Semiannual Report
Tax-Efficient
Balanced
Fund
August 31, 1999
T. Rowe Price
Report Highlights
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Tax-Efficient Balanced Fund
o Rising interest rates hurt bond market performance over the past six
months, but stocks continued to rise.
o Your fund modestly lagged the six-month returns of its benchmarks but
outperformed both for the past year on a pretax and after-tax basis.
o We have never made a capital gain distribution and we expect not to make
one this year.
o The outlook for the fund remains favorable given a backdrop of low
inflation, strong corporate earnings growth, and high tax-free bond yields.
UPDATES AVAILABLE
For updates on the fund following the end of each calendar quarter, please see
our Web site www.troweprice.com.
Fellow Shareholders
The past six months were difficult for bonds but positive for stocks as
stronger-than-expected U.S. economic growth and recovering overseas economies
pushed interest rates higher but also boosted corporate profits. Inflation
replaced deflation as the primary concern for investors, and the Federal Reserve
raised key short-term interest rates twice. Your fund's return for the six-month
period slightly lagged its benchmarks but results over the past year were still
excellent in both absolute and relative terms.
The fund's shortfall against its Lipper category for the past six months
was largely due to the higher equity exposure of the average balanced fund,
which typically maintains a mix of 60% stocks and 40% bonds. Your fund is
required to keep a minimum of 50% of its assets in municipal securities to
maintain the tax-advantaged status of the bond income. In addition, the
corporate bonds favored by most balanced funds pay higher income than
municipal bonds on a pretax basis, and the Lipper returns quoted above
represent pretax performance. Investors in taxable accounts would find
their after-tax return on the average balanced fund significantly lower.
Your fund lagged its combined index benchmark only slightly for the six
months, as shown in the table, partly because our bond portfolio is more
sensitive to interest rates than the Lehman index.
Performance Comparison
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Periods Ended 8/31/99 6 Months 12 Months
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Tax-Efficient Balanced Fund 2.11% 20.28%
Lipper Balanced Funds Average 3.52 18.63
Combined Index Portfolio * 2.45 18.13
* An unmanaged portfolio of 48% stocks (S&P 500 Stock Index) and 52% bonds
(Lehman Municipal Bond Index).
For an investor in the top federal tax bracket of 39.6%, the fund was 100%
tax-efficient over the past six months, meaning the fund made no capital
gain distributions and no taxable income distributions. For the past year,
the fund was 99.2% tax-efficient, reflecting no realized capital gains and
a small taxable dividend distribution.
MARKET ENVIRONMENT
Robust U.S. economic growth continued through the summer, driven by
consumer spending. Although broad inflation measures did not rise
appreciably, tight labor markets, low unemployment, and higher energy
prices raised fears that inflationary pressures were building. This
continued economic strength helped keep long-term interest rates near
6%-more than a percentage point above last fall's lows-and made the stock
market nervous, as did two Federal Reserve rate hikes and concern about a
third. Recovery in overseas markets and economies and weakness in the U.S.
dollar were also causes for interest rate concern. The Fed raised key
short-term rates on June 30 and again on August 24, for a total of 50 basis
points (half of a percentage point) to 5.25%.
Municipal Bond and Note Yields
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30-Year AAA 5-Year AAA 1-Year Moody's
General Obligation General Obligation Investment Grade 1 Note
8/98 4.93 3.85 3.5
4.82 3.7 3.3
4.92 3.7 2.95
11/98 4.89 3.75 3.05
4.94 3.75 3.05
4.87 3.65 2.95
2/99 4.99 3.78 3
5.04 3.83 3.15
5.08 3.85 3.2
5/99 5.16 4 3.2
5.33 4.33 3.5
5.41 4.3 3.55
8/99 5.6 4.4 3.75
Nonetheless, stocks have done well over the past six months, though
large-cap growth stocks have not exerted the same dominance as in previous
years. In the past year, rebounding from the pessimism of late last summer,
stocks posted phenomenal gains.
PORTFOLIO AND STRATEGY REVIEW
The equity portfolio uses a stable, buy-and-hold strategy that emphasizes
quality growth stocks. Most of our holdings are large companies, but we
also own several smaller companies. This strategy has worked well in the
last year as well as since inception. Our equity investments not only
outperformed the S&P 500 Stock Index during these periods but also other
large-company growth funds. These comparisons are based on pretax returns,
so on an after-tax basis your fund looks even better.
