Semiannual Report
Tax-Efficient Balanced Fund
August 31, 1997
T. Rowe Price
Report Highlights
Tax-Efficient Balanced Fund
o Your fund commenced operations on June 30 and posted a good
return for the two-month period.
o Since inception, the fund has been almost fully invested in
pursuit of its primary goal of providing attractive
long-term after-tax returns.
o In the bond portion, we emphasized diversified holdings
with prospects for good yield and total return.
o We emphasized a growth approach among stocks with market
leaders primarily in the technology, financial, and health
care sectors.
o We believe the environment is still favorable for stock and
bond investors due to low inflation combined with strong
economic growth and government fiscal restraint.
Fellow Shareholders
This is our first report to you since the fund began operations
on June 30, 1997, and we would like to welcome all shareholders.
The prices of stocks and municipal bonds declined in August
after advancing in July. Nevertheless, your fund produced an
attractive return for the two months ended August 31.
MARKET ENVIRONMENT
The two-month period began with bond prices rising and interest
rates falling as inflation remained subdued and early signs
indicated that second quarter growth would be moderate. Then,
rates reversed in August as stronger-than-expected economic data
changed the outlook for the third quarter. In the municipal
market, the yield on long-term AAA general obligation (GO) bonds
began the two-month period at 5.45% and fell to 5.15% before
settling at 5.35% at the end of August. Five-year AAA GO yields
were 4.40% two months ago and finished at 4.35%.
Municipal Bond Yields chart showing 30-year AAA GO bond and
5-year AAA GO note from 8/96 through 8/97]
30-Year AAA 5-Year AAA
8/31/86 5.75 4.55
5.55 4.5
5.5 4.4
11/96 5.35 4.2
5.45 4.35
5.55 4.45
2/97 5.5 4.35
5.75 4.75
5.6 4.8
5/97 5.5 4.55
5.45 4.4
5.15 4.15
8/31/97 5.35 4.35
The continuation of strong economic growth combined with low
inflation and rising corporate profits provided an ideal
environment for stocks as well as bonds. Large-cap stocks
advanced sharply from April through the end of July before the
August correction. Small- and mid-cap issues came to life during
the final month of the period, after having lagged S&P 500
issues throughout the year. We believe our growth stock approach
to stock selection will serve investors well at this stage of
the economic cycle.
The Taxpayer Relief Act of 1997 contained positive news for
municipal bond investors by keeping income tax rates unchanged.
The reduction in the capital gains rate is favorable for both
stock and bond investors. The bill also maintained favorable tax
treatment for corporations that purchase municipals and
eliminated the cap on the amount of outstanding tax-exempt debt
permitted for nonhospital organizations.
PERFORMANCE AND STRATEGY REVIEW
During the fund's two months of operation, its performance
surpassed that of the Combined Index Portfolio but lagged the
Lipper Balanced Fund Index for the period ended August 31, 1997,
as shown in the table.
Performance Comparison
Since
Inception
Period Ended 8/31/97 6/30/97
_____________________________________________________________
Tax-Efficient Balanced Fund 2.33%
Lipper Balanced Fund Index 2.83
Combined Index Portfolio * 1.86
*An unmanaged portfolio of 48% stocks (S&P 500) and 52% bonds
(Lehman Municipal Bond Index).
Since inception we have been almost fully invested in stocks and
bonds, generally targeting a mix of 48% stocks, 50% municipal
bonds, and 2% cash (tax-free money market securities). In
reviewing fund performance relative to the benchmarks shown in
the table, it is important to understand that the Lipper
Balanced Fund Index is made up of funds that generally have a
higher allocation of stocks and also employ taxable bonds, which
have higher pretax yields. Our goal of delivering strong
after-tax returns led us to choose municipal bonds for the fixed
income component. Over time the advantage of this asset mix
should be apparent from after-tax return comparisons. We hope
that Lipper Analytical Services will consider a separate
category for tax-sensitive balanced funds employing municipal
bonds as more of these kinds of funds are offered.
In selecting bonds for the fixed income component of the
portfolio, we focused on building a diversified group of
holdings that would deliver good income and perform well over a
range of interest rates. Our goal
of minimizing capital gain distributions led us to overweight
noncallable bonds. Callable bonds can hurt performance if
interest rates fall, the bonds begin trading to a call date
shorter than maturity, and the proceeds have to be reinvested in
a lower-rate environment. Not only do these bonds underperform
in a market rally, they may create a taxable gain for the fund
if the bonds are called. Noncallable bonds, which represented
39% of the municipal bond investments at the end of August,
allow us to better manage the price movement of the portfolio.
