<PAGE>
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T. Rowe Price
- --------------------------------------------------------------------------------
Annual Report
Tax-Efficient Funds
- --------------------------------------------------------------------------------
February 29, 2000
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REPORT HIGHLIGHTS
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TAX-EFFICIENT FUNDS
- -------------------
* Stocks rose and bond prices fell during the 6- and 12-month periods
ended February 29.
* The Tax-Efficient Balanced Fund delivered solid returns and
outperformed both of its benchmarks despite weakness in the bond
market.
* The Tax-Efficient Growth Fund posted strong performance over the past
six months and since inception, exceeding the return of the S&P 500
Stock Index.
* The outlook for stocks remains favorable given strong earnings growth
and attractive valuations outside the technology sector; municipal
bonds offer extraordinarily high taxable-equivalent yields.
UPDATES AVAILABLE
- -----------------
For updates on T. Rowe Price funds following the end of each calendar
quarter, please see our Web site at www.troweprice.com.
FELLOW SHAREHOLDERS
- -------------------
Technology stocks continued their impressive surge during the 12 months
ended February 29, but rising interest rates took a toll on bonds and also many
stocks. The Federal Reserve, drawing a line in the sand against potential
inflationary pressures, raised interest rates four times during the period. Bond
prices, helped by Treasury debt buybacks, began to recover in early 2000. In
this environment, both the Tax-Efficient Balanced and Tax-Efficient Growth funds
delivered strong performance. The Tax-Efficient Growth Fund was launched on July
30, 1999, and the shareholder reports on both funds will now be combined.
MARKET ENVIRONMENT
- ------------------
The Federal Reserve demonstrated its determination to slow economic growth
to a more sustainable pace with a series of quarter-point increases in the key
federal funds rate beginning on June 30. The persistently strong U.S. economy
grew more than 6% in the second half of 1999. Corporate profits have been
robust, driven by consumer demand, business technology investment, and a
recovery in U.S. exports. But the Fed is concerned that current levels of demand
and employment growth could foster inflationary conditions if left unchecked. At
its March 21 meeting, after the end of our reporting period, the Federal Open
Market Committee raised the federal funds rate a fifth time, by another quarter
point, to 6%. More rate hikes seem likely in the months ahead.
<PAGE>
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30-Year AAA 5-Year AAA 1-Year Moody's
General Obligation General Obligation Investment Grade 1 Note
------------------ ------------------ -----------------------
2/28 4.99 3.78 3
5.04 3.83 3.15
5.08 3.85 3.2
5/31 5.16 4 3.2
5.33 4.33 3.5
5.41 4.3 3.55
8/31 5.6 4.4 3.75
5.7 4.43 3.75
5.89 4.58 3.95
11/30 5.87 4.53 3.95
5.93 4.68 4.1
6.03 4.9 4.1
2/29 5.9 4.94 4.2
*********************************************************************
Interest rates and municipal bond yields rose in response to the strong
economy and the Fed's rate hikes. After outperforming taxable bonds during the
first half of 1999, municipals lost ground in the second half, and lower-quality
tax-exempt securities, in particular, did poorly. Year-end was particularly
challenging for municipal bond funds due to a confluence of events. Municipals
began to weaken when some buyers fled into higher-yielding corporate bonds. In
the fourth quarter, normally strong demand from retail investors waned because
of competition from the surging stock market and from tax-loss selling at
year-end. One factor that aided municipals in 1999 was the relatively light
supply of new issues, down 21% from the previous year.
Our fiscal year ended on a positive note, however, as bond prices climbed
and long-term municipal yields fell in February along with long-term Treasury
yields. The rally began when the Treasury announced its intention to further
reduce outstanding debt by repurchasing Treasury bonds. The markets seemed taken
by surprise, and investors scrambled to discern which maturities would be most
affected and searched for alternative securities. Long-term Treasury yields
plunged, making long-term tax-free yields even more attractive by comparison.
In the equity market, so-called New Economy stocks -- those involved in
technology, telecommunications, and the Internet -- seemed unstoppable over the
past 12 months. Even in early 2000, as blue chip indexes such as the Dow Jones
Industrial Average and the Standard & Poor's 500 Stock Index declined from their
year-end records, the technology-dominated Nasdaq Composite soared to a new
record on February 29. Investors seemed to feel that traditional companies --
including steady growers and those that are more economically sensitive N
belonged to what has come to be known as the Old Economy and were, therefore,
more vulnerable to Fed rate hikes. Less risk was perceived in New Economy stocks
because business spending on technology was expected to rise regardless of the
economy. Many of these companies have been able to finance their growth by
issuing stock instead of borrowing money. Companies involved in the
semiconductor, software, networking, and wireless industries were among the best
performers.
<PAGE>
The performance of blue chip market indexes over the past 12 months was
consistent with historical averages but paled in comparison with their
outstanding returns of recent years. By contrast, the Russell 2000 Index of
smaller companies sprang to life during the period, but it, too, was led by
technology and Internet stocks. An entire swath of the market was left behind.
Many financial stocks were weak, including Fannie Mae, Freddie Mac, Mellon Bank,
and the giant insurer American International Group. Financial shares typically
suffer when the Fed is raising rates, and insurance companies were also hurt by
intense price competition in the property and casualty business. Political and
patent-expiration concerns also affected big pharmaceutical stocks. Drug stocks
revived partially in late January, as President Clinton did not emphasize any
new initiatives on drug-price controls in his State of the Union speech. Since
the president's proposal last year to extend a prescription drug benefit to
Medicare recipients, investors have been concerned about the potential for
government interference in drug pricing. Biotechnology stocks, however, joined
Internet stocks as the focus of unbridled investor enthusiasm in the past year.
