International Discovery
International Stock
Japan
Latin America
New Asia
Spectrum International
BOND FUNDS
Domestic Taxable
Corporate Income
GNMA
High Yield
New Income
Short-Term Bond
Short-Term U.S. Government
Spectrum Income
Summit GNMA
Summit Limited-Term Bond
U.S. Treasury Intermediate
U.S. Treasury Long-Term
Domestic Tax-Free
California Tax-Free Bond
Florida Insured
Intermediate Tax-Free
Georgia Tax-Free Bond
Maryland Short-Term Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Summit Municipal Intermediate
Tax-Free High Yield
Tax-Free Income
Tax-Free Insured
Intermediate Bond
Tax-Free Short-Intermediate
Virginia Short-Term
Tax-Free Bond
Virginia Tax-Free Bond
International/Global
Emerging Markets Bond
Global Bond!
International Bond
MONEY MARKET FUNDS!!
Taxable
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
Tax-Free
California Tax-Free Money
New York Tax-Free Money
Summit Municipal
Money Market
Tax-Exempt Money
BLENDED ASSET FUNDS
Balanced
Personal Strategy Balanced
Personal Strategy Growth
Personal Strategy Income
Tax-Efficient Balanced
T. ROWE PRICE NO-LOAD
VARIABLE ANNUITY
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
Mid-Cap Growth Portfolio
New America Growth Portfolio
Personal Strategy Balanced Portfolio
Prime Reserve Portfolio
* Formerly named Equity Index.
** Formerly the closed-end New Age Media Fund. Converted to open-end status
on 7/28/97.
*** Closed to new investors.
! Formerly named Global Government Bond.
!! Neither the funds nor their share prices are insured or guaranteed by
the U.S. government.
Please call for a prospectus. Read it carefully before investing.
The T. Rowe Price No-Load Variable Annuity [#V6021] is issued by Security
Benefit Life Insurance Company. In New York, it [#FSB201(11-96)] is issued by
First Security Benefit Life Insurance Company of New York, White Plains, NY. T.
Rowe Price refers to the underlying portfolios' investment managers and the
distributors, T. Rowe Price Investment Services, Inc.; T. Rowe Price Insurance
Agency, Inc.; and T. Rowe Price Insurance Agency of Texas, Inc. The Security
Benefit Group of Companies and the T. Rowe Price companies are not affiliated.
The variable annuity may not be available in all states. The contract has
limitations. Call a representative for costs and complete details of the
coverage.
T. Rowe Price Mutual Funds
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For yield, price, last transaction,
current balance, or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access(registered trademark):
1-800-638-2587 toll free
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
410-625-6500 Baltimore area
To open a Discount Brokerage
account or obtain information,
call: 1-800-638-5660 toll free
Internet address:
www.troweprice.com
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus of the
T. Rowe Price Capital Opportunity Fund.
Investor Centers:
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
"T. Rowe Price, Invest with Confidence"(registered trademark)
T. Rowe Price Investment Services, Inc., Distributor. F08-051 6/30/98