We used our credit research to select stable-to-improving
credits that should hold up well over market cycles. The
continuing narrowing of credit quality spreads (the difference
in yield between high-grade and lower-rated bonds) has made
lower-rated bonds good performers. While this cannot continue
forever, we do not see any imminent change on the horizon as
long as the economy remains strong and bond ratings are upgraded
for many borrowers. Accordingly, we deployed 27% of our assets
in lower-rated bonds, principally in the BBB area. Our overall
average credit quality for bond holdings was between A and AA,
with 17 separate issuers represented in the portfolio at
month-end.
Our interest rate strategy involved pursuing a relatively long
duration of more than eight years in July (duration is a measure
of a bond's sensitivity to changes in interest rates). This
position helped performance as rates reached their lows for the
year at the end of July. In August we shortened duration half a
year by directing cash flow to shorter-term instruments as
interest rates rose slightly.
Security Diversification Pie Chart
Investment-Grade Municipal Bonds 48%
Noninvestment-Grade Municipal Bonds 4%
Large-Cap Stocks 36%
Mid- and Small-Cap Stocks 9%
Other and Reserves 3%
The equity portion of the portfolio reflects our best
buy-and-hold ideas. This fund uses a growth approach designed
for taxable investors and will minimize taxable distributions so
that we can maximize after-tax returns. Therefore, our
investment decisions are made with a long-term focus. The fund
is well diversified and owns market leaders with strong
prospects. We have not limited our search to companies domiciled
in the United States. Our holdings include foreign stocks such
as Reuters, Sony, and Royal Dutch Petroleum. The fund's
investment style is to invest in reasonably priced, potentially
high return-on-capital businesses run by shareholder-oriented
managers, and our industry analysts play a pivotal role in this
process.
The equity portion of the portfolio reflects our best
buy-and-hold ideas.
The fund's largest sectors are technology, health care, and
financial. On an equity-only basis, our technology exposure is
more than that of the S&P 500 but consistent with that of growth
stock funds. However, since equities take up less than half of
the portfolio, the fund's technology weighting is only 9.4%,
with Intel, Hewlett Packard, and Microsoft among our largest
positions. Again on an equity-only basis, we have more health
care investments than the S&P 500 and other growth stock funds.
The fund owns several pharmaceutical companies, including
Johnson & Johnson, Merck, and Pfizer, and its heavier
pharmaceutical weighting is the main difference between it and
similar funds. Although many holdings are large companies, we
have invested in several mid-size firms whose stocks we think
will perform well over time.
Finally, we will attempt to harness the power of compounding,
one of the most important aspects of investing. This power is
most vividly demonstrated when a relatively small company "grows
up" and becomes a large company. With this in mind, the fund has
few investments in utilities or highly cyclical companies.
Consistent with our growth stock style, it is unlikely that we
will have a large part of the fund invested in these areas.
OUTLOOK
The municipal market is facing a pickup in supply in coming
months, as issuers line up to borrow over both the short and
long term. Interest rates have stayed within the narrow range
established over the past two years, with relatively low
volatility, and remain attractive for issuers. We would like to
take advantage of any market weakness to buy more long-term
bonds.
The outlook for stocks and bonds is favorable. Given the high
level of consumer and business confidence, we expect the economy
to continue to perform well, although not quite as well as in
the first half of the year. The Federal Reserve has expressed
uncertainty about why inflation has remained so low at this
stage of the expansion, and it is maintaining a bias toward
tightening in an effort to keep inflation in check.
In our view, the overall environment for investors remains
favorable, due to continuing low inflation and fiscal restraint
despite above-trend economic growth.