Recently, investors have begun to question the sharp distinction -- and the
huge disparity in valuations -- between the New Economy and Old Economy stocks.
Investors have redoubled their efforts to identify traditional companies that
could turn the development of the Internet to their advantage.
TAX-EFFICIENT BALANCED FUND
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PERFORMANCE COMPARISON
----------------------
Periods Ended 2/29/00 6 Months 12 Months
--------------------- -------- ---------
Tax-Efficient Balanced Fund 8.14% 10.42%
Lipper Balanced Funds Average 3.53 7.27
Combined Index Portfolio * 2.11 4.61
* An unmanaged portfolio of 48% stocks (S&P 500 Stock Index) and 52%
bonds (Lehman Municipal Bond Index).
================================================================================
The Tax-Efficient Balanced Fund delivered solid returns for the 6- and
12-month periods, despite the drop in bond prices. Performance was even better
in comparison with our peer group average and the combined index portfolio
because of our stock selection and emphasis on growth stocks. Results versus the
Lipper category were especially gratifying since most balanced funds have more
equity exposure than ours. (The fund is required to keep 50% of assets in
municipal securities to retain the tax-advantaged status of its municipal bond
income.) We also enhanced returns relative to the Lipper average with our
portfolio management decisions on the bond side. Your fund ranked in the top
third of all balanced funds based on total return during the 12 months ended
March 31 and in the top 20% since inception, according to Lipper Inc. (For the
year ended March 31, the fund ranked 137th out of 458 balanced funds, according
to Lipper data. Since inception on June 30, 1997, the fund ranked 57th out of
346 balanced funds. Past performance is no guarantee of future results.)
<PAGE>
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EQUITY PORTFOLIO CHARACTERISTICS
--------------------------------
Tax-Efficient
As of 2/29/00 Balanced Fund S&P 500
------------- ------------- -------
Earnings Growth Rate
Estimated Next 5 Years * 19.2% 14.5%
Profitability - Return on
Equity Latest 12 Months 26.5 24.4
Dividend Yield on Stocks 0.6 1.2
P/E Ratio (Based on Next 12
Months' Estimated Earnings) 34.1X 26.2X
Market Capitalization (mil) 99,851 99,851
* Earnings forecasts are based on estimates by I/B/E/S International and
are in no way indicative of future investment returns.
================================================================================
In addition, the benchmark performance figures represent pretax returns.
Taxable investors would have experienced lower after-tax returns from
traditional balanced funds because they do not invest in municipal bonds and few
use tax-efficient strategies. By contrast, the Tax-Efficient Balanced Fund was
98.8% tax- efficient (after tax return divided by pretax return) for investors
in the 39.6% federal tax bracket during the fiscal year. We made a modest
taxable dividend distribution at calendar year-end and have not made any capital
gain distributions in the fund's history. The fund should remain highly
tax-efficient going forward. We carefully monitor material losses in the
portfolio and have built a loss carryforward of about $1.1 million, or over 2.6%
of the fund's asse ts. This carryforward will be used in the future to offset
any capital gains that the fund incurs.
Our investment approach is stable and we have not initiated any major
changes in our strategy. The equity portfolio is broadly diversified and
structured similarly to other growth funds1, but does have some distinctive
characteristics. We usually invest in large companies -- our market
capitalization is in line with that of the S&P 500 but is bigger than the
average growth fund. However, the portfolio does have mode st exposure to
smaller companies. The equity portfolio has higher return on capital and
profitability than the S&P 500 and other growth fu nds, as well as a higher
price/earnings (P/E) ratio, a higher anticipated long -term growth rate, and a
lower yield. We look for companies that have strong market positions, good
growth prospects, and reasonable valuat ions. Our greater P/E ratio reflects the
superior return on capital as well as our focus on investing in established
market leaders and companies with strong and defensible competitive advantages.
Our beta (a measure of volatility) is about the same as that of other growth
funds, but higher than the S&P 500's.
****************************************************************
1 Comparisons to the Lipper Growth Fund Index use calculations by T.
Rowe Price based on the most current available data from Lipper Inc.
<PAGE>
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Technology remains the largest sector in the equity portfolio, and has
increased in the last six months largely because of strong performance. Our
holdings are established, market-leading companies that are innovative and well
positioned. We have avoided more speculative and less seasoned companies. A
buy-and-hold strategy served us well as we allowed our winners to run as long as
their fundamentals remained sound. The equity portfolio's four largest holdings
are technology companies: Intel, Cisco, Microsoft, and Oracle. All but Microsoft
were top contributors over the past six months. Although the sector has
extremely strong prospects and fundamentals, its extraordinary recent
performance has left most of the market leaders fairly valued. We remain
overweighted in technology stocks relative to the S&P 500 and other growth funds
but do not expect to add materially to this sector as we see better
opportunities elsewhere.
****************************************************************
[Sector Diversification Pie chart shown here as follows; Investment Grade
Municipal Bonds, 43%; Noninvestment Grade Municipal Bonds, 5%; Large-Cap Stocks,
46%; Mid- and Small-Cap Stocks, 2%; Other and Reserves, 4%.]
