PAGE 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. __)
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to Rule 14a-11(c) or Section Rule 14a-12
[ ] Confidential, For Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
T. Rowe Price Capital Appreciation Fund
_________________________________________________________________
(Name of Registrant as Specified in its Charter)
T. Rowe Price Capital Appreciation Fund
_________________________________________________________________
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i) and 0-11.
1) Title of each class of securities to which transaction applies:
_________________________________________________________
2) Aggregate number of securities to which transaction applies:
_________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): (1)
_________________________________________________________
4) Proposed maximum aggregate value of transaction:
_________________________________________________________
5) Total fee paid:
_________________________________________________________
[ ] Fee paid previously with preliminary materials.
_________________________________________________________
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
1) Amount previously paid:
_________________________________________________________
2) Form, schedule, or Registration Statement no.:
_________________________________________________________
3) Filing party:
_________________________________________________________
4) Date filed:
_________________________________________________________
PAGE 2
T. Rowe Price
_________________________________________________________________
T. Rowe Price Capital Appreciation Fund, 100 East Pratt Street, Baltimore, MD
21202
James S. Riepe
Vice President and Trustee
Fellow Shareholder:
An annual meeting of shareholders of the T. Rowe Price Capital Appreciation
Fund ("the Fund") will be held on Thursday, April 24, 1997, at 2 p.m.,in the
offices of the Fund's agent at 4200 West Cypress Street, Tampa, Florida. We
are asking you to vote on several matters and request that you vote your
shares by returning the enclosed proxy card even if you plan to join us for
the meeting.
As discussed in detail in the enclosed proxy materials, the Board of Trustees
of the Fund has recommended that the performance adjustment feature in the
Fund's advisory agreement be removed effective October 31, 1998. Currently,
the management fee is adjusted based on a comparison of the Funds performance
to the performance of the Standard & Poors 500 Composite Index ("the S&P
500"). The proposal, if approved, would remove the adjustment which would mean
that the Fund would pay a flat rate for management of the its assets.
If the performance adjustment were removed immediately, it is very likely the
Fund's advisory fees would increase. For this reason, the Trustees have
recommended that the performance adjustment be left in place until October 31,
1998. Additionally, the Trustees have recommended that, until October 31,
1998, the Fund pay management fees equal to the lesser of the flat rate or the
fee as determined with the performance adjustment.
In arriving at their recommendation, the Trustees determined that although the
S&P 500 is a widely used benchmark, it is not an appropriate benchmark for the
Fund. The Fund attempts to achieve its goal of capital appreciation with much
less risk and volatility than the S&P 500. As a result, the performance
adjustment may unfairly penalize the manager for successfully keeping risk and
volatility below that of the S&P 500.
Your participation in this vote is extremely important and we encourage you to
vote your proxy now and return it in the postage-paid envelope. Your early
response will be appreciated and could save your Fund the substantial costs
associated with a follow-up mailing.
Sincerely,
James S. Riepe
Vice President and Trustee
CUSIP# 77954M-10-5
PAGE 3
T. ROWE PRICE CAPITAL APPRECIATION FUND
Notice of Annual Meeting of Shareholders
April 24, 1997
An Annual Meeting of Shareholders of the T. Rowe Price Capital
Appreciation Fund (the "Fund"), a Massachusetts business trust, will be held
on Thursday, April 24, 1997, at 2 p.m., eastern time, in the offices of the
Fund's agent at 4200 West Cypress Street, Tampa, Florida. The following
matters will be acted upon at that time:
1. To elect eight trustees to serve until the next annual meeting, if
any, or until their successors shall have been duly elected and
qualified;
2. To consider and act upon a proposal to approve a new Investment
Management Agreement between the Fund and its investment manager,
T. Rowe Price Associates, Inc. ("T. Rowe Price"), by removing,
effective November 1, 1998, the performance fee adjustment set
forth in the current Investment Management Agreement;
3. To ratify or reject the selection of the firm of Coopers & Lybrand
L.L.P. as the independent accountants for the Fund for the fiscal
year 1997; and
4. To transact such other business as may properly come before the
meeting and any adjournments thereof.
LENORA V. HORNUNG
Secretary
March 7, 1997
100 East Pratt Street
Baltimore, Maryland 21202
PAGE 4
______________________________________________________________________________
YOUR VOTE IS IMPORTANT
Shareholders are urged to designate their choices on each of the matters to be
acted upon and to date, sign, and return the enclosed proxy in the envelope
provided, which requires no postage if mailed in the United States. Your
prompt return of the proxy will help assure a quorum at the meeting and avoid
the additional Fund expense of further solicitation.
______________________________________________________________________________
PAGE 5
T. ROWE PRICE CAPITAL APPRECIATION FUND
Annual Meeting of Shareholders--April 24, 1997
PROXY STATEMENT
This statement is furnished in connection with the solicitation of
proxies by the T. Rowe Price Capital Appreciation Fund (the "Fund"), a
Massachusetts business trust, for use at the Annual Meeting of Shareholders of
the Fund to be held on April 24, 1997, and at any adjournments thereof.
Shareholders are entitled to one vote for each full share, and a
proportionate vote for each fractional share, of the Fund held as of the
record date. Under Maryland law, shares owned by two or more persons (whether
as joint tenants, co-fiduciaries, or otherwise) will be voted as follows,
unless a written instrument or court order providing to the contrary has been
filed with the Fund: (1) if only one votes, that vote will bind all; (2) if
more than one votes, the vote of the majority will bind all; and (3) if more
than one votes and the vote is evenly divided, the vote will be cast
proportionately.
In order to hold the meeting, a majority of the Fund's shares entitled
to be voted must have been received by proxy or be present at the meeting. In
the event that a quorum is present but sufficient votes in favor of one or
more of the Proposals are not received by the time scheduled for the meeting,
the persons named as proxies may propose one or more adjournments of the
meeting to permit further solicitation of proxies. Any such adjournment will
require the affirmative vote of a majority of the shares present in person or
by proxy at the session of the meeting adjourned. The persons named as proxies
will vote in favor of such adjournment if they determine that such adjournment
and additional solicitation is reasonable and in the interests of the Fund's
shareholders.
The individuals named as proxies (or their substitutes) in the enclosed
proxy card (or cards if you have multiple accounts) will vote in accordance
with your directions as indicated thereon if your proxy is received properly
executed. You may direct the proxy holders to vote your shares on a Proposal
by checking the appropriate box "For" or "Against," or instruct them not to
vote those shares on the Proposal by checking the "Abstain" box.