Respectfully submitted,
Mary J. Miller
Cochairman, Investment Advisory Committee
Donald J. Peters
Cochairman, Investment Advisory Committee
September 19, 1997
Portfolio Highlights
LARGEST HOLDINGS
Percent of
Net Assets
8/31/97
Stocks
__________________________________________________
GE 1.3%
Intel 1.2
Microsoft 0.9
Merck 0.8
Exxon 0.8
Mobil 0.8
Johnson & Johnson 0.8
Fannie Mae 0.7
Disney 0.7
Hewlett-Packard 0.7
__________________________________________________
Total8.7%
Percent of
Net Assets
8/31/97
Bonds
__________________________________________________
New York City General Obligation 7.2%
Illinois Health Facilities Authority 6.2
Maine State Housing Authority 5.9
New York State Dormitory 4.6
Jefferson County Alabama Sewer 3.9
Henrico County Virginia
Industrial Development 3.9
West Virginia State Building
Commission Lottery 3.7
District of Columbia Hospital 3.7
Mississippi Hospital Equip. & Fac. 3.1
Washington State General Obligation 2.0
__________________________________________________
Total 44.2%
T. Rowe Price Tax-Efficient Balanced Fund
Portfolio Highlights
Sector Diversification
Percent of
Net Assets
8/31/97
__________________________________________________
Technology 9.4%
Health Care 6.8
Financial 6.7
Consumer Nondurables 5.9
Consumer Services 5.7
Energy 2.9
Business Services and Transportation 2.6
Capital Equipment 2.6
Process Industries 1.3
Consumer Cyclicals 1.1
Basic Materials 0.3
__________________________________________________
Total 45.3%
Bonds and Reserves
__________________________________________________
Hospital Revenue 16.9%
General Obligation - Local 10.8
Housing Finance Revenue 5.9
Lease Revenue 4.6
Water and Sewer Revenue 4.0
General Obligation - State 2.0
Nuclear Revenue 2.0
Reserves 2.8
Other Revenue 5.7
__________________________________________________
Total 54.7%
T. Rowe Price Tax-Efficient Balanced Fund
Financial Highlights
For a share outstanding throughout the period
6/30/97
through
8/31/97
NET ASSET VALUE
Beginning of period $ 10.00
Investment activities
Net investment income 0.04*
Net realized and
unrealized gain (loss) 0.19
Total from
investment activities 0.23
Distributions
Net investment income (0.03)
NET ASSET VALUE
End of period $ 10.20
_________
Ratios/Supplemental Data
Total return 2.33%
Ratio of expenses to
average net assets 1.00%*!
Ratio of net investment
income to average
net assets 2.23%*!
Portfolio turnover rate 11.8%!
Average commission rate paid $0.0297
Net assets, end of period
(in thousands) $ 5,190
* Excludes expenses in excess of a 1.00% voluntary expense limitation in
effect through 2/28/99.
! Annualized.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Efficient Balanced Fund
Unaudited
August 31, 1997
Statement of Net Assets
Shares/Par Value
In thousands
Common Stocks 45.3%
FINANCIAL 6.7%
Bank and Trust 2.6%
BANC ONE 200 $ 11
Bank of New York 200 9
Citicorp 100 13
Mellon Bank 500 24
NationsBank 300 18
Northern Trust 200 11
Norwest 200 11
State Street 300 15
Wells Fargo 100 25
137
Insurance 1.6%
American General 200 10
American International Group 250 23
Chubb 200 13
EXEL 200 11
Marsh & McLennan 200 14
MGIC Investment 200 10
81
Financial Services 2.5%
AMBAC 100 8
American Express 300 23
Charles Schwab 200 8
Fannie Mae 700 31
Franklin Resources 100 8
Freddie Mac 500 16
Green Tree Financial 400 18
Travelers Group 300 19
131
Total Financial 349
CONSUMER NONDURABLES 5.9%
Cosmetics 0.8%
Avon 200 $ 13
Gillette 200 17
International Flavors & Fragrances 200 10
40
Beverages 0.9%
Anheuser-Busch 200 9
Coca-Cola 300 17
PepsiCo 400 14