****************************************************************
Our second and third largest sectors are financial services and health
care, respectively. Both present favorable risk versus reward opportunities for
long-term investors. Valuations are low since both sectors face some short-term
challenges, as discussed in the market environment section. Our financial
services stocks compose about 16% of the equity portfolio and are generally
niche companies that dominate their respective areas and generate attractive
returns on capital. Representative holdings include Fannie Mae, Northern Trust,
and American Express. Our health care holdings are largely pharmaceutical and
medical device companies, such as Merck, Johnson & Johnson, and Pfizer, and
compose about 11% of the equity portfolio. Favorable demographics and continued
innovation by leading companies make us optimistic about these investments.
Attractive valuations among our financial services and health care holdings
should more than compensate for their attendant risks.
The fixed income segment outperformed the average long-term municipal fund
over the past 6- and 12-month periods, but lagged the returns of the
shorter-duration and higher-quality Lehman Municipal Bond Index. (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.) Performance benefited from
our decision late last year to reduce duration while adopting a "barbell"
strategy -- shifting a portion of assets from intermediate to long-term
maturities of 20 years or more but also raising cash reserves in anticipation of
industry-wide redempt ions, which did in fact take place. While many of our
below investment-grade holdings underperformed the market, we mostly avoided the
poorly performing hospital sector. We increased exposure to the nuclear utility
sector as attractively priced new issues came to market in the past six months.
<PAGE>
TAX-EFFICIENT GROWTH FUND
- -------------------------
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PERFORMANCE COMPARISON
---------------------- Since Inception
Periods Ended 2/29/00 6 Months 7/30/99
--------------------- -------- ---------------
Tax-Efficient Growth Fund 11.75% 10.30%
Lipper Growth Funds Average 21.94 21.34
S&P 500 Stock Index 4.11 3.59
================================================================================
Your fund delivered solid results over the past six months and since
inception on July 30, 1999 (seven months ago). Performance in both periods
exceeded that of the S&P 500, as shown in the table, but trailed that of the
Lipper Growth Funds Average. Our approach is less aggressive than that of most
other growth funds, but more aggressive than the S&P 500, as discussed later in
this section. We have avoided more speculative and less seasoned companies,
particularly in the technology sector. In addition, some of our Old Economy
companies experienced operational disappointments that we think will prove
short-lived. As a tax-efficient fund we have longer time horizons and focus on
after-tax returns rather than pretax returns. Many aggressive growth funds have
annual portfolio turnover rates of 100% or more, meaning they hold their
securities, on average, for a year or less. These strategies may produce strong
pretax returns, but are unlikely to provide good after-tax returns in the long
run. Accordingly, results over shorter time periods will differ from those of
growth funds that are not managed with tax efficiency as an objective. Our goal
is to generate long-term returns that are competitive on a pretax basis, as
well, and our experience over the past two-and-a-half years with our
tax-efficient strategy is encouraging. Our thesis is that investors need not
sacrifice performance in the pursuit of tax efficiency, and that therefore this
strategy is also appropriate for tax-deferred accounts.
Since inception, we have made no distributions, so our after-tax returns
are the same as our pretax returns. Thus our tax efficiency (after tax return
divided by pretax return) since inception is 100%. Going forward, we expect to
make modest dividend distributions, though we hope to avoid capital gain
distributions for as long as possible. The portfolio has a yield of about 0.7%
since we generally avoid higher-yielding and slower-growing companies. We have
built a loss carryforward of about $2.7 million (over 3.7% of fund assets) that
will be used to offset future capital gains. We have this loss carryforward for
two reasons. The first is that we have made some mistakes and it is best to
acknowledge them, realize the loss (that is, sell a stock that has fallen in
value), and move on. The second is that even when a company's long-term
prospects remain strong but the stock has declined, we give strong consideration
to selling the stock and reevaluating it after 30 days (due to IRS rules on
writing off capital losses.) We conduct this analysis because losses are
valuable and will enhance our tax efficiency over time. This represents an
important distinction between your fund and those not managed for tax
efficiency.
<PAGE>
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PORTFOLIO CHARACTERISTICS
-------------------------
Tax-Efficient
As of 2/29/00 Growth Fund S&P 500
------------- ----------- -------
Earnings Growth Rate
Estimated Next 5 Years * 18.0% 14.5%
Profitability - Return on
Equity Latest 12 Months 26.5 24.4
Dividend Yield on Stocks 0.7 1.2
P/E Ratio (Based on Next 12
Months' Estimated Earnings) 30.6X 26.2X
Market Capitalization (mil) 64,818 99,851
* Earnings forecasts are based on estimates by I/B/E/S International and
are in no way indicative of future investment returns.
================================================================================
Our strategy has been consistent. We take market prices as given and try to
build the best long-term buy -and-hold portfolio we can based on company
fundamentals and current valuation s. The portfolio is broadly diversified with
market-leading companies. We do not time the market and, therefore, we keep the
portfolio fully invested. Over the long run, market timing is a poor strategy
since it is impossible to forecast the direction of the market. The fund's cash
position is about 1% of net assets.
The portfolio's fundamental characteristics are generally consistent with
those of other growth funds2, with some distinctive aspects including a higher
return on equity. Our beta (a measure of volatility) is lower than other growth
funds but higher than that of the S&P 500. Over the last six months, the most
volatile stocks have dramatically outperformed the rest. Companies with the
highest projected growth rates have performed extremely well. Our investment
approach is to buy market-leading, consistent growers instead of focusing on
those with the most spectacular growth rates. This is reflected in the 18%
estimated earnings growth rate of our holdings and their average price/earnings
(P/E) ratio of 30.6, both of which are slightly less than other growth funds but
greater than the S&P 500. Valuation considerations are an important part of our
investment process. Many rapidly growing companies are less attractive on a
risk/reward basis than companies with strong but more moderate and sustainable
growth rates. The portfolio does have a higher price/book value ratio than the
index. This reflects our belief in the increasing returns on intellectual
property and our avoidance of capital intensive businesses. We have invested in
smaller companies than those in the index but larger than those in other growth
funds. Our investment-weighted median market capitalization is about $65 billion
versus about $40 billion for the competing funds. (Market capitalization is
defined as shares outstanding multiplied by share price.)