Alternatively, you may simply sign, date and return your proxy card(s) with no
specific instructions as to the Proposals. If you properly execute your proxy
card and give no voting instructions with respect to a Proposal, your shares
will be voted FOR the Proposal. Any proxy may be revoked at any time prior to
its exercise by filing with the Fund a written notice of revocation, by
delivering a duly executed proxy bearing a later date, or by attending the
meeting and voting in person.
The Board of Trustees has fixed the close of business on February 21,
1997, as the record date for the determination of shareholders entitled to
notice of and to vote at the Annual Meeting or any adjournment thereof.
Abstentions and "broker non-votes" (as defined below) are counted for
purposes of determining whether a quorum is present for purposes of convening
PAGE 6
the meeting. "Broker non-votes" are shares held by a broker or nominee for
which an executed proxy is received by the Fund, but are not voted as to one
or more Proposals because instructions have not been received from the
beneficial owners or persons entitled to vote, and the broker or nominee does
not have discretionary voting power. If a Proposal must be approved by a
percentage of votes cast on the Proposal, for example (Proposal 1),
abstentions and broker non-votes will not be counted as "votes cast" on the
Proposal and will have no effect on the result of the vote. If the Proposal
must be approved by a percentage of voting securities present at the meeting,
for example (Proposal 3), abstentions and broker non-votes will be considered
to be voting securities that are present and will have the effect of being
counted as votes against the Proposal.
VOTE REQUIRED: A PLURALITY OF ALL VOTES CAST AT THE MEETING IS
SUFFICIENT TO APPROVE PROPOSAL 1 FOR THE FUND. A MAJORITY OF THE SHARES
PRESENT IN PERSON OR BY PROXY AT THE MEETING IS SUFFICIENT TO APPROVE PROPOSAL
3 FOR THE FUND. APPROVAL OF PROPOSAL 2 REQUIRES THE AFFIRMATIVE VOTE OF THE
HOLDERS OF THE LESSER OF (A) 67% OF THE SHARES PRESENT AT THE MEETING IN
PERSON OR BY PROXY, OR (B) A MAJORITY OF THE FUND'S OUTSTANDING SHARES.
Solicitation of proxies by telephone. In addition to soliciting proxies
by mail, in person or by telephone, the Fund may arrange to have votes
recorded by telephone. The telephone voting procedure is designed to
authenticate shareholders' identities, to allow shareholders to authorize the
voting of their shares in accordance with their instructions and to confirm
that their instructions have been properly recorded. The Fund has been advised
by counsel that these procedures are consistent with the requirements of
applicable law. If these procedures were subject to a successful legal
challenge, such votes would not be counted at the meeting. The Fund is unaware
of any such challenge at this time. Shareholders would be called at the
telephone number Price Associates has in its records for their accounts, and
would be asked for their social security number or other identifying
information. The shareholders would then be given an opportunity to authorize
proxies to vote their shares at the meeting in accordance with their
instructions. To ensure that the shareholders' instructions have been recorded
correctly, they will also receive a confirmation of their instructions in the
mail. A special toll-free number will be available in case the information
contained in the confirmation is incorrect.
The costs of the meeting, including the solicitation of proxies, will be
paid by the Fund. Persons holding shares as nominees will be reimbursed, upon
request, for their reasonable expenses in sending solicitation materials to
the principals of the accounts. In addition to the solicitation of proxies by
mail, trustees, officers, and/or employees of the Fund or of its investment
manager, T. Rowe Price Associates, Inc. ("T. Rowe Price"), may solicit proxies
in person or by telephone.
The approximate date on which this Proxy Statement and form of proxy are
first being mailed to shareholders is March 7, 1997.
PAGE 7
1. ELECTION OF TRUSTEES
The Fund's Board of Trustees has nominated the eight (8) persons listed
below for election as trustees, each to hold office until the next annual
meeting (if any) or until his or her successor is duly elected and qualified.
Each of the nominees, with the exception of M. David Testa, is a member of the
present Board of Trustees of the Fund and has served in that capacity since
originally elected. A shareholder using the enclosed proxy form can vote for
all or any of the nominees of the Board of Trustees or withhold his or her
vote from all or any of such nominees. If the proxy card is properly executed
but unmarked, it will be voted for all of the nominees. Each of the nominees
has agreed to serve as a trustee if elected; however, should any nominee
become unable or unwilling to accept nomination or election, the persons named
in the proxy will exercise their voting power in favor of such other person or
persons as the Board of Trustees of the Fund may recommend. There are no
family relationships among these nominees.
______________________________________________________________________________
Fund
Shares
Beneficially
Year Owned,
of Directly
Name, Address Principal Original or
and Age Occupations(1) Election Indirectly,
of Nominee as as of
Trustee 12/31/96(2)
Donald W. Dick Principal, EuroCapital 1986 --
EuroCapital Advisors, LLC, an acquisition and
Advisors LLC management advisory firm (7/95-present);
P.O. Box 491 formerly (5/89-6/95) Principal, Overseas
Chilmark, MA Partners, Inc., a financial investment firm;
02535-0491 formerly (6/65-3/89) Director and Vice President-
54 Consumer Products Division, McCormick &
Company, Inc., international food processors;
Director/Trustee: Waverly, Inc., and 38 other
T. Rowe Price Funds/Trusts
David K. Fagin Chairman, Chief Executive 1988 524.903
One Norwest Ctr. Officer and Director
1700 Lincoln St. Golden Star Resources, Ltd.;
Suite 1950 formerly (1986-7/91) President, Chief Operating
Denver, CO 80203 Officer and Director, Homestake Mining Company;
59 Director/Trustee of 25 other T. Rowe Price
Funds/Trusts
Hanne M. Merriman Retail business 1994 --
655 15th Street consultant; formerly,
Suite 300 President and Chief
Washington, D.C. Operating Officer (1991-92),
20005 Nan Duskin, Inc., a women's
55 specialty store; Director (1984-90)
PAGE 8
and Chairman (1989-90) Federal Reserve Bank
of Richmond; President and Chief Executive Officer
(1988-89), Honeybee, Inc., a division of
Spiegel, Inc.; Director, Ann Taylor Stores;
Central Illinois Public Service Company; CIPSCO
Incorporated; The Rouse Company; State Farm Mutual
Automobile Insurance Company and USAir Group, Inc.,
Director/Trustee of 25 other T. Rowe Price Funds/Trusts
*James S. Riepe Vice President and member 1986 15,063.379
100 E. Pratt St. of the Executive Committee of the Fund;
Baltimore, MD Managing Director, T. Rowe Price;
21202 Chairman of the Board, T. Rowe Price Investment
53 Services, Inc., T. Rowe Price Services, Inc.,
T. Rowe Price Trust Company, T. Rowe Price Retirement
Plan Services, Inc., and the following T. Rowe Price
Funds: Spectrum (since inception), Balanced (since
inception), Mid-Cap Growth (since inception), and Growth
& Income; Vice President of the T. Rowe Price
International Funds; Vice President and Director/Trustee
of 56 other T. Rowe Price Funds/Trusts; Director, Rowe
Price-Fleming International, Inc., T. Rowe Price Tax-Free
Insured Intermediate Bond Fund, Inc. (since inception)
and Rhone-Poulenc Rorer, Inc.