An underlying hypothesis of our buy-and-hold strategy is that it is not
merely good for tax efficiency. It also results in reduced transaction
costs, which are paid out of fund expenses. Investors with shorter time
horizons use strategies that result in higher turnover of portfolio
holdings. The transaction costs incurred by such approaches are often
invisible to fund shareholders but nonetheless have a significant impact on
returns even before capital gains taxes are taken into account. We hope our
results will continue to support our argument for reduced trading costs and
reduced capital gains taxes.
Although we hope to hold our investments for a long time, this is not
always possible. More often than we would like, our initial investment
rationale proves wrong. Alternatively, some holdings decline in value
because of market moves or other short-term issues, even though the
long-term case for the stocks remains intact. In either case, we attempt to
make our losses work to the benefit of shareholders by using them to offset
gains. Taking losses is also an important investment discipline. We have
not had any capital gain distributions in the fund's short history, and we
expect to be among the very few mutual funds that do not have one this
year. As a matter of practice, we evaluate all material losses with a
strong bias toward selling the stock and booking the loss. To comply with
the Internal Revenue Service's "wash sale" rule, we cannot buy the same
security for 30 days before or after we sell it, and this period provides
us some valuable time to reevaluate the original investment thesis.
Equity Portfolio Characteristics
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Tax-Efficient
As of 8/31/99 Balanced Fund S&P 500
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Earnings Growth Rate
Estimated Next 5 Years * 15.20% 13.40%
Profitability - Return on
Equity Latest 12 Months 26.06 25.16
Dividend Yield on Stocks 0.82 1.27
P/E Ratio (Based on Next 12
Months' Estimated Earnings) 32.81X 29.18X
Market Capitalization (mil) $63,734 $65,661
* Earnings forecasts are based on estimates by I/B/E/S International and are
in no way indicative of future investment returns.
The equity portion of your fund is generally consistent with other
large-company growth funds but does have some distinctive characteristics.
Its return on capital is greater than that of other growth funds* and the
S&P 500 (see nearby Portfolio Characteristics table). This reflects our
focus on quality growth companies. We have invested in larger companies
relative to other growth funds, but our market capitalization is in line
with that of the S&P 500. Our investment-weighted median market cap is $64
billion compared with $35 billion for the typical growth fund. In
comparison with the S&P 500 the portfolio is faster growing and lower
yielding, as shown in the table. The advantage of a lower-yielding
portfolio is that it produces less ordinary income, which is taxed at a
higher rate than capital gains for most investors.
* Comparisons are made to the Lipper Growth Fund Index using calculations by
T. Rowe Price based on the most current available data from Lipper Inc.
Security Diversification
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Investment Non-Investment Mid- and Other
Grade Municipal Large-Cap Small-Cap and
Municipal Bonds Bonds Stocks Stocks Reserves
44 4 45 3 4
We remained overweighted in technology, still our largest equity sector,
and in financials and health care. In technology, we have let our winners
run, but many stocks in this sector have become fairly valued even though
they remain good long-term holdings. Microsoft, Intel, and Hewlett-Packard
are our largest technology positions, and we would use corrections in the
sector to add to our current holdings.
Financials are the second largest sector at about 17% of the equity
portfolio. In the last six months we have increased our holdings in Freddie
Mac, Fannie Mae, and Mellon Bank. About 26% of our new purchases were in
this sector, as it performed poorly during the period. Our largest
financial holdings are American Express, Fannie Mae, and Citigroup.
Health care is our third largest sector at nearly 16% of stocks. Most of
our investments are in large pharmaceutical companies such as Pfizer,
Merck, and Bristol-Myers Squibb. About 26% of our purchases in the last six
months were in health care as we took advantage of the sector's poor
relative performance.
The fixed income segment performed in line with long-term municipal funds
over the past six months but underperformed the Lehman Municipal Bond Index
because of our longer duration. (Duration is a measure of a bond fund's
sensitivity to interest rates. For example, a fund with a duration of seven
years would fall or rise about 7% in price in response to a
one-percentage-point rise or fall in interest rates.) Though rates moved
higher for most of the past year, the unusually attractive level of
municipal bond yields compared with Treasury bond yields encouraged us to
retain our more aggressive posture on duration. This stance is also
appropriate in light of the longer-term investment horizon of our
shareholders. Investing in longer-dated bonds increases interest rate risk
but gives us an opportunity to take advantage of these relatively high
yields and boost shareholder income.
Holdings in the noninvestment-grade sector (bonds rated BB and lower) have
been slightly reduced but are still near the maximum allocation. We
continued our rotation out of the hospital sector, where fundamentals have
deteriorated, and into state and local general obligation bonds, as we feel
that sector will perform best in this strong environment for tax revenues.