<PAGE>
Technology is our largest sector at 38% of net assets. Most of our top
contributors over the past six months were technology stocks, as shown in the
table on page 15. The fundamentals have been fantastic and the recent
performance extraordinary for most leading companies in this area. However, the
market has done a good job of fairly valuing most of the companies in this
sector, even accounting for the strong business environment and bright future
prospects. The fund's technology investments are in established leaders that are
innovative and well positioned. We expect to keep technology as our largest
sector but remain underweighted relative to other growth funds. Six of our top
10 positions are technology stocks, due in part to their strong appreciation.
Representative holdings include Cisco, In tel, Microsoft, Oracle, and Sun
Microsystems. All but Microsoft were top contributors over the past six months.
Others included Symbol Technologies (a maker of wireless electronic devices),
communications chip maker Texas Instruments, telecom equipment provider
Ericsson, semiconductor equipment maker Applied Materials, and Corning, the
leader in fiber optic cables.
================================================================================
2 Comparisons to the Lipper Growth Fund Index use calculations by T.
Rowe Price based on the most current available data from Lipper Inc.
================================================================================
The financial services sector, our second largest at 18% of assets,
combines attractive valuations with strong long-term business prospects. Several
companies are trading at nearly half of their normal valuations relative to the
market due to concerns about rising interest rates and other short-term factors.
We have largely avoided the most commoditized areas of the financial services
sector, such as the traditional lenders. We also have only modest exposure to
insurance companies. But we have invested in market leaders that have strong and
profitable niches, including Fannie Mae, Freddie Mac, North ern Trust, and State
Street. We are overweighted in this sector compared with other growth funds and
the S&P 500 because it offers a highly favorable risk/reward relationship. Our
holdings in this area are growing earnings at a slightly lower rate than the
companies of the index but have high returns on capital and good prospects.
****************************************************************
[Sector Diversification Pie chart shown here as follows; Technology, 38%;
Financial, 18%; Health Care, 13%; Consumer Nondurables, 7%; Consumer
Discretionary, 7%; Retail, 6%; Business Services, 4%; All Other, 7%.]
****************************************************************
Health care is our third-largest sector at 13% of assets. Our investments
are mostly in pharmaceutical and medical device manufacturers. The short-term
fundamentals for most drug companies are more challenging than in recent years,
but their long-term outlook remains bright. Several of our worst performers were
pharmaceutical companies. Their valuations are at a material discount to
historical levels, giving us a strong incentive to assume the risk that the
market is being overly pessimistic. This is a good opportunity for investors
with longer-term horizons. We believe that companies such as Merck, Johns on &
Johnson, Medtronic, and Pfizer will be successful long-term investments.
<PAGE>
Our long-term investment focus provides a large opportunity, especially
when other investors are determined to react to short-term events. When we have
an investment that has appreciated in value and has good long-term prospects but
may be going through a period of adversity, we have the patience to hold on
while those with shorter time horizons might sell the position and look for
stocks that are "working now." These investors must be correct not only in
finding a better alternative, but also in their assessment that they are getting
a good price for their original investment in light of its longer-term
fundamentals. If their original investment is not, in fact, overvalued, and if
the alternative is not undervalued, these investors would, in effect, be
"selling low" to "buy high." The odds against this exercise get even longer for
investors in taxable accounts, who incur capital gains taxes on these trades.
Frequent repetition of such trading only reduces the probability of success.
OUTLOOK
- -------
Despite the market's high overall valuations, there is no shortage of
attractively valued, market-leading companies with high and sustainable returns
on capital. The recent narrowness of the market advance presents investors with
an opportunity to purchase good companies with strong long-term prospects at
reasonable prices. However, many investors find it difficult to focus on
fundamentals when the latest dot-coms produce startling short-term returns and
are the center of media attention. Investors have embraced risk in the hope of
finding the next Cisco or Oracle and have become temporarily disenchanted with
companies that offer good but more moderate earnings growth. As a result, we are
finding many investment opportunities outside the favored technology sector. At
the same time, technology spending by businesses and consumers should remain
strong, fueled by the Internet and the growth of wireless applications, and both
funds are positioned to benefit from these trends.
We think that the New Economy will displace less of the Old Economy than
many expect and, indeed, that the line separating what is "new" from what is
"old" will blur. Strong and insightful managements will use the tools of the New
Economy to make their businesses more efficient and stronger, so that they may
not only deliver greater value to consumers but also earn good profits. Global
consumer companies with good long-term growth prospects are underappreciated and
attractively valued. These companies not only have strong brands but also scale
advantages over their competitors.
<PAGE>
Municipal prices have built up some momentum after their February gains.
Light municipal supply to date continues to benefit our segment of the fixed
income market. The Fed is likely to succeed in its goal of containing inflation,
and any slowdown in economic growth as a result of Fed tightening should bode
well for bonds. We expect states and municipalities to continue benefiting from
rising tax revenues, and as such we are likely to increase our holdings of
general obligation bonds in the months ahead. Yields on municipal bonds are
extremely attractive compared with taxable yields, providing investors in the
balanced fund tax-free income at bargain prices.