*M. David Testa Managing Director, T. Rowe Price; -- 1,011.642
100 East Pratt Chairman of the Board,
Street Rowe Price-Fleming International,
Baltimore, MD Inc., Vice President and Director, T. Rowe Price
21202 Trust Company; Chairman of the Board and Director of
53 17 T. Rowe Price Funds; President and Director of 4 T.
Rowe Price Funds; Director/Trustee, of 9 T. Rowe Price
Funds; Vice President and Director, T. Rowe Price
Balanced Fund, Inc. (since inception); and Vice
President, T. Rowe Price Spectrum Fund, Inc. (since
inception)
Hubert D. Vos President, 1986 --
1114 State St. Stonington Capital Corporation,
Suite 247 a private investment company;
Santa Barbara, CA Director/Trustee of 25 other
93190-0409 T. Rowe Price Funds/Trusts
63
Paul M. Wythes Founding General Partner, 1994 --
755 Page Mill Rd. Sutter Hill Ventures,
Suite A200 a venture capital limited partnership
Palo Alto, CA providing equity capital to young
94304 high technology companies throughout
63 the United States; Director/Trustee, Teltone Corporation,
Interventional Technologies, Inc., Stuart Medical, Inc.
and 38 other T. Rowe Price Funds/Trusts
PAGE 9
*George A. Roche Managing Director and 1994 2,485.633
100 E. Pratt St. Chief Financial Officer,
Baltimore, MD T. Rowe Price; Vice President and
21202 Director, Rowe Price Fleming International, Inc.;
55 Director, T. Rowe Price New Era and Small-Cap Value Funds
* Nominees considered "interested persons" of T. Rowe Price.
(1) Except as otherwise noted, each individual has held the office
indicated, or other offices in the same company, for the last five
years.
(2) In addition to the shares owned beneficially and of record by each of
the nominees, the amounts shown reflect the proportionate interests of
Messrs. Roche, Riepe and Testa in 102,289.425 shares of the Fund which
are owned by a wholly owned subsidiary of the Fund's investment manager,
T. Rowe Price. The amount shown also reflects the aggregate interest of
Mr. Riepe in 12,799.714 shares of the Fund owned by the T. Rowe Price
401k Plus Plan.
The trustees of the Fund who are officers or employees of T. Rowe Price
receive no remuneration from the Fund, and officers of the Fund receive no
remuneration from the Fund. For the year ended December 31, 1996, the non-
interested trustees as a group received from the Fund trustees' fees
aggregating $11,602, including expenses. Those nominees indicated by an
asterisk (*) are persons who, for purposes of Section 2(a)(19) of the
Investment Company Act of 1940 are considered "interested persons" of T. Rowe
Price. Each such nominee is deemed to be an "interested person" by virtue of
his officership, trusteeship and/or employment with T. Rowe Price. Messrs.
Dick, Fagin, Vos, and Wythes and Ms. Merriman are the independent trustees of
the Fund. The following table provides the amount of accrued remuneration
received by the Fund's trustees for the calendar year ended December 31, 1996.
The total compensation from the Fund complex is based on compensation received
from January 1, 1996 to December 31, 1996.
______________________________________________________________________________
Total
Compensation
Aggregate From Fund and
Compensation Fund Complex
Name of From the Paid to
Person/Position(a) Fund Trustees(b)
______________________________________________________________________________
Donald W. Dick, Jr./Trustee $1,693 $72,917
David K. Fagin/Trustee $2,646 $59,167
Hanne M. Merriman/Trustee $2,646 $59,167
Hubert D. Vos/Trustee $2,646 $59,167
Paul M. Wythes/Trustee $1,971 $69,667
PAGE 10
________________________________________________________________________
a The trustees of the Fund do not receive any pensions or retirement
benefits from the Fund or T. Rowe Price.
b The trustees' fees set forth in the above table for calendar year 1996
are based on the following fee schedules applicable to all independent
trustees of the T. Rowe Price funds: for the period January 1, 1996 to
September 30, 1996, the fee schedule was: a fee of $25,000 per year as
the initial fee for the first Price Fund/Trust on which a trustee
serves; a fee of $5,000 for each of the second, third, and fourth Price
Funds/Trusts on which a trustee serves; a fee of $2,500 for each of the
fifth and sixth Price Funds/Trusts on which a trustee serves; and a fee
of $1,000 for each of the seventh and any additional Price Funds/Trusts
on which a trustee serves. Beginning October 1, 1996, the schedule was
revised to an annual retainer of $65,000 per year for service on the
boards of the T. Rowe Price Domestic Funds, an additional annual
retainer of $15,000 for service on the boards of the T. Rowe Price
International Funds, and a fee of $1,000 for each Audit Committee
attended. The Price Fund group included 76 funds at December 31, 1996.
The Price Funds have established a Joint Audit Committee, which is
comprised of at least one independent trustee/director representing each of
the Price Funds. Messrs. Dick and Vos, trustees of the Fund, are members of
the Committee. The other members are John G. Schreiber and F. Pierce
Linaweaver. These trustees also receive a fee of $1,000 for each Committee
meeting attended. The Audit Committee holds two regular meetings during each
fiscal year (and two such meetings were held in 1996), at which time it meets
with the independent accountants of the Price Funds to review: (1) the
services provided; (2) the findings of the most recent audit; (3) management's
response to the findings of the most recent audit; (4) the scope of the audit
to be performed; (5) the accountants' fees; and (6) any accounting questions
relating to particular areas of the Price Funds' operations or the operations
of parties dealing with the Price Funds, as circumstances indicate.
The Board of Trustees of the Fund has an Executive Committee consisting
of the interested trustees of the Fund which is authorized to assume all the
powers of the Board to manage the Fund, in the intervals between meetings of
the Board, except the powers prohibited by statute from being delegated.
The Board of Trustees of the Fund has a Nominating Committee, which is
comprised of all the Price Fund's independent trustees. The Nominating
Committee, which functions only in an advisory capacity, is responsible for
reviewing and recommending to the full Board candidates for election as
independent trustees to fill vacancies on the Fund's Board of Trustees. The
Nominating Committee will consider written recommendations from shareholders
for possible nominees. Shareholders should submit their recommendations to the
Secretary of the Fund. Members of the Nominating Committee met informally
during the last full fiscal year, but the Committee as such held no formal
meetings.