We raised cash reserves to increase the fund's flexibility, but are also
taking advantage of the rise in rates by selling some positions at losses
and reinvesting the proceeds in higher-yielding bonds. These losses add to
the fund's tax-loss carryforward already in place. This will be an ongoing
theme if rates continue to trend higher.
OUTLOOK
The Fed is keeping a close eye on the buildup of inflationary pressures,
particularly in the labor markets, and could tighten another 25 basis
points if it intends to move the federal funds rate back to its pre-crisis
level. On the other hand, the Fed wants to maintain a liquid and orderly
market as we approach the end of the year and the transition to year 2000,
which could serve to moderate future rate increases. It's also important to
recognize that we've had a healthy increase in rates this year that should
begin to slow certain sectors of the economy. For now, on the fixed income
side, we are focused on the higher yields available in the marketplace and
the current appeal of tax-free municipal bonds relative to taxable
securities.
The long-term outlook for U.S. stocks remains favorable, in our view.
Inflation remains under control, earnings growth is strong, and U.S.
corporations continue to enjoy high-quality management and solid business
plans. Corrections and crosscurrents in the market give us the chance to
buy excellent companies with leading market positions at fair prices. The
relatively poor performance of financial services and health care stocks so
far this year are just two examples.
While the market will not always go up, the current positive backdrop for
both top-quality stocks and municipal bonds suggests the Tax-Efficient
Balanced Fund is well positioned to provide attractive after-tax returns to
shareholders.
Respectfully submitted,
William F. Snider
Cochairman of the Investment Advisory Committee
Donald J. Peters
Cochairman of the Investment Advisory Committee
September 24, 1999
T. Rowe Price Tax-Efficient Balanced Fund
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Portfolio Highlights
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LARGEST HOLDINGS
Percent of
Net Assets
8/31/99
Stocks
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Microsoft 2.0%
Intel 1.7
GE 1.4
Hewlett-Packard 1.2
Cisco Systems 1.2
Pfizer 0.9
Wal-Mart 0.9
American Express 0.9
Merck 0.9
Bristol-Myers Squibb 0.9
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Total 12.0%
Percent of
Net Assets
8/31/99
Bonds
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W. Virginia State General Obligation 2.6%
Florida Board of Education 2.6
Dallas County Utility & Reclamation 2.5
American Public Energy Agency 2.5
Virginia College Building Authority 2.4
Metropolitan Pier and Expo Authority 2.3
PA Intergovernmental COOP Authority 1.4
Middlesex New Jersey Sewer Authority 1.4
Mississippi State Capital Improvements 1.3
Wisconsin Health & Education Facilities Authority 1.3
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Total 20.3%
T. Rowe Price Tax-Efficient Balanced Fund
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Portfolio Highlights
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SECTOR DIVERSIFICATION
Percent of Percent of
Net Assets Net Assets
2/28/99 8/31/99
Stocks
- --------------------------------------------------------------------------------
Technology 12% 15%
Financial 9 8
Health Care 8 8
Consumer Nondurables 6 5
Retail 3 3
Consumer Discretionary 4 3
Industrial 2 2
All Other 4 4
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Total 48% 48%
Bonds and Reserves
- --------------------------------------------------------------------------------
General Obligation - State 2% 7%
Dedicated Tax Revenue 1 6
General Obligation - Local 7 5
Electric Revenue 4 4
Hospital Revenue 9 4
Housing Finance Revenue 3 4
Nuclear Revenue 5 4
Educational Revenue 1 3
Lease Revenue 4 3
Water and Sewer Revenue 3 3
All Other 11 5
Reserves 2 4
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Total 52% 52%
T. Rowe Price Tax-Efficient Balanced 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 benchmarks, which may include
a broad-based market index and a peer group average or index. Market
indexes do not include expenses, which are deducted from fund returns as
well as mutual fund averages and indexes.
TAX-EFFICIENT BALANCED FUND
- --------------------------------------------------------------------------------
As of 8/31/99
Combined Tax-Efficient
Index Portfolio Balanced Fund
6/30/97 10000 10000
8/31/97 10192 10233
8/31/98 11107 11170
8/31/99 13121 13435
Average Annual Compound Total Return
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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 8/31/99 1 Year Inception Date
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Tax-Efficient Balanced Fund 20.28% 14.58% 6/30/97
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 Tax-Efficient Balanced Fund
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Unaudited
Financial Highlights For a share outstanding throughout each period
- --------------------------------------------------------------------------------
6 Months Year 6/30/97
Ended Ended Through
8/31/99 2/28/99 2/28/98
NET ASSET VALUE
Beginning of period $ 12.72 $ 11.34 $ 10.00
Investment activities
Net investment income 0.12* 0.24* 0.15*
Net realized and
unrealized gain (loss) 0.15 1.38 1.34
Total from
investment activities 0.27 1.62 1.49
Distributions
Net investment income (0.11) (0.24) (0.15)
NET ASSET VALUE
End of period $ 12.88 $ 12.72 $ 11.34
---------------------------------------------
Ratios/Supplemental Data
Total return(diamond) 2.11%* 14.45%* 14.96%*
Ratio of total expenses
to average net assets 1.00%*! 1.00%* 1.00%*!