Starbucks * 200 8
48
Food Processing 1.2%
General Mills 200 13
Heinz 200 8
Pioneer Hi-Bred 200 17
Ralston Purina 100 9
Sara Lee 400 16
63
Miscellaneous Consumer Products 3.0%
Colgate-Palmolive 300 19
CUC International * 400 9
DeVry * 300 8
Mattel 400 13
Newell 300 12
NIKE 200 11
Philip Morris 400 18
PPG Industries 200 13
Procter & Gamble 100 13
Service Corp. International 300 10
Sherwin-Williams 300 8
Sysco 400 14
Wrigley 100 7
155
Total Consumer Nondurables 306
HEALTHCARE 6.8%
Hospital Supplies/Hospital Management 1.5%
Abbott Laboratories 300 $ 18
Baxter International 300 16
Boston Scientific * 200 14
Medtronic 100 9
PhyCor * 300 9
Vencor * 300 12
78
Pharmaceuticals 4.7%
American Home Products 200 14
Amgen * 300 15
Bristol-Myers Squibb 300 23
Eli Lilly 100 10
Glaxo Wellcome ADR 400 16
Johnson & Johnson 600 34
Merck 400 37
Novartis (CHF) 10 14
Pfizer 400 22
Schering-Plough 200 10
SmithKline Beecham ADR 500 22
Warner-Lambert 100 13
Zeneca Group ADR 200 19
249
Health Care Services 0.4%
Aetna 100 9
United HealthCare 200 10
19
Biotechnology 0.2%
Human Genome Sciences * 300 11
11
Total Health Care 357
CONSUMER SERVICES 5.7%
General Merchandisers 1.1%
Bed Bath & Beyond * 300 9
Dollar General 200 8
Sears 200 $ 11
Wal-Mart 800 29
57
Specialty Merchandisers 1.4%
Albertson's 200 7
Circuit City Stores 300 11
Home Depot 300 14
Safeway * 200 10
Tiffany 300 13
Walgreen 400 11
Williams Sonoma * 200 9
75
Entertainment and Leisure 1.2%
Carnival (Class A) ADR 200 9
Disney 400 31
McDonald's 200 9
Mirage Resorts * 400 11
60
Media and Communications 2.0%
Clear Channel Communications * 100 7
Cognizant 400 17
McGraw-Hill 400 25
Reuters ADR 400 24
Time Warner 300 15
Vodafone ADR 300 15
103
Total Consumer Services 295
CONSUMER CYCLICALS 1.1%
Automobiles and Related 0.2%
AutoZone * 300 8
8
Miscellaneous Consumer Durables 0.9%
Corning 300 16
Sony ADR 200 18
Valspar 400 12
46
Total Consumer Cyclicals 54
TECHNOLOGY 9.4%
Computer Service and Software 3.0%
Adobe Systems 200 $ 8
Ascend Communications * 200 9
Automatic Data Processing 300 14
BMC Software * 200 13
Computer Associates 200 13
First Data 300 12
HBO 100 7
Microsoft * 300 40
Oracle * 450 17
PeopleSoft * 200 11
Sterling Commerce * 400 13
157
Electronic Components 2.5%
Altera * 100 5
EMC * 200 10
Intel 600 55
Linear Technology 200 13
Maxim Integrated Products * 100 7
Molex (Class A) 400 15
Motorola 200 15
Texas Instruments 100 11
131
Electronic Systems 0.8%
Applied Materials * 100 9
Hewlett-Packard 500 31
40
Information Processing 0.3%
Choicepoint * 40 2
Dell Computer * 200 16
18
Specialized Computer 0.3%
Symbol Technologies 400 15
15
Telecommunications Equipment 1.4%
Cisco Systems * 300 $ 23
LM Ericsson ADR (Class B) 300 12
Lucent Technologies 200 16
Tellabs * 100 6
WorldCom 500 15
72
Aerospace and Defense 0.8%
AlliedSignal 200 17
Boeing 300 16
Lockheed Martin 100 10
43
Office Automation 0.3%
Pitney Bowes 200 15
15
Total Technology 491
CAPITAL EQUIPMENT 2.6%
Electrical Equipment 2.0%
Emerson Electric 300 16
GE 900 56
Hubbell (Class B) 300 14
Westinghouse 600 16
102
Machinery 0.6%
American Standard * 200 9
Dover 200 14
Illinois Tool Works 200 10
33
Total Capital Equipment 135
BUSINESS SERVICES AND
TRANSPORTATION 2.6%
Distribution Services 0.6%
Amway Asia Pacific 400 13
Cardinal Health 300 20
33
Miscellaneous Business Services 2.0%
Equifax 400 $ 12
Interpublic Group 300 15
Manpower 200 8
Omnicom 300 20
Paychex 200 7
Primark 400 11
Quintiles Transnational * 100 8
Robert Half International * 200 12
Vincam Group * 300 9
102
Total Business Services and Transportation 135