The Board of Trustees held six meetings during the last full fiscal
year. Each trustee standing for reelection attended all of the meetings of the
Board of Trustees (held during the period for which he or she was a trustee)
PAGE 11
and (ii) all of the meetings held by all committees of the Board on which he
or she served.
2. PRESENT AND PROPOSED INVESTMENT MANAGEMENT AGREEMENTS
On February 5, 1997, the Board of Trustees of the Fund, including the
trustees who are not "interested persons" of T. Rowe Price or the Fund,
unanimously voted to approve a new management agreement between the Fund and
T. Rowe Price (the "Proposed Agreement"), which is identical to the Fund's
present investment advisory agreement (the "Present Agreement") except that
the Performance Fee Adjustment component of the Present Agreement would be
removed from the Proposed Agreement effective November 1, 1998. To prevent
unfairness to the Fund, during the initial 18-month period of the Proposed
Agreement (May 1, 1997-October 31, 1998), the Management Fee owed by the Fund
to T. Rowe Price can only be decreased, but not increased as a result of the
Performance Fee Adjustment. The Performance Fee Adjustment is described on
page ___.
If the Proposed Agreement is approved by the shareholders of the Fund,
it will become effective on May 1, 1997. If the Proposed Agreement is not
approved by the shareholders of the Fund, the Present Agreement will continue
in effect through April 30, 1998.
PRESENT AGREEMENT
Approval of Present Agreement
The Present Agreement was approved by the shareholders of the Fund on
April 22, 1987 and became effective on May 1, 1987. The Present Agreement was
submitted to shareholders at that time for the purpose of adopting the present
fee structure described below. By its terms, the Present Agreement will
continue in effect from year to year as long as it is approved annually by the
Fund's Board of Trustees (at a meeting called for that purpose) or by vote of
a majority of the Fund's outstanding shares. In either case, renewal of the
Present Agreement must be approved by a majority of the Fund's independent
Trustees. The Present Agreement is subject to termination without penalty on
60 days' written notice by either party to the other and will terminate
automatically in the event of assignment.
Role of T. Rowe Price
Under the Present Agreement, T. Rowe Price provides the Fund with
discretionary investment services. Specifically, T. Rowe Price is responsible
for supervising and directing the investments of the Fund in accordance with
the Fund's investment objective, program, and restrictions as provided in its
prospectus and Statement of Additional Information. T. Rowe Price is also
responsible for effecting all securities transactions on behalf of the Fund,
including the negotiation of commissions and the allocation of principal
business and portfolio brokerage. In addition to these services, T. Rowe Price
provides the Fund with a wide range of corporate administrative services. The
Present Agreement provides that the Fund will bear all expenses of its
operations not specifically assumed by T. Rowe Price.
PAGE 12
The Present Agreement also provides that T. Rowe Price, its directors,
officers, employees, and certain other persons performing specific functions
for the Fund will only be liable to the Fund for losses resulting from willful
misfeasance, bad faith, gross negligence, or reckless disregard of duty.
Management Fee
Group and Individual Fund Fee. For its services to the Fund under the
Present Agreement, T. Rowe Price is paid a management fee ("Management Fee")
consisting of three elements: a "group" fee ("Group Fee"), an "individual"
fund fee ("Individual Fund Fee"), and a Performance Fee Adjustment. The Group
Fee varies and is based on the combined net assets of all of the Price Funds
(other than institutional or "private label" funds, Equity Index, and Spectrum
Funds). The Fund's portion of the Group Fee is determined by the ratio of its
daily net assets to the daily net assets of all such Price Funds. Based on
combined Price Funds' assets of approximately $61 billion at December 31,
1996, the Group Fee was 0.33%. The Individual Fund Fee is 0.30% based on the
current net assets of the Fund.
Present Performance-Based Fee
The Group Fee and Individual Fund Fee are adjusted each month, upward or
downward, depending on whether, and to what extent, the investment performance
of the Fund exceeds, or is exceeded by, the record of the Standard & Poor's
500 Composite Index (the "Index" or "S&P 500") over the immediately preceding
36-month period. The amount of the adjustment is .02% for each percentage
point of difference between the performance of the Fund and the performance of
the Index. The Performance Fee Adjustment is subject to a maximum adjustment
of .30%.
PROPOSED AGREEMENT
The Proposed Agreement is identical to the Present Agreement except
that: (1) the Performance Fee Adjustment terminates on October 31, 1998; and
(2) during the period May 1, 1997 to October 31, 1998, the Performance Fee
Adjustment can only be negative, that is, the Management Fee due by the Fund
to T. Rowe Price during this period will be the lesser of the fee due
calculated in accordance with the Performance Fee Adjustment or the fee due
calculated without reference to the Performance Fee Adjustment.
Reference is made to the attached Proposed Agreement for more detailed
information about the services provided by T. Rowe Price to the Fund and the
calculation of the fees paid to T. Rowe Price.
MATTERS CONSIDERED BY THE BOARD OF TRUSTEES
On February 5, 1997, the Board of Trustees met to consider termination
of the Performance Fee Adjustment. In reviewing this matter, the Trustees
considered: (1) the fairness of the fee when Fund performance equals the
Index's performance (the "fulcrum" fee); (2) the appropriateness of the Index;
(3) the length of time over which performance is calculated; and (4) the
PAGE 13
computation of performance over a rolling 36-month period.
Why the Fund Has a Performance Fee
The Performance Fee Adjustment was adopted when the Fund began
operations in 1986. At that time, it was believed that the S&P 500 Index would
be an appropriate benchmark against which to measure the Fund's performance.
The Trustees believed it would be appropriate to reward T. Rowe Price if it
were able to outperform the Index and penalize T. Rowe Price if it failed to
do so.
Over the years, however, the Fund's investment emphasis has changed and
the Index no longer appears to be a fair or reasonable measure of the Fund's
performance. Since January 1989, when Richard Howard, the Chairman of the
Fund's advisory committee, took responsibility for the Fund, the Fund has been
pursuing its investment program in a manner which generally has resulted in an
investment portfolio significantly less volatile than the Index. As a result,
during this time, the Fund's performance has exceeded that of the S&P 500 when
the Index's return has been 10% or less in a year, and the Fund has lagged the
Index when the S&P 500's return has been more than 10% in a year. This is
demonstrated in the chart below.
S&P 500 CAF
Year Return Return Difference
1996 23.0% 16.8% (6.2%)
1995 37.6% 22.6% (15.0%)
1994 1.3% 3.8% 2.5%
1993 10.1% 15.7% 5.6%
1992 7.6% 9.4% 1.8%
1991 30.5% 21.6% (8.9%)
1990 (3.1%) (1.3%) 1.8%
1989 31.7% 21.4% (10.3%)
1988 16.6% 21.2% 4.6%
1987 5.1% 5.7% 0.6%
1986 (1.8%) 8.5% 10.3%
The more conservative nature of the Fund's portfolio relative to the
Index can be seen by the composition of the Fund on December 31, 1996.