Ratio of net investment
income to average
net assets 1.94%*! 2.03%* 2.31%*!
Portfolio turnover rate 38.9%! 19.8% 12.5%!
Net assets, end of period
(in thousands) $39,628 $33,767 $17,714
(diamond) 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 and payment of no redemption or
account fees.
* Excludes expenses in excess of a 1.00% voluntary expense limitation
in effect through 2/28/01.
! Annualized
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Efficient Balanced Fund
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Unaudited August 31, 1999
Statement of Net Assets Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Common Stocks 48.0%
FINANCIAL 8.3%
Bank and Trust 3.7%
Bank of America 3,400 $ 206
Bank of New York 3,300 118
Citigroup 7,125 317
Mellon Bank 6,000 200
Northern Trust 2,200 186
State Street 2,400 144
U.S. Trust 1,100 91
Wells Fargo 5,100 203
1,465
Financial Services 3.0%
American Express 2,600 358
Fannie Mae 5,400 335
Freddie Mac 6,000 309
Marsh & McLennan 2,450 178
1,180
Life and Health Insurance 0.1%
American General 600 43
43
Property and Casualty Insurance 0.7%
AMBAC 1,300 69
American International Group 2,406 223
292
Securities and Asset Management 0.8%
Charles Schwab 6,150 243
Franklin Resources 2,300 82
325
Total Financial 3,305
CONSUMER NONDURABLES 4.5%
Home Products 1.9%
Avon 2,500 110
Colgate-Palmolive 3,200 171
Ecolab 1,400 53
Gillette 3,500 $ 163
Procter & Gamble 2,600 258
755
Beverages 1.1%
Coca-Cola 4,400 263
PepsiCo 4,600 157
420
Food 1.0%
General Mills 900 75
Heinz 600 28
Sysco 3,500 114
Unilever N.V 1,292 89
Wrigley 900 71
377
Textiles and Apparel 0.2%
NIKE (Class B) 1,900 88
88
Liquor 0.3%
Anheuser-Busch 1,700 131
131
Total Consumer Nondurables 1,771
TECHNOLOGY 14.7%
Electronics Equipment 0.1%
Molex (Class A) 2,150 60
60
Communications Equipment 1.8%
LM Ericsson (Class B) ADR 4,300 140
Lucent Technologies 5,000 320
Motorola 1,200 111
Tellabs * 2,200 131
702
Semiconductors 4.8%
Altera * 4,600 194
Intel 8,400 691
Linear Technology 4,200 264
Maxim Integrated Products * 4,700 316
Texas Instruments 3,600 $ 295
Xilinx * 2,000 140
1,900
Miscellaneous Computer Hardware 1.0%
EMC * 2,200 132
Pitney Bowes 1,300 77
Symbol Technologies 3,450 120
Xerox 1,400 67
396
Computer Software 3.0%
BMC Software * 1,900 102
Computer Associates 2,900 164
Microsoft * 8,400 777
Oracle * 4,425 162
1,205
Information Services 0.4%
Automatic Data Processing 3,800 149
149
Computer Communications Equipment 1.2%
Cisco Systems * 6,750 458
458
Computer Makers 2.2%
Dell Computer * 4,500 220
Hewlett-Packard 4,700 495
Sun Microsystems * 1,900 151
866
Semiconductor Capital Equipment 0.2%
Applied Materials * 1,300 92
92
Total Technology 5,828
ENERGY 0.8%
Energy Reserves and Production 0.7%
Exxon 1,600 126
Mobil 1,400 144
270
Integrated Electricity and Natural Gas 0.1%
Enron 1,600 $ 67
67
Total Energy 337
BASIC MATERIALS 1.0%
Forest Products and Paper 0.2%
Kimberly-Clark 1,100 62
62
Chemicals 0.8%
Illinois Tool Works 1,400 109
PPG Industries 1,500 90
Rohm & Haas 1,500 56
Valspar 2,000 73
328
Total Basic Materials 390
BUSINESS SERVICES 1.4%
Industrial Services 0.3%
DeVry * 2,400 50
Robert Half International * 2,500 66
116
Business Services 0.5%