Respectfully submitted,
/s/
William F. Snider
Cochairman of the Investment Advisory Committee, Tax-Efficient Balanced Fund
/s/
Donald J. Peters
Cochairman of the Investment Advisory Committee, Tax-Efficient Balanced Fund
Chairman of the Investment Advisory Committee, Tax-Efficient Growth Fund
March 27, 2000
*****************************************************
EFFECTIVE APRIL 1, 2000, HUGH D. MCGUIRK BECAME COCHAIRMAN OF THE
INVESTMENT ADVISORY COMMITTEE OF THE TAX-EFFICIENT BALANCED FUND, RESPONSIBLE
FOR DAY-TO-DAY MANAGEMENT OF THE FUND'S MUNICIPAL BOND PORTFOLIO. MR. MCGUIRK,
WHO HAS BEEN INVOLVED IN THE TAX-EXEMPT BOND MANAGEMENT PROCESS WITH T. ROWE
PRICE SINCE 1993 AND HAS BEEN MANAGING INVESTMENTS SINCE 1997, ALSO HEADS THE
MARYLAND, VIRGINIA, AND GEORGIA TAX-FREE BOND FUNDS. HE SUCCEEDS WILLIAM F.
SNIDER, WHO STEPPED DOWN AS COCHAIRMAN OF THE COMMITTEE TO PURSUE INTERESTS
OUTSIDE OF T. ROWE PRICE.
This updates the Portfolio Management section of the Tax-Efficient Balanced
Fund prospectus dated July 1, 1999.
================================================================================
<PAGE>
T. Rowe Price Tax-Efficient Funds
- ---------------------------------
PORTFOLIO HIGHLIGHTS
- --------------------
LARGEST HOLDINGS
- ----------------
TAX-EFFICIENT BALANCED FUND
- ---------------------------
Percent of Percent of
Net Assets Net Assets
2/29/00 2/29/00
STOCKS
- ------
Intel 2.2%
Cisco Systems 2.1
Microsoft 1.7
Oracle 1.5
GE 1.5
Hewlett-Packard 1.5
Maxim Integrated Products 1.5
Texas Instruments 1.4
Linear Technology 1.0
LM Ericsson 1.0
Total 15.4%
BONDS
- -----
Massachusetts Water Pollution
Abatement Trust 2.4%
Florida Board of Education 2.3
West Virginia 2.3
Michigan State Hospital
Finance Authority 2.3
Dallas County Utility
and Reclamation 2.2
Houston Water and Sewer System 2.1
Metropolitan Pier and
Expo Authority 2.0
Intermountain Power Agency 2.0
Virginia College Building Authority 1.5
Pennsylvania Intergovernmental
Cooperative Authority 1.2
Total 20.3%
================================================================================
<PAGE>
T. Rowe Price Tax-Efficient Funds
- ---------------------------------
PORTFOLIO HIGHLIGHTS
- --------------------
SECTOR DIVERSIFICATION
- ----------------------
TAX-EFFICIENT BALANCED FUND
- ---------------------------
Percent of Percent of
Net Assets Net Assets
8/31/99 2/29/00
------- -------
STOCKS
- ------
Technology 15% 22%
Financial 8 8
Health Care 8 6
Retail 3 3
Consumer Discretionary 3 3
Consumer Nondurables 5 3
Industrial 2 2
All Other 4 2
Total 48% 49%
BONDS AND RESERVES
- ------------------
Dedicated Tax Revenue 6% 7%
Nuclear Revenue 4 7
General Obligation - State 7 6
Hospital Revenue 4 6
Housing Finance Revenue 4 5
Water and Sewer Revenue 3 5
Electric Revenue 4 2
Educational Revenue 3 2
Lease Revenue 3 2
Life Care/Nursing Home Revenue 1 2
All Other 9 3
Reserves 4 4
Total 52% 51%
================================================================================
<PAGE>
T. Rowe Price Tax-Efficient Funds
- ---------------------------------
PORTFOLIO HIGHLIGHTS
- --------------------
TWENTY-FIVE LARGEST HOLDINGS
- ----------------------------
TAX-EFFICIENT GROWTH FUND
- -------------------------
Percent of
Net Assets
2/29/00
- --------------------------------------------------------------
Cisco Systems 4.2%
- --------------------------------------------------------------
Intel 3.6
- --------------------------------------------------------------
Microsoft 3.3
- --------------------------------------------------------------
Oracle 2.5
- --------------------------------------------------------------
GE 2.3
- --------------------------------------------------------------
Freddie Mac 2.0
- --------------------------------------------------------------
Wal-Mart 2.0
- --------------------------------------------------------------
Fannie Mae 1.9
- --------------------------------------------------------------
Texas Instruments 1.9
- --------------------------------------------------------------
Lucent Technologies 1.7
- --------------------------------------------------------------
Citigroup 1.6
- --------------------------------------------------------------
USTrust 1.6
- --------------------------------------------------------------
Symbol Technologies 1.6
- --------------------------------------------------------------
Merck1.5
- --------------------------------------------------------------
Hewlett-Packard 1.5
- --------------------------------------------------------------
Mellon Financial 1.5
- --------------------------------------------------------------
Home Depot 1.5
- --------------------------------------------------------------
Northern Trust 1.4
- --------------------------------------------------------------
Sun Microsystems 1.3
- --------------------------------------------------------------
Johnson & Johnson 1.3
- --------------------------------------------------------------
State Street 1.3
- --------------------------------------------------------------
Time Warner 1.3
- --------------------------------------------------------------
Applied Materials 1.3
- --------------------------------------------------------------
Pfizer 1.2
- --------------------------------------------------------------
Marsh & McLennan 1.2
- --------------------------------------------------------------
Total 46.5%
Note: Table excludes reserves.