Common Stocks 50.4%
Convertible Bonds 27.6%
Preferred Stocks 5.2%
Government Bonds 7.5%
Cash Reserves 10.0%
Other (0.7%)
100.0%
Typically, the Fund's cash and fixed income positions have averaged 15%
to 20%. By contrast, the Index consists of 100% common stocks. Thus, it is not
meaningful to compare the Fund's performance with that of the Index. The Fund
attempts to reduce risk as well as maximize gains.
PAGE 14
Capital Appreciation Fund Experience With the Performance Fee
Since the Performance Fee's inception, there have been 114 monthly
performance calculations: an increased fee was paid 52 times; a decreased fee
60 times; and no fee adjustment was made only two times. The monthly fee
payment has been increased by as much as $84,000 (December 1994) and decreased
by as much as $187,000 (November 1996).
Until 1996, the cumulative effect of the Performance Fee Adjustments was
roughly neutral -- increases essentially offset decreases. Through the first
11 months of 1996, however, the fee was adjusted downward by about $1.5M,
reducing the Group and Individual Fund Fees from .63% to .46%.
In light of these facts, the Board decided it would be appropriate to
eliminate the Performance Fee Adjustment of the Management Fee. In order to
avoid the unfairness which could result to the Fund by eliminating the
Performance Fee Adjustment during the Fund's recent period of underperformance
relative to the Index, the Board decided that during the 18-month phase-out
period, the Performance Fee Adjustment will remain in effect only to the
extent it will decrease the fee payable to T. Rowe Price.
Additional Board Deliberations
On March 5, 1997, in connection with their annual review of the advisory
contracts of all the equity mutual funds managed by T. Rowe Price, the Board
of Trustees met again and reviewed extensive data provided to it by T. Rowe
Price. This included: (1) the nature and quality of the services rendered and
the results achieved by T. Rowe Price in the areas of investment performance;
(2) the payments received by T. Rowe Price and its affiliates from all sources
involving both the Fund and the other Price Funds; (3) extensive financial,
personnel, and structural information as to the T. Rowe Price organization,
including the costs borne by, and profitability of, T. Rowe Price and its
affiliates in providing services of all types to the Fund, the other Price
Funds and with respect to T. Rowe Price's other investment advisory services;
(4) a comparison of the overall profitability of T. Rowe Price to the
profitability of other investment advisers; (5) information as to the
management fees charged the other Price Funds as well as T. Rowe Price's other
advisory clients; (6) competitive industry fee structures and expense ratios;
(7) the organizational capabilities and financial condition of T. Rowe Price;
and (8) the fall-out benefits which T. Rowe Price and its affiliates may have
received from T. Rowe Price's relationship to the Fund.
The Board also compared the Management Fees that the Fund has paid under
the Present Agreement with the Management Fees that the Fund would have paid
under the Proposed Agreement had it been in effect during the most recent
fiscal year and information concerning the Fund's expense ratios on both an
existing and pro forma basis.
In addition, the Trustees considered the benefits received by T. Rowe
Price in the form of research services from broker dealers which effect
securities transactions for the T. Rowe Price Funds. Research services
received from brokers and dealers are supplemental to T. Rowe Price's own
research effort. As a practical matter, it would not be possible for T. Rowe
PAGE 15
Price's Equity Research Division to generate all of the information presently
provided by brokers and dealers. T. Rowe Price pays cash for certain research
services received from external sources. T. Rowe Price also allocates
brokerage from the T. Rowe Price Funds for research services which are
available for cash. While receipt of research services from brokerage firms
has not reduced T. Rowe Price's normal research activities, the expenses of
T. Rowe Price could be materially increased if it attempted to generate such
additional information through its own staff. To the extent that research
services of value are provided by brokers or dealers, T. Rowe Price may be
relieved of expenses which it might otherwise bear.
Effect of Removal of the Performance Fee
The effect of the proposed removal of the Performance Fee Adjustment on
the Fund's Individual Fund Fee and Group Fee Rates is set forth below, by
showing what the combination of the Individual and Group Fund Fee would have
been for the most recent year if the Performance Fee had not been in effect.
12 Months Ended
Dec. 31, 1996
__________________
($ Millions)
Effective Management Fee Rate
-Present agreement 0.46%
-Proposed agreement 0.63%
-Percentage change 37.00%
Expense Ratio
-Present agreement 0.76%
-Proposed agreement 0.93%
-Percentage change 22.37%
Management Fee
-Present agreement $4,218,000
-Proposed agreement $5,748,000
-Difference between
aggregate amounts $1,530,000
-Percentage change 36.27%
Average Net Assets of
the Fund $910,511,000
Shown below is a comparison between all expenses and fees the Fund
incurred during its fiscal year ended December 31, 1996, and the fees and
expenses the Fund would have incurred had the proposed fee change been in
effect.
Shareholder Transaction Expenses
Sales load "charge" on purchases None
Sales load "charge" on reinvested dividends None
PAGE 16
Redemption fees None
Exchange fees None
Annual Fund Expenses
Current Proposed
Management fee 0.46% 0.63%
Distribution fees (12b-1) None None
Total other (Shareholder servicing,
custodial, auditing, etc.)+ 0.30% 0.30%
Total Fund Expenses+ 0.76% 0.93%
+ A $5 fee is charged for wire redemptions under $5,000, subject to change
without notice, and a $10 fee is charged for small accounts when applicable.
The following example illustrates, for both the existing fee schedule
and the proposed fee change, the expenses you would incur on a $1,000
investment, assuming a 5% annual rate of return and redemption at the end of
each period shown. This is an illustration only. Actual expenses and
performance may be more or less than shown.
1 3 5 10
Year Years Years Years
Current $8 $24 $42 $ 94
Proposed $9 $30 $51 $114
Fees on Similar Funds
T. Rowe Price also acts as investment adviser or subadviser to several
registered investment companies (Price Funds and "Non-Price Funds") having
similar investment objectives and policies to those of the T. Rowe Price
Capital Appreciation Fund. For this purpose, Price Funds are mutual funds
sponsored by T. Rowe Price and Non-Price Funds are mutual funds not sponsored
by T. Rowe Price.
The following table sets forth the name of each investment company
having similar investment objectives to the T. Rowe Price Capital Appreciation
Fund, the annual rate of compensation (i.e., the fee T. Rowe Price is paid for
its services as adviser or subadviser to the respective portfolio), and net
assets as of 12/31/96.