ENERGY 2.9%
Exploration and Production 0.7%
Apache 300 12
Noble Affiliates 300 14
Triton Energy * 200 8
34
Gas Transmission 0.2%
Enron 300 12
12
Integrated Petroleum - International 2.0%
Exxon 600 37
Mobil 500 36
Royal Dutch Petroleum 600 30
103
Total Energy 149
PROCESS INDUSTRIES 1.3%
Paper & Paper Products 0.3%
Kimberly-Clark 300 14
14
Specialty Chemicals 1.0%
Airgas * 600 11
Morton International 500 17
Rohm & Haas 100 10
Sigma Aldrich 400 $ 13
51
Total Process Industries 65
BASIC MATERIALS 0.3%
Metals 0.3%
Nucor 300 17
Total Basic Materials 17
Total Common Stocks (Cost $2,316) 2,353
Municipal Bonds 63.1%
ALABAMA 3.9%
Jefferson County Sewer, 5.75%,
2/1/27 (FGIC Insured) $200,000 204
Total Alabama (Cost $200) 204
CONNECTICUT 2.0%
Connecticut Dev. Auth., Mystic
Marinelife Aquarium
6.875%, 12/1/17 100,000 103
Total Connecticut (Cost $101) 103
DISTRICT OF COLUMBIA 3.7%
District of Columbia Hosp.,
Medlantic Healthcare Group
5.25%, 8/15/19 200,000 192
Total District of Columbia (Cost $188) 192
GEORGIA 2.0%
Municipal Electric Auth. of Georgia
5.70%, 1/1/19 (MBIA Insured) 100,000 104
Total Georgia (Cost $103) 104
IDAHO 1.9%
Idaho HFA, St. Lukes Regional Med. Center
VRDN (Currently 3.65%) 100,000 100
Total Idaho (Cost $100) 100
ILLINOIS 6.2%
Illinois HFA, Loyola Univ. Health
6.00%, 7/1/14 (MBIA Insured) $300,000 $ 323
Total Illinois (Cost $317) 323
MAINE 5.9%
Maine Housing Auth., Mortgage Purchase
5.70%, 11/15/15 300,000 305
Total Maine (Cost $301) 305
MISSISSIPPI 3.1%
Mississippi Hosp. Equip. and Fac.
Rush Medical Foundation,
5.40%, 1/1/07 160,000 160
Total Mississippi (Cost $160) 160
NEW JERSEY 2.0%
Newark, School Qualified Bond Act, GO
5.30%, 9/1/11 (MBIA Insured) 100,000 101
Total New Jersey (Cost $100) 101
NEW YORK 11.8%
Dormitory Auth. of the State of
New York
State Univ. Ed. Fac.,
5.40%, 5/15/23 250,000 239
New York City, GO
7.50%, 2/1/01 100,000 109
7.625%, 2/1/15 235,000 263
Total New York (Cost $606) 611
TEXAS 1.7%
Harris County, GO, Toll Road
Zero Coupon, 8/15/00
(MBIA Insured) 100,000 88
Total Texas (Cost $88) 88
VIRGINIA 7.1%
Henrico County IDA, Bon Secours Health
St. Mary's Hosp., 6.00%, 8/15/16
(MBIA Insured) $185,000 $ 201
Peninsula Port Auth., Shell Oil, VRDN
(Currently 3.80%) 165,000 165
Total Virginia (Cost $362) 366
WASHINGTON 6.2%
Washington, GO, 5.375%, 9/1/02 100,000 104
Washington HFA
Fred Hutchinson Cancer Research
Center
VRDN (Currently 3.65%) 220,000 220
Total Washington (Cost $324) 324
WEST VIRGINIA 3.7%
West Virginia Building Commission,
GO, Lottery
5.00%, 7/1/04 (MBIA Insured) 190,000 194
Total West Virginia (Cost $192) 194
WYOMING 1.9%
Lincoln County, PCR, Exxon, VRDN
(Currently 3.70%) 100,000 100
Total Wyoming (Cost $100) 100
Total Municipal Bonds (Cost $3,242) 3,275
Total Investments in Securities
108.4% of Net Assets (Cost $5,558) $ 5,628
Other Assets Less Liabilities
Including $428 Payable for Investment
Securities Purchased (438)
NET ASSETS $ 5,190
_________
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ 3
Accumulated net realized gain/loss -
net of distributions (3)
Net unrealized gain (loss) 70
Paid-in-capital applicable to 508,868
shares of $0.0001 par value capital stock
outstanding; 1,000,000,000 shares authorized 5,120
NET ASSETS $ 5,190
_________
NET ASSET VALUE PER SHARE $ 10.20
_________
* Non-income producing
ADR American Depository Receipt
CHF Swiss franc
FGIC Financial Guaranty Insurance Company
GO General Obligation
HFA Health Facility Authority
IDA Industrial Development Authority
MBIA Municipal Bond Investors Assurance Corp.