================================================================================
<PAGE>
T. Rowe Price Tax-Efficient Funds
- ---------------------------------
PORTFOLIO HIGHLIGHTS
- --------------------
CONTRIBUTIONS TO THE CHANGE IN NET ASSET VALUE PER SHARE
- --------------------------------------------------------
TAX-EFFICIENT GROWTH FUND
- -------------------------
6 Months Ended 2/29/00
TEN BEST CONTRIBUTORS
- ---------------------
Oracle 22 cents
Cisco Systems 22
Symbol Technologies 12
Intel 11
Texas Instruments 10
LMEricsson 9
Sun Microsystems 9
Applied Materials 9
Corning * 9
US Trust 7
Total 120 cents
TEN WORST CONTRIBUTORS
- ----------------------
Johnson & Johnson -5 cents
Freddie Mac 5
Schering-Plough 4
Mattel ** 4
Fannie Mae 3
Avon 3
Xerox ** 3
Bank of America ** 3
Coca-Cola 3
Bristol-Myers Squibb 3
Total -36 cents
* Position added
** Position eliminated
================================================================================
<PAGE>
T. Rowe Price Tax-Efficient Funds
- ---------------------------------
PERFORMANCE COMPARISON
- ----------------------
These charts show the value of a hypothetical $10,000 investment in each
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.
Combined Index Tax-Efficient
Portfolio Balanced Fund
--------- -------------
6/97 10000 10000
2/98 11316 11496
2/99 12807 13157
2/00 13398 14528
*****************************************************************
Lipper Growth Tax-Efficient
S&P 500 Funds Average Growth Fund
------- ------------- -----------
7/99 10000 10000 10000
2/00 10359 12134 11030
AVERAGE ANNUAL COMPOUND TOTAL RETURN
- ------------------------------------
This table shows how each 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 2/29/00 1 Year Inception Date
- --------------------- ------ --------- ----
Tax-Efficient Balanced Fund 10.42% 15.03% 6/30/97
Tax-Efficient Growth Fund -- 10.30 7/30/99
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original purchase.
================================================================================
<PAGE>
T. Rowe Price Tax-Efficient Balanced Fund
- -----------------------------------------
For a share outstanding throughout each period
FINANCIAL HIGHLIGHTS
- --------------------
Year 6/30/97
Ended Through
2/29/00 2/28/99 2/28/98
NET ASSET VALUE
Beginning of period $ 12.72 $ 11.34 $ 10.00
- ---------------------------------------------------------------------------
Investment activities
Net investment income (loss) 0.25* 0.24* 0.15*
Net realized and
unrealized gain (loss) 1.06 1.38 1.34
- ---------------------------------------------------------------------------
Total from
investment activities 1.31 1.62 1.49
- ---------------------------------------------------------------------------
Distributions
Net investment income (0.27) (0.24) (0.15)
- ---------------------------------------------------------------------------
NET ASSET VALUE
End of period $ 13.76 $ 12.72 $ 11.34
Ratios/Supplemental=Data===================================================
Total return** 10.42%* 14.45%* 14.96%
- ---------------------------------------------------------------------------
Ratio of total expenses to
average net assets 1.00%* 1.00%* 1.00%*+
- ---------------------------------------------------------------------------
Ratio of net investment
income (loss) to average
net assets 1.99%* 2.03%* 2.31%*+
- ---------------------------------------------------------------------------
Portfolio turnover rate 40.0% 19.8% 12.5%+
- ---------------------------------------------------------------------------
Net assets, end of period
(in thousands) $ 43,248 $ 33,767 $ 17,714
- ---------------------------------------------------------------------------
** 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.
================================================================================
<PAGE>
T. Rowe Price Tax-Efficient Growth Fund
- ---------------------------------------
For a share outstanding throughout each period
FINANCIAL HIGHLIGHTS
- --------------------
7/30/99
Through
2/29/00
NET ASSET VALUE
Beginning of period $ 10.00
- ------------------------------------------------------------------
Investment activities
Net investment income (loss) (0.01)*
Net realized and
unrealized gain (loss) 1.04
- ------------------------------------------------------------------
Total from
investment activities 1.03
- ------------------------------------------------------------------
NET ASSET VALUE
End of period $ 11.03
Ratios/Supplemental=Data==========================================
Total return** 10.30%*
- ------------------------------------------------------------------
Ratio of total expenses to
average net assets 1.10%*+
- ------------------------------------------------------------------
Ratio of net investment
income (loss) to average
net assets (0.11)%*+
- ------------------------------------------------------------------
Portfolio turnover rate 23.4%+
- ------------------------------------------------------------------
Net assets, end of period
(in thousands) $ 72,336
- ------------------------------------------------------------------
** 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 1.10% voluntary expense limitation in
effect through 2/28/01.