______________________________________________________________________________
Net Assets Annual Rate Fees
Investment of Fund at of Com- Waived
Name of Fund Objective 12/31/96 pensation or Reduced
T. Rowe Price Maximum capital $959,942,000 0.63% (See
PAGE 17
Capital appreciation, while discussion
Appreciation Fund limiting risk and under
volatility "Present
Agreement")
Penn Series Capital $396,258,922 0.50%* of No
Funds, Inc. appreciation average
and income daily net
assets(a)
Ohio National Maximum capital $37,967,035 0.70%* of No
Fund, Inc. growth the first
$5 million and
0.50% of average
daily net assets in
excess of $5 million(a)
T. Rowe Price Long-term capital $2,489,000,000 0.58% No
Growth & Income growth, a reasonable
Fund level of current income,
and increasing future income
T. Rowe Price Substantial $7,818,000,000 0.58% No
Equity dividend income
Income Fund as well as long-
term capital
appreciation
T. Rowe Price Dividend income $209,498,000 0.53% Yes(b)
Dividend over time, long-
Growth Fund term capital
appreciation,
and reasonable
current income
T. Rowe Price Long-term capital $197,846,000 0.68% Yes(c)
Value Fund appreciation; income
is a secondary
objective
(a) T. Rowe Price does not provide administrative services to the Penn
Series and Ohio National Funds to the same degree as it does the other
funds in this table.
(b) In the interest of limiting the expenses of the Dividend Growth Fund
during its initial period of operations, T. Rowe Price agreed to waive
fees and bear any expenses through December 31, 1994 which would cause
the fund's ratio of expenses to average net assets to exceed 1.00%.
Effective January 1, 1995, the expense limitation was increased from
1.00% to 1.10% for a period of two years. Fees waived or expenses paid
or assumed under the agreements are subject to reimbursement to T. Rowe
Price by the fund whenever the fund's expense ratio if below 1.00% (for
the first agreement), or 1.10% (for the second agreement); however, no
PAGE 18
reimbursement will be made after December 31, 1996 (for the first
agreement), or after December 31, 1998 (for the second agreement). Any
amounts reimbursed will have the effect of increasing fees otherwise
paid by the fund. Organizational expenses will be charged to the fund
over a period not to exceed 60 months.
(c) In the interest of limiting the expenses of the Value Fund during its
initial period of operations, T. Rowe Price agreed to waive fees and
bear any expenses through December 31, 1996 which would cause the fund's
ratio of expenses to average net assets to exceed 1.10%. Fees waived or
expenses paid or assumed under this agreement are subject to
reimbursement to T. Rowe Price by the fund whenever the fund's expense
ratio if below 1.10%; however, no reimbursement will be made after
December 31, 1998, or if it would result in the expense ratio exceeding
1.10%. Any amounts reimbursed will have the effect of increasing fees
otherwise paid by the fund. Without this expense limitation it is
estimated that the fund's management fee, other than expense and total
expense ratio would have been 0.69%, 1.02%, and 1.71%, respectively.
Organizational expenses will be charged to the fund over a period not to
exceed 60 months.
_____________________________________________________________________________
If approved, the Proposed Agreement will continue in effect until
April 30, 1998, and thereafter from year to year as long as it is approved
annually by the Board of Trustees of the Fund at a meeting called for that
purpose or by a vote of the Fund's outstanding shares. If the Proposed
Agreement is not approved by the shareholders, the Present Agreement will
continue in effect through April 30, 1998.
3. RATIFICATION OR REJECTION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The selection by the Board of Trustees of the firm of Coopers & Lybrand
L.L.P. as the independent accountants for the Fund for the fiscal year ending
December 31, 1997, is to be submitted for ratification or rejection by the
shareholders at the Meeting. The firm of Coopers & Lybrand L.L.P. has served
the Fund as independent accountants since inception. The independent
accountants have advised the Fund that they have no direct or material
indirect financial interest in the Fund. Representatives of the firm of
Coopers & Lybrand L.L.P. are expected to be present at the Meeting and will be
available to make a statement, if they desire to do so, and to respond to
appropriate questions which the shareholders may wish to address to them.
OTHER BUSINESS
The management of the Fund knows of no other business which may come
before the meeting. However, if any additional matters are properly presented
at the meeting, it is intended that the persons named in the enclosed proxy,
or their substitutes, will vote such proxy in accordance with their judgment
on such matters.
T. Rowe Price
Directors of T. Rowe Price
PAGE 19
The Fund's investment manager is T. Rowe Price, a Maryland corporation,
100 East Pratt Street, Baltimore, Maryland 21202. The principal executive
officer of T. Rowe Price is George J. Collins, who together with Mr. Riepe,
James E. Halbkat, Jr., Henry H. Hopkins, James A. C. Kennedy III, John H.
Laporte, Richard L. Menschel, William T. Reynolds, George A. Roche, John W.
Rosenblum, Robert L. Strickland, M. David Testa, Philip C. Walsh, and Anne
Marie Whittemore, constitute its Board of Directors. The address of each of
these persons, with the exception of Messrs. Halbkat, Menschel, Rosenblum,
Strickland, Walsh, and Mrs. Whittemore, is 100 East Pratt Street, Baltimore,
Maryland 21202, and, with the exception of Messrs. Halbkat, Menschel,
Rosenblum, Strickland, Walsh, and Mrs. Whittemore, all are employed by T. Rowe
Price. Mr. Halbkat is President of U.S. Monitor Corporation, a provider of
public response systems. Mr. Halbkat's address is: P.O. Box 23109, Hilton
Head Island, South Carolina 29925. Mr. Menschel is a limited partner of The
Goldman Sachs Group, L.P. Mr. Menschel's address is 85 Broad Street, 2nd
Floor, New York, New York 10004. Mr. Rosenblum is the Dean of the Jepson
School of Leadership Studies at the University of Richmond, and a director of:
Chesapeake Corporation, a manufacturer of paper products; Cadmus
Communications Corp., a provider of printing and communication services;
Comdial Corporation, a manufacturer of telephone systems for businesses; Cone
Mills Corporation, a textiles producer, and Providence Journal Company, a
publisher of newspapers and owner of broadcast television stations. Mr.
Rosenblum's address is: University of Richmond, Virginia 23173. Mr.
Strickland is Chairman of Lowe's Companies, Inc., a retailer of specialty home
supplies and a Director of Hannaford Bros., Co., a food retailer. Mr.
Strickland's address is 604 Two Piedmont Plaza Building, Winston-Salem, North
Carolina 27104. Mr. Walsh is a Consultant to Cyprus Amax Minerals Company,
Englewood, Colorado. Mr. Walsh's address is: Pleasant Valley, Peapack, New
Jersey 07977. Mrs. Whittemore is a partner of the law firm of McGuire, Woods,
Battle & Boothe and is a director of Owens & Minor, Inc.; USF&G Corporation;
the James River Corporation of Virginia; and Albemarle Corporation. Mrs.