Equifax 1,800 55
IMS Health 2,800 77
Paychex 2,100 62
194
Advertising 0.6%
Interpublic Group 2,800 111
Omnicom 1,600 120
231
Total Business Services 541
HEALTH CARE 7.6%
Drugs 5.8%
American Home Products 3,800 158
Amgen * 1,600 133
AstraZeneca Group ADR 2,100 $ 83
Bristol-Myers Squibb 4,900 345
Cardinal Health 2,300 146
Eli Lilly 2,300 172
Glaxo Wellcome ADR 3,000 159
Merck 5,300 356
Pfizer 9,900 374
Schering-Plough 3,100 163
SmithKline Beecham ADR 1,600 102
Warner-Lambert 1,700 112
2,303
Medical Products 1.8%
Abbott Laboratories 3,100 134
Boston Scientific * 500 17
Guidant 400 24
Johnson & Johnson 3,100 317
Medtronic 2,600 203
695
Total Health Care 2,998
RETAIL 3.4%
Department Stores 0.9%
Wal-Mart 8,300 368
368
Specialty Retail 2.2%
Bed Bath & Beyond * 1,800 49
CVS 1,300 54
Dollar General 3,125 81
Home Depot 2,800 171
Tiffany & Company 5,600 296
Walgreen 3,400 79
Williams-Sonoma * 3,200 125
855
Grocery Stores 0.3%
Albertson's 1,300 62
Safeway * 1,600 75
137
Total Retail 1,360
CONSUMER DISCRETIONARY 3.3%
Restaurants 0.4%
McDonald's 2,200 $ 91
Starbucks * 2,600 59
150
Leisure 0.2%
Mattel 3,000 64
64
Entertainment 0.4%
Carnival (Class A) 3,200 143
143
Publishing 0.5%
McGraw-Hill 4,000 207
207
Media 1.8%
AMFM * 500 25
CBS * 4,000 188
Clear Channel Communications * 1,300 91
Disney 7,800 216
Time Warner 3,600 214
734
Total Consumer Discretionary 1,298
INDUSTRIAL 1.9%
Aerospace and Defense 0.4%
Boeing 3,100 140
140
Heavy Electrical Equipment 1.5%
Emerson Electric 1,000 63
GE 4,900 550
613
Total Industrial 753
TELECOMMUNICATIONS 1.1%
Telephone Services 0.7%
MCI WorldCom * 3,900 295
295
Wireless Telecommunications 0.4%
Vodafone ADR 800 $ 161
161
Total Telecommunications 456
Total Common Stocks (Cost $12,901) 19,037
Municipal Bonds 58.2%
ALABAMA 0.5%
Jefferson County Sewer, 5.75%, 2/1/27 (FGIC Insured) $200,000 199
Total Alabama (Cost $200) 199
ALASKA 1.8%
Anchorage, GO, 5.00%, 12/1/03 (FGIC Insured) 400,000 408
Valdez Marine Terminal
Exxon Pipeline, VRDN (Currently 2.70%) 300,000 300
Total Alaska (Cost $719) 708
CONNECTICUT 0.7%
Connecticut Dev. Auth., Mystic Marinelife Aquarium
6.875%, 12/1/17 100,000 102
Mashantucket, Western Pequot Tribe, 5.75%, 9/1/27 200,000 189
Total Connecticut (Cost $295) 291
DISTRICT OF COLUMBIA 0.5%
District of Columbia Hosp., Medlantic Healthcare Group
5.25%, 8/15/19 (MBIA Insured)
(Escrowed to Maturity) 200,000 190
Total District of Columbia (Cost $188) 190
FLORIDA 2.6%
Florida Board of Ed., GO, Capital Outlay,
5.00%, 6/1/03 1,000,000 1,024
Total Florida (Cost $1,023) 1,024
GEORGIA 1.1%
Municipal Electric Auth. of Georgia
Zero Coupon, 1/1/09 $ 585,000 $ 340
5.70%, 1/1/19 (MBIA Insured) 100,000 102
Total Georgia (Cost $449) 442
HAWAII 0.6%
Hawaii Dept. of Budget and Fin., Hawaiian Electric
4.95%, 4/1/12 (MBIA Insured) 250,000 242
Total Hawaii (Cost $250) 242
IDAHO 0.3%
Idaho HFA, St. Lukes Regional Medical Center
VRDN (Currently 2.95%) 100,000 100
Total Idaho (Cost $100) 100
ILLINOIS 5.2%
Chicago Water Revenue, Capital Appreciation
Zero Coupon, 11/1/11 (FGIC Insured) 500,000 258
Illinois EFA, Northwest Univ., 5.25%, 11/1/32 400,000 389
Illinois HFA, Riverside Health Systems,
6.00%, 11/15/18 500,000 494
Metropolitan Pier and Expo. Auth.