+ Annualized
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. Rowe Price Tax-Efficient Balanced Fund
- ----------------------------------------- February 29, 2000
STATEMENT OF NET ASSETS
- -----------------------
Shares/Par Value
In thousands
COMMON STOCKS 48.8%
FINANCIAL==8.0%==============================================================
Banks 3.8%
Bank of New York 3,300 $ 110
- -----------------------------------------------------------------------------
Citigroup 7,125 368
- -----------------------------------------------------------------------------
Mellon Financial 7,000 211
- -----------------------------------------------------------------------------
Northern Trust 6,000 339
- -----------------------------------------------------------------------------
State Street 3,200 233
- -----------------------------------------------------------------------------
U.S. Trust 1,500 208
- -----------------------------------------------------------------------------
Wells Fargo 5,100 169
- -----------------------------------------------------------------------------
1,638
- -----------------------------------------------------------------------------
Financial Services 2.8%
American Express 2,600 349
- -----------------------------------------------------------------------------
Fannie Mae 6,900 366
- -----------------------------------------------------------------------------
Freddie Mac 6,500 271
- -----------------------------------------------------------------------------
Marsh & McLennan 2,950 228
- -----------------------------------------------------------------------------
1,214
- -----------------------------------------------------------------------------
Life & Health Insurance 0.1%
American General 600 31
- -----------------------------------------------------------------------------
31
- -----------------------------------------------------------------------------
Property & Casualty Insurance 0.6%
AMBAC 700 31
- -----------------------------------------------------------------------------
American International Group 2,406 213
- -----------------------------------------------------------------------------
244
- -----------------------------------------------------------------------------
<PAGE>
Securities & Asset Management 0.7%
Charles Schwab 6,150 257
- -----------------------------------------------------------------------------
Franklin Resources 1,800 49
- -----------------------------------------------------------------------------
306
- -----------------------------------------------------------------------------
Total Financial 3,433
- -----------------------------------------------------------------------------
CONSUMER=NONDURABLES==2.5%===================================================
Home Products 1.1%
Avon 1,700 46
- -----------------------------------------------------------------------------
Colgate-Palmolive 3,200 167
- -----------------------------------------------------------------------------
Gillette 1,000 35
- -----------------------------------------------------------------------------
Procter & Gamble 2,600 229
- -----------------------------------------------------------------------------
477
- -----------------------------------------------------------------------------
Beverages 0.5%
Coca-Cola 3,300 $ 160
- -----------------------------------------------------------------------------
PepsiCo 2,200 71
- -----------------------------------------------------------------------------
231
- -----------------------------------------------------------------------------
Food 0.5%
General Mills 900 29
- -----------------------------------------------------------------------------
Sysco 3,500 115
- -----------------------------------------------------------------------------
Wrigley 900 61
- -----------------------------------------------------------------------------
205
- -----------------------------------------------------------------------------
Apparel & Textiles 0.1%
NIKE (Class B) 1,900 54
- -----------------------------------------------------------------------------
54
- -----------------------------------------------------------------------------
Liquor 0.3%
Anheuser-Busch 1,700 109
- -----------------------------------------------------------------------------
109
- -----------------------------------------------------------------------------
Total Consumer Nondurables 1,076
- -----------------------------------------------------------------------------
<PAGE>
TECHNOLOGY==22.2%============================================================
Electronics Equipment 0.9%
Corning 1,500 282
- -----------------------------------------------------------------------------
Molex (Class A) 2,150 91
- -----------------------------------------------------------------------------
373
- -----------------------------------------------------------------------------
Communications Equipment 2.6%
LM Ericsson (Class B) ADR 4,300 413
- -----------------------------------------------------------------------------
Lucent Technologies 5,500 327
- -----------------------------------------------------------------------------
Motorola 1,200 204
- -----------------------------------------------------------------------------
Nokia ADR 400 79
- -----------------------------------------------------------------------------
Tellabs * 2,200 106
- -----------------------------------------------------------------------------
1,129
- -----------------------------------------------------------------------------
Semiconductors 7.6%
Altera * 4,600 367
- -----------------------------------------------------------------------------
Intel 8,400 950
- -----------------------------------------------------------------------------
Linear Technology 4,200 441
- -----------------------------------------------------------------------------
Maxim Integrated Products * 9,400 628
- -----------------------------------------------------------------------------
Texas Instruments 3,600 599
- -----------------------------------------------------------------------------
Xilinx * 4,000 319
- -----------------------------------------------------------------------------
3,304
- -----------------------------------------------------------------------------
Miscellaneous Computer Hardware 1.5%
EMC * 2,200 $ 262
- -----------------------------------------------------------------------------
Pitney Bowes 1,000 49
- -----------------------------------------------------------------------------
Symbol Technologies 3,450 328
- -----------------------------------------------------------------------------
639
- -----------------------------------------------------------------------------
<PAGE>
Computer Software 3.9%
BMC Software * 1,400 64
- -----------------------------------------------------------------------------
Computer Associates 3,400 219
- -----------------------------------------------------------------------------
Microsoft * 8,400 750
- -----------------------------------------------------------------------------
Oracle * 8,850 657
- -----------------------------------------------------------------------------
1,690
- -----------------------------------------------------------------------------
Information Services 0.4%
Automatic Data Processing 3,800 166
- -----------------------------------------------------------------------------
166
- -----------------------------------------------------------------------------
Computer Communications Equipment 2.1%
Cisco Systems * 6,750 892
- -----------------------------------------------------------------------------
892
- -----------------------------------------------------------------------------
Computer Makers 2.7%
Dell Computer * 4,500 184
- -----------------------------------------------------------------------------
Hewlett-Packard 4,700 632
- -----------------------------------------------------------------------------
Sun Microsystems * 3,800 362
- -----------------------------------------------------------------------------
1,178
- -----------------------------------------------------------------------------