PCR Pollution Control Revenue
VRDN Variable Rate Demand Note
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Efficient Balanced Fund
Unaudited
Statement of Operations
In thousands
6/30/97
through
8/31/97
Investment Income
Income
Interest $ 21
Dividend 4
Total income 25
Expenses
Custody and accounting 14
Registration 4
Legal and audit 2
Shareholder servicing 1
Miscellaneous 2
Reimbursed by manager (15)
Total expenses 8
Net investment income 17
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities (3)
Change in net unrealized gain or loss
on securities 70
Net realized and unrealized gain (loss) 67
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 84
__________
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Efficient Balanced Fund
Unaudited
Statement of Changes in Net Assets
In thousands
6/30/97
through
8/31/97
Increase (Decrease) in Net Assets
Operations
Net investment income $ 17
Net realized gain (loss) (3)
Change in net unrealized
gain or loss 70
Increase (decrease) in net assets
from operations 84
Distributions to shareholders
Net investment income (14)
Capital share transactions*
Shares sold 5,020
Net Assets
Increase (decrease) during period 5,090
Beginning of period 100
End of period $ 5,190
__________
* Share Information
Shares sold 499
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Efficient Balanced Fund
Unaudited
August 31, 1997
Notes to Financial Statements
Note 1 - Significant Accounting Policies
T. Rowe Price Tax-Efficient Balanced Fund, Inc. (the fund) is registered
under the Investment Company Act of 1940 as a diversified, open-end
management investment company and commenced operations on June 30, 1997.
Valuation Debt securities are generally traded in the over-the-counter
market. Investments in securities are stated at fair value as furnished by
dealers who make markets in such securities or by an independent pricing
service, which considers yield or price of bonds of comparable quality,
coupon, maturity, and type, as well as prices quoted by dealers who make
markets in such securities.
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.
For purposes of determining the fund's net asset value per share, the U.S.
dollar value of all assets and liabilities initially expressed in foreign
currencies is determined by using the mean of the bid and offer prices of
such currencies against U.S. dollars quoted by a major bank.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair
value as determined in good faith by or under the supervision of the officers
of the fund, as authorized by the Board of 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.
Premiums and Discounts Premiums and original issue discounts on municipal
securities are amortized for both financial reporting and tax purposes.
Market discounts are recognized upon disposition of the security as gain or
loss for financial reporting purposes and as ordinary income for tax
purposes.
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 $5,064,000 and $88,000, respectively, for the period
ended August 31, 1997.
Note 3 - Federal Income Taxes
No provision for federal income taxes is required since the fund intends to
qualify as a regulated investment company and distribute all of its income.
At August 31, 1997, the aggregate cost of investments for federal income tax
and financial reporting purposes was $5,558,000, and net unrealized gain
aggregated $70,000, of which $133,000 related to appreciated investments and
$63,000 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. The fee is computed daily and paid monthly, consisting of an individual
fund fee equal to 0.20% 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 August 31, 1997, and for the period
then ended, the effective annual group fee rates were 0.32% and 0.33%,
respectively. 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 the investment management agreement, the manager is
required to bear any expenses through February 28, 1999, which would cause
the fund's ratio of expenses to average net assets to exceed 1.00%.
Thereafter, through February 28, 2001, 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 1.00%. Pursuant
to this agreement, $4,000 of management fees were not accrued by the fund for
the period ended August 31, 1997, and $15,000 of other expenses were borne
by the manager.
In addition, the fund has entered into agreements with the manager and a
wholly owned subsidiary 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. The fund incurred expenses pursuant
to these related party agreements totaling approximately $11,000 for the
period ended August 31, 1997, of which $5,000 was payable at period-end.
T. Rowe Price Shareholder Services
Investment Services And Information
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
T. Rowe Price OnLine.
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 your T. Rowe Price accounts.
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
Stock Funds
Domestic
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Diversified Small-Cap Growth
Dividend Growth
Equity Income
Equity Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Media & Telecommunications
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons*
Science & Technology
Small-Cap Stock**
Small-Cap Value*
Spectrum Growth
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 Government 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
*Closed to new investors.
**Formerly the OTC Fund.
Please call for a prospectus. Read it carefully before you invest or send
money.
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.
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 Tax-Efficient Balanced 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
Invest With Confidence (registered trademark)
T. Rowe Price
T. Rowe Price Investment Services, Inc., Distributor.F19-051 8/31/97