McCormick Place Expedition Project
5.25%, 12/15/28 (FGIC Insured) 1,000,000 919
Total Illinois (Cost $2,112) 2,060
INDIANA 0.6%
Goshen, Greencroft Obligation Group,
5.75%, 8/15/28 250,000 226
Total Indiana (Cost $246) 226
LOUISIANA 1.0%
Jefferson Parish, GO, Drainage Improvement
6.15%, 9/1/05 (FGIC Insured) 250,000 266
St. Charles Parish, PCR, 4.85%, 6/1/30 150,000 149
Total Louisiana (Cost $416) 415
MAINE 0.8%
Maine Housing Auth., Mortgage Purchase,
5.70%, 11/15/15 $ 300,000 $ 301
Total Maine (Cost $301) 301
MICHIGAN 3.5%
Detroit School Dist., GO,
5.25%, 5/1/14 (FGIC Insured) 500,000 493
Kalamazoo HFA, Bronson Methodist Hosp.,
5.50%, 5/15/12 500,000 501
Univ. of Michigan, Medical Service Plan
VRDN (Currently 2.75%) 200,000 200
Univ. of Michigan Hosp., VRDN (Currently 2.75%) 200,000 200
Total Michigan (Cost $1,430) 1,394
MISSISSIPPI 2.1%
Harrison County, PCR, E.I. Du Pont De Nemours
VRDN (Currently 2.75%) 300,000 300
Mississippi, GO, Capital Improvements,
5.00%, 11/1/05 515,000 526
Total Mississippi (Cost $839) 826
MISSOURI 0.8%
Missouri HEFA, Washington Univ.,
VRDN (Currently 3.00%) 300,000 300
Total Missouri (Cost $300) 300
NEBRASKA 2.5%
American Public Energy Agency, Nebraska Public Gas
5.25%, 6/1/11 (AMBAC Insured) 1,000,000 996
Total Nebraska (Cost $1,022) 996
NEVADA 1.2%
Nevada Housing Division, Single Family Mortgage
5.60%, 4/1/17 500,000 490
Total Nevada (Cost $500) 490
NEW JERSEY 3.0%
Middlesex County Utilities Auth., Sewer
6.25%, 8/15/10 (MBIA Insured) 500,000 543
New Jersey Economic Dev. Auth.
Franciscan Oaks, 5.75%, 10/1/23 $ 100,000 $ 95
New Jersey Transportation Auth., Trust Fund
4.50%, 6/15/00 (Escrowed to Maturity) 300,000 302
Newark, GO, School Qualified Bond Act
5.30%, 9/1/11 (MBIA Insured) 250,000 252
Total New Jersey (Cost $1,219) 1,192
NEW YORK 5.8%
Dormitory Auth. of the State of New York
Court Fac. Westchester County,
5.00%, 8/1/09 500,000 501
State Univ. Ed. Fac., 5.40%, 5/15/23 250,000 237
Long Island Power Auth.
5.00%, 4/1/02 250,000 253
5.25%, 12/1/26 250,000 231
New York City
GO
7.50%, 2/1/01 100,000 104
7.625%, 2/1/15 (Prerefunded 2/1/02!) 235,000 257
New York State Urban Dev., Correctional Capital Fac.
5.00%, 1/1/13 500,000 471
New York Thruway Auth., Local Highway And Bridge
6.25%, 4/1/07 (Prerefunded 4/1/02!) 40,000 42
North Hempstead, GO, 4.75%, 1/15/18 (FGIC Insured) 250,000 223
Total New York (Cost $2,386) 2,319
PENNSYLVANIA 2.0%
Beaver County IDA, PCR, Toledo Edison,
4.85%, 6/1/04 250,000 248
Pennsylvania Intergovernmental Cooperative Auth.
5.25%, 6/15/11 (FGIC Insured) 545,000 545
Total Pennsylvania (Cost $819) 793
SOUTH CAROLINA 1.3%
Connector 2000 Assoc., Greenville Toll Road
Zero Coupon, 1/1/09 500,000 282
Piedmont Municipal Power Agency, 5 25%, 1/1/15 250,000 224
Total South Carolina (Cost $548) 506
TENNESSEE 0.5%
Tennessee HDA, Homeownership, Zero Coupon, 7/1/16 $500,000 $187
Total Tennessee (Cost $193) 187
TEXAS 7.6%
Dallas County Utility and Reclamation Dist.