Whittemore's address is One James Center, Richmond, Virginia 23219.
The officers of the Fund (other than the nominees for election as
trustees) and their positions with T. Rowe Price are as follows:
_________________________________________________________________
Position Position With
Officer With Fund T. Rowe Price
_________________________________________________________________
Richard P. Howard President Vice President
Arthur B. Cecil III Vice President Vice President
Henry H. Hopkins Vice President Managing Director
Charles A. Morris Vice President Managing Director
Charles M. Ober Vice President Vice President
James S. Riepe Vice President Managing Director
Lenora V. Hornung Secretary Vice President
Carmen F. Deyesu Treasurer Vice President
David S. Middleton Controller Vice President
J. Jeffrey Lang Assistant Vice President Assistant Vice President
Ingrid I. Vordemberge Assistant Vice President Employee
Patricia S. Butcher Assistant Secretary Assistant Vice
PresidentPAGE 20
The Fund has an Underwriting Agreement with T. Rowe Price Investment
Services, Inc. ("Investment Services"), a Transfer Agency Agreement with
T. Rowe Price Services, Inc. ("Price Services") and an Agreement with T. Rowe
Price Retirement Plan Services, Inc. ("Retirement Services"). Each of these
entities is a wholly owned subsidiary of T. Rowe Price. The address of each is
100 East Pratt Street, Baltimore, Maryland 21202. James S. Riepe, Trustee of
the Fund, is Chairman of the Board of Price Services, Retirement Plan
Services, and Investment Services. Henry H. Hopkins, a Vice President of the
Fund, is a Vice President and Director of both Investment Services and Price
Services and a Vice President of Retirement Services. Certain officers of the
Fund own shares of the common stock of T. Rowe Price, its only class of
securities.
Other Services Provided by T. Rowe Price
In addition to the services provided under the Present Agreement, Price
Services and Retirement Services perform certain non-advisory services for the
Fund under separate service contracts. T. Rowe Price also provides certain
accounting services for the Fund. Specifically,
(i) Price Services provides certain transfer agency and other
shareholder administrative and communication services for all accounts, for
which the Fund paid Price Services fees totaling $665,000 for the fiscal year
ended December 31, 1996,(ii) Retirement Services performs certain
subaccounting and record keeping services with respect to shareholder accounts
in certain retirement plans for which the Fund paid retirement services fees
totaling $1,298,000 for the same period, and (iii) T. Rowe Price calculates
the daily share price and maintains the portfolio and general accounting
records of the Fund, for which the Fund paid T. Rowe Price fees totaling
$85,000 for the same period. All such fees are reviewed annually by the Fund's
Directors in connection with renewal of the service contracts involving these
entities. The services provided by these entities will continue to be provided
whether or not the Proposed Agreement is approved.
The T. Rowe Price Trust Company (the "Trust Company"), a wholly owned
subsidiary of T. Rowe Price, serves as trustee and custodian for certain IRA,
Keogh, and other prototype plans which utilize the Price Funds as investment
options. For these services, the Trust Company charges each such shareholder
account a fiduciary fee. During 1996, the aggregate of such fees totaled
approximately $2,958,000 (of this amount, approximately $_____________ were
paid with respect to Fund accounts). In addition, Retirement Services provides
administrative services to certain defined contribution retirement plans.
During 1996, Retirement Services received fees from all plans utilizing such
services in the amount of $16,415,000.
Investment Services, the distributor for the Price Funds, makes
available to shareholders of the Price Funds a discount brokerage service.
During 1996, this service generated net commissions totaling $9,025,000.
Transactions in T. Rowe Price Stock
The following information pertains to transactions involving common
stock of T. Rowe Price, par value $.20 per share ("Stock"), during the period
PAGE 21
January 1, 1996 through December 31, 1996. On April 30, 1996, the Company
split these shares 2-for-1. All share data in this section has been adjusted
to reflect this stock split. There were no transactions during the period by
any trustee or officer of the Fund, or any trustee or officer of T. Rowe Price
which involved more than 1% of the outstanding stock of T. Rowe Price. These
transactions did not involve, and should not be mistaken for, transactions in
the stock of the Fund.
During the period, certain employees exercised their options for a total
of 939,925 shares of stock at an average price $7.28 per share. Pursuant to
the terms of T. Rowe Price's Employee Stock Purchase Plan, eligible employees
of T. Rowe Price and its subsidiaries purchased an aggregate (including
dividends reinvested) of 107,795 shares of stock at fair market value. Such
shares were purchased in the open market during this period for employees'
accounts.
T. Rowe Price's Board of Trustees has approved the repurchase of shares
of its stock in the open market. During 1996, T. Rowe Price purchased 640,000
shares of stock under this plan, leaving 2,700,000 shares of Stock authorized
for future repurchase at December 31, 1996.
During the period, T. Rowe Price issued 1,913,000 common stock options
with an average exercise price of $35.88 per share to certain employees and
directors under terms of the 1990 and 1993 Stock Incentive Plans and the 1995
Director Stock Option Plan.
GENERAL INFORMATION ABOUT THE FUND
Share Ownership of Fund
As of December 31, 1996, there were 66,341,612 shares of the capital
stock of the Fund outstanding, each without par value. Of those shares,
approximately __________, representing __% of the outstanding stock, were
registered to the T. Rowe Price Trust Company as Trustee for participants in
the T. Rowe Price Funds Retirement Plan for Self-Employed (Keogh), as Trustee
for participants in T. Rowe Price 401k Plus Plan, as Custodian for
participants in the T. Rowe Price Funds Individual Retirement Account (IRA),
as Custodian for participants in various 403(b)(7) plans, and as Custodian for
various Profit Sharing and Money Purchase plans. The T. Rowe Price Trust
Company has no beneficial interest in such accounts, nor in any other account
for which it may serve as trustee or custodian.
As of December 31, 1996, approximately 10,095 shares of the Fund,
representing approximately 0.02% of the outstanding stock, were owned by
various private counsel clients of T. Rowe Price, as to which T. Rowe Price
has discretionary authority. Accordingly, such shares are deemed to be owned
beneficially by T. Rowe Price only for the limited purpose as that term is
defined in Rule 13d-3 under the Securities Exchange Act of 1934. T. Rowe Price
disclaims actual beneficial ownership of such shares. In addition, as of
December 31, 1996, a wholly owned subsidiary of T. Rowe Price owned directly
102,289.425 shares of the Fund, representing approximately 0.15% of the
outstanding stock.