5.875%, 2/15/29 (AMBAC Insured) 1,000,000 998
Gulf Coast Waste Disposal Auth., PCR,
Amoco Oil Project
VRDN (Currently 2.70%) 1,000,000 1,000
Texas, GO, TRAN, 4.50%, 8/31/00 1,000,000 1,008
Total Texas (Cost $2,984) 3,006
UTAH 1.2%
Intermountain Power Agency,
5.25%, 7/1/14 (MBIA Insured) 510,000 500
Total Utah (Cost $522) 500
VIRGINIA 3.9%
Henrico County IDA, Bon Secours Health.
St. Mary's Hosp., 6.00%, 8/15/16 (MBIA Insured) 185,000 195
Hopewell IDA, Westport Convalescent Center,
6.00%, 10/1/06 145,000 146
Pocahontas Parkway Assoc.,
Toll Road, Zero Coupon, 8/15/18 900,000 262
Virginia College Building Auth.,
Washington and Lee Univ.
5.25%, 1/1/31 (MBIA Insured) 1,000,000 943
Total Virginia (Cost $1,646) 1,546
WASHINGTON 0.2%
Washington, GO, 5.375%, 9/1/02 100,000 103
Total Washington (Cost $102) 103
WEST VIRGINIA 3.1%
West Virginia, GO, 5.75%, 6/1/15 1,000,000 1,026
West Virginia Building Commission, Lottery
5.00%, 7/1/04 (MBIA Insured) 190,000 194
Total West Virginia (Cost $1,228) 1,220
WISCONSIN 1.3%
Wisconsin HEFA, Childrens Hosp. of Wisconsin
5.625%, 2/15/15 (AMBAC Insured) $ 500,000 $ 504
Total Wisconsin (Cost $522) 504
WYOMING 2.5%
Sweetwater County, PCR, VRDN (Currently 2.75%) 500,000 500
Wyoming Community Dev. Auth., 5.70%, 12/1/35 500,000 481
Total Wyoming (Cost $1,000) 981
Total Municipal Bonds (Cost $23,559) 23,061
Total Investments in Securities
106.2% of Net Assets (Cost $36,460)
$42,098
Other Assets Less Liabilities (2,470)
NET ASSETS $39,628
----------
Net Assets Consist of:
Accumulated net investment income - net of distributions $93
Accumulated net realized gain/loss - net of distributions (844)
Net unrealized gain (loss) 5,638
Paid-in-capital applicable to 3,075,608 shares of $0.0001 par
value capital stock outstanding; 1,000,000,000 shares authorized 34,741
NET ASSETS $39,628
----------
NET ASSETS value per share $12.88
----------
* Non-income- producing
! Used in determining portfolio maturity
ADR American depository receipt
AMBAC AMBAC Indemnity Corp.
EFA Educational Facility Authority
FGIC Financial Guaranty Insurance Company
GO General Obligation
HDA Housing Development Authority
HEFA Health & Educational Facility Authority
HFA Health Facility Authority
IDA Industrial Development Authority
MBIA Municipal Bond Investors Assurance Corp.
PCR Pollution Control Revenue
TRAN Tax Revenue Anticipation Note
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 Months
Ended
8/31/99
Investment Income
Income
Interest $ 479
Dividend 87
Total income 566
Expenses
Investment management 88
Custody and accounting 48
Shareholder servicing 26
Legal and audit 11
Prospectus and shareholder reports 10
Registration 4
Directors 3
Miscellaneous 2
Total expenses 192
Net investment income 374
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities (344)
Change in net unrealized gain or loss on securities 646
Net realized and unrealized gain (loss) 302
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $676
----------
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 Months Year
Ended Ended
8/31/99 2/28/99
Increase (Decrease) in Net Assets
Operations
Net investment income $ 374 $ 519
Net realized gain (loss) (344) (422)
Change in net unrealized gain or loss 646 3,510
Increase (decrease) in net assets from operations 676 3,607
Distributions to shareholders
Net investment income (323) (536)
Capital share transactions*
Shares sold 7,580 14,811
Distributions reinvested 266 450
Shares redeemed (2,347) (2,293)
Redemption fees received 9 14
Increase (decrease) in net assets from capital
share transactions 5,508 12,982
Net Assets
Increase (decrease) during period 5,861 16,053
Beginning of period 33,767 17,714
End of period $ 39,628 $ 33,767
--------------------------
*Share information
Shares sold 583 1,242
Distributions reinvested 20 38
Shares redeemed (181) (188)
Increase (decrease) in shares outstanding 422 1,092
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Efficient Balanced Fund
- --------------------------------------------------------------------------------
Unaudited August 31, 1999
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.
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 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. 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.
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.
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. Credits earned on
daily uninvested cash balances at the custodian are used to reduce the
fund's custody charges.
NOTE 2 - INVESTMENT TRANSACTIONS
Consistent with its investment objective, the fund engages in the following
practices to manage exposure to certain risks or enhance performance. The
investment objective, policies, program, and risk factors of the fund are
described more fully in the fund's prospectus and Statement of Additional
Information.
Securities Lending The fund lends its securities to approved brokers to
earn additional income and receives cash and U.S. government securities as
collateral against the loans. Cash collateral received is invested in a
money market pooled account by the fund's lending agent. Collateral is
maintained over the life of the loan in an amount not less than 100% of the
value of loaned securities. Although risk is mitigated by the collateral,
the fund could experience a delay in recovering its securities and a
possible loss of income or value if the borrower fails to return them. At
August 31, 1999, the value of loaned securities was $1,452,000; aggregate
collateral consisted of $1,502,000 in the securities lending collateral
pool.
Other Purchases and sales of portfolio securities, other than short-term
securities, aggregated $12,107,000 and $7,145,000, respectively, for the
six months ended August 31, 1999.
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 income. As of February 28, 1999, the fund had capital loss
carryforwards for federal income tax purposes of $442,000, of which $17,000
expires in 2006, and $425,000 in 2007.
At August 31, 1999, the cost of investments for federal income tax purposes
was substantially the same as for financial reporting and totaled
$36,460,000. Net unrealized gain aggregated $5,638,000 at period-end, of
which $6,294,000 related to appreciated investments and $656,000 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 $15,000 was payable at August 31, 1999. The fee is computed
daily and paid monthly, and consists 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, 1999, 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 the investment management agreement, the manager is
required to bear any expenses through February 28, 2001, which would cause
the fund's ratio of total expenses to average net assets to exceed 1.00%.
Thereafter, through February 28, 2003, 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 total expenses to average net assets to exceed
1.00%. Pursuant to this agreement, $13,000 of management fees were not
accrued by the fund for the six months ended August 31, 1999. Additionally,
$200,000 of unaccrued management fees and expenses from a previous
agreement remains subject to reimbursement through February 28, 2001.
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
$55,000 for the six months ended August 31, 1999, of which $10,000 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
the T. Rowe Price Web site on the Internet. Address: www.troweprice.com
BROKERAGE SERVICES*
Individual Investments Stocks, bonds, options, precious metals, and other
securities at a savings over full-service 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.
* T. Rowe Price Brokerage is a division of T. Rowe Price Investment
Services, Inc., Member NASD/SIPC.
** Based on a January 1999 survey for representative-assisted stock
trades. Services vary by firm, and commissions may vary depending on
size of order.
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 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
Tax-Efficient Growth
Total Equity Market Index
Value
International/Global
Emerging Markets Stock
European Stock
Global Stock
International Discovery
International Growth & Income
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 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 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
* Closed to new investors. ** Formerly named Florida Insured Intermediate
Tax-Free. *** Formerly named Tax-Free Insured Intermediate Bond.
! Investments in the funds are not insured or guaranteed by the FDIC or any
other government agency. Although the funds seek to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
funds.
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.
For fund and account information
or to conduct transactions,
24 hours, 7 days a week
By touch-tone telephone
Tele*Access 1-800-638-2587
By Account Access on the Internet
www.troweprice.com/access
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132
To open a brokerage account
or obtain information, call:
1-800-638-5660
Internet address:
www.troweprice.com
Plan Account Lines for retirement
plan participants:
The appropriate 800 number appears
on your retirement account statement.
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 appropriate
to the fund or funds covered in this
report.
Walk-In Investor Centers:
For directions, call 1-800-225-5132
or visit our Web site
Baltimore Area
Downtown
101 East Lombard Street
Owings Mills
Three Financial Center
4515 Painters Mill Road
Boston Area
386 Washington Street
Wellesley
Colorado Springs
4410 ArrowsWest Drive
Los Angeles Area
Warner Center
21800 Oxnard Street, Suite 270
Woodland Hills
Tampa
4200 West Cypress Street
10th Floor
Washington, D.C.
900 17th Street N.W.
Farragut Square
Invest With Confidence(registered trademark)
T. Rowe Price Investment Services, Inc., Distributor. F19-051 8/31/99