PAGE 22
Principal Holders
As of January 31, 1997, approximately 5,003,851 shares of the Fund,
representing 7.00% of the outstanding stock, were owned by Charles Schwab &
Co., Inc., Reinvest. Account, Attn.: Mutual Fund Department, 101 Montgomery
Street, San Francisco, CA 94104-4122.
Security Ownership of Management
______________________________________________________________________________
Name of Beneficial Owner Amount and Nature
and Position With Fund of Ownership
George J. Collins, Trustee 3,068.683
Donald W. Dick, Trustee --
David K. Fagin, Trustee 524.903
Hanne M. Merriman, Trustee --
James S. Riepe, Trustee 15,063.379
Hubert D. Vos, Trustee --
Paul M. Wythes, Trustee --
George A. Roche, Trustee 2,485.633
M. David Testa, Nominee 1,011.642
Richard P. Howard, President 6,228.927
Management as a Group 28,383.167
(a) All securities listed represent ownership in shares of common stock.
(b) In addition to the shares owned beneficially and of record by each of
the nominees, the amounts shown reflect the proportionate interest of
Mr. Riepe in 102,289 shares of the Fund which are owned by a wholly
owned subsidiary of the Fund's investment manager, T. Rowe Price. The
amount shown also reflects the aggregate interest of Messrs. Riepe and
Howard in 18,819 shares of the Fund owned by the T. Rowe Price 401k Plus
Plan.
(c) Management as a group, as well as each member of management
individually, own less than one percent of the outstanding shares of the
Fund.
______________________________________________________________________________
As of December 31, 1996, the officers and trustees of the Fund, as a
group, beneficially owned, directly or indirectly, 38,932.584 shares,
representing approximately 0.06% of the Fund's outstanding stock. The
ownership of the officers and trustees reflects their proportionate interests,
if any, in 102,289.425 shares of the Fund which are owned by a wholly owned
subsidiary of the Fund's investment manager, T. Rowe Price, and their
interests in 28,693.412 shares owned by the T. Rowe Price 401(k) Plus Plan.
A COPY OF THE ANNUAL REPORT OF THE FUND FOR THE YEAR ENDED DECEMBER 31, 1996,
INCLUDING FINANCIAL STATEMENTS WAS MAILED TO ALL SHAREHOLDERS OF RECORD AT THE
CLOSE OF BUSINESS ON THAT DATE. HOWEVER, A COPY OF THIS REPORT WILL BE
PROVIDED, WITHOUT CHARGE, TO ANY SHAREHOLDER UPON REQUEST. PLEASE CALL T. ROWE
PRICE AT 1-800-225-5132 OR WRITE TO 100 EAST PRATT STREET, BALTIMORE, MARYLAND
21202 TO REQUEST THE REPORT.
PAGE 23
ANNUAL MEETINGS
Under Massachusetts Law, the Fund is not required to hold an annual
meeting. The Board of Trustees of the Fund has determined that in order to
avoid the significant expense associated with holding annual meetings,
including legal, accounting, printing and mailing fees incurred in preparing
proxy materials, the Fund will take advantage of these Massachusetts law
provisions. Accordingly, no annual meetings shall be held in any year in which
a meeting is not otherwise required to be held by the Act unless the Board of
Trustees otherwise determines that there should be an annual meeting. However,
special meetings will be held in accordance with applicable law or when
otherwise determined by the Board of Trustees. The Fund's By-Laws reflect this
policy.
SHAREHOLDER PROPOSALS
If a shareholder wishes to present a proposal to be included in the
Proxy Statement for the next Annual Meeting, and if such Annual Meeting is
held in April 1998, such proposal must be submitted in writing and received by
the Fund's Secretary at its Baltimore office prior to November 10, 1997.
PAGE 24
T. ROWE PRICE (LOGO) PROXY
_______________________________________________________________
INSTRUCTIONS:
1. Cast your vote by checking the appropriate boxes on the reverse side. If
you do not check a box, your vote will be cast FOR that proposal.
2. Sign and date the card below.
3. Please return the signed card promptly using the enclosed postage paid
envelope, even if you will be attending the meeting.
4. Please do not enclose checks or any other correspondence.
Please fold and detach card at perforation before mailing.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
T. ROWE PRICE CAPITAL APPRECIATION FUND
ANNUAL MEETING: 2 P.M. EASTERN TIME
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby appoints Henry H. Hopkins and James S. Riepe, as
proxies, or either or them, each with the power to appoint his substitute, and
hereby authorizes them to represent and to vote, as designated below, all
shares of stock of the Fund, which the undersigned is entitled to vote at the
Annual Meeting of Shareholders to be held on Thursday, April 24, 1997, at the
time indicated above, in the offices of the Fund's agent at 4200 West Cypress
Street, Tampa, Florida, 33607, and at any and all adjournments thereof, with
respect to the matters set forth below and described in the Notice of Annual
Meeting and Proxy Statement dated March 7, 1997, receipt of which is hereby
acknowledged.
Dated: _________________, 1997
Please sign exactly as name appears. Only
authorized officers should sign for
corporations. For information as to the
voting of stock registered in more than
one name, see page __ of the Notice of
Annual Meeting and Proxy Statement.
______________________________
/ /
/ /
/ /
______________________________
Signature(s)
CUSIP# 77954M-10-5
(FRONT)
PAGE 25
T. ROWE PRICE (LOGO) WE NEED YOUR PROXY VOTE BEFORE APRIL 24, 1997
_________________________________________________________________
Please refer to the Proxy Statement discussion of each matter.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE SHAREHOLDER. IF NO DIRECTION IS MADE FOR A PROPOSAL, THIS PROXY WILL
BE VOTED FOR THE PROPOSAL.
Please fold and detach card at perforation before mailing.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOXES BELOW, AS SHOWN, USING BLUE OR
BLACK INK OR DARK PENCIL. DO NOT USE RED INK.
1. Election of FOR all nominees / / WITHHOLD AUTHORITY / /
trustees. listed below (except to vote for all
as marked to the nominees listed below
contrary)
M. David Testa Donald W. Dick, Jr. David K. Fagin Hanne M. Merriman
James S. Riepe George A. Roche Hubert D. Vos Paul M. Wythes
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL NOMINEE WRITE
THE NOMINEE'S NAME ON THE LINE BELOW.)
___________________________________________________
2. Amendment of the Fund's Investment Management Agreement.
FOR / / AGAINST / / ABSTAIN / /
3. Ratify the selection of Coopers & Lybrand L.L.P. as independent
accountants.
FOR / / AGAINST / / ABSTAIN / /
4. In their discretion, the Proxies are authorized to consider and act upon
such other business as may properly come before the meeting.
CUSIP# 77954M-10-5
(BACK)