Semiconductor Capital Equipment 0.5%
Applied Materials * 1,300 238
- -----------------------------------------------------------------------------
238
- -----------------------------------------------------------------------------
Total Technology 9,609
- -----------------------------------------------------------------------------
BASIC=MATERIALS==0.6%========================================================
Forest Products and Paper 0.3%
Kimberly-Clark 2,100 109
- -----------------------------------------------------------------------------
109
- -----------------------------------------------------------------------------
Chemicals 0.3%
Ecolab 1,500 42
- -----------------------------------------------------------------------------
Illinois Tool Works 1,300 67
- -----------------------------------------------------------------------------
Valspar 1,000 33
- -----------------------------------------------------------------------------
142
- -----------------------------------------------------------------------------
Total Basic Materials 251
- -----------------------------------------------------------------------------
<PAGE>
BUSINESS=SERVICES==1.6%======================================================
Industrial 0.5%
Cintas 1,500 $ 60
- -----------------------------------------------------------------------------
DeVry * 3,400 61
- -----------------------------------------------------------------------------
Robert Half International * 2,000 85
- -----------------------------------------------------------------------------
206
- -----------------------------------------------------------------------------
Business Services 0.3%
IMS Health 2,800 57
- -----------------------------------------------------------------------------
Paychex 2,100 105
- -----------------------------------------------------------------------------
162
- -----------------------------------------------------------------------------
Advertising 0.8%
Interpublic Group 2,800 112
- -----------------------------------------------------------------------------
Omnicom 1,600 151
- -----------------------------------------------------------------------------
Young & Rubicam 1,500 76
- -----------------------------------------------------------------------------
339
- -----------------------------------------------------------------------------
Total Business Services 707
- -----------------------------------------------------------------------------
HEALTH=CARE==5.5%============================================================
Drugs 4.3%
American Home Products 3,300 143
- -----------------------------------------------------------------------------
Amgen * 2,700 184
- -----------------------------------------------------------------------------
AstraZeneca Group ADR 2,100 70
- -----------------------------------------------------------------------------
Bristol-Myers Squibb 4,900 278
- -----------------------------------------------------------------------------
Eli Lilly 1,700 101
- -----------------------------------------------------------------------------
Glaxo Wellcome ADR 1,500 73
- -----------------------------------------------------------------------------
Merck 5,300 326
- -----------------------------------------------------------------------------
Pfizer 9,300 299
- -----------------------------------------------------------------------------
Pharmacia & Upjohn 1,000 48
- -----------------------------------------------------------------------------
Schering-Plough 3,600 126
- -----------------------------------------------------------------------------
SmithKline Beecham ADR 1,600 90
- -----------------------------------------------------------------------------
Warner-Lambert 1,700 145
- -----------------------------------------------------------------------------
1,883
- -----------------------------------------------------------------------------
<PAGE>
Medical Products 1.2%
Boston Scientific * 1,500 27
- -----------------------------------------------------------------------------
Johnson & Johnson 3,100 223
- -----------------------------------------------------------------------------
Medtronic 5,200 252
- -----------------------------------------------------------------------------
502
- -----------------------------------------------------------------------------
Total Health Care 2,385
- -----------------------------------------------------------------------------
RETAIL==3.0%=================================================================
Department Stores 1.0%
Wal-Mart 8,300 $ 404
- -----------------------------------------------------------------------------
404
- -----------------------------------------------------------------------------
Specialty Retail 2.0%
Bed Bath & Beyond * 1,800 51
- -----------------------------------------------------------------------------
CVS 1,500 52
- -----------------------------------------------------------------------------
Dollar General 3,925 82
- -----------------------------------------------------------------------------
Home Depot 4,700 272
- -----------------------------------------------------------------------------
Tiffany & Company 3,600 231
- -----------------------------------------------------------------------------
Walgreen 3,400 88
- -----------------------------------------------------------------------------
Williams-Sonoma * 3,200 99
- -----------------------------------------------------------------------------
875
- -----------------------------------------------------------------------------
Total Retail 1,279
- -----------------------------------------------------------------------------
CONSUMER=DISCRETIONARY==2.9%=================================================
Restaurants 0.3%
McDonald's 2,200 69
- -----------------------------------------------------------------------------
Starbucks * 2,600 92
- -----------------------------------------------------------------------------
161
- -----------------------------------------------------------------------------
Entertainment 0.2%
Carnival (Class A) 3,200 92
- -----------------------------------------------------------------------------
92
- -----------------------------------------------------------------------------
<PAGE>
Publishing 0.5%
McGraw-Hill 4,000 204
- -----------------------------------------------------------------------------
204
- -----------------------------------------------------------------------------
Media 1.9%
AMFM * 900 55
- -----------------------------------------------------------------------------
CBS * 4,500 268
- -----------------------------------------------------------------------------
Clear Channel Communications * 1,300 86
- -----------------------------------------------------------------------------
Disney 2,800 94
- -----------------------------------------------------------------------------
Time Warner 3,600 308
- -----------------------------------------------------------------------------
811
- -----------------------------------------------------------------------------
Total Consumer Discretionary 1,268
- -----------------------------------------------------------------------------
INDUSTRIAL==1.8%=============================================================
Defense & Aerospace 0.3%
Boeing 3,100 $ 114
- -----------------------------------------------------------------------------
114
- -----------------------------------------------------------------------------
Heavy Electical Equipment 1.5%
GE 4,900 648
- -----------------------------------------------------------------------------
648
- -----------------------------------------------------------------------------
Total Industrial 762
- -----------------------------------------------------------------------------
TELECOMMUNICATIONS==0.5%=====================================================
Wireless Communications 0.5%
Vodafone Airtouch ADR 4,000 231
- -----------------------------------------------------------------------------
Total Telecommunications 231
- -----------------------------------------------------------------------------
TRANSPORTATION==0.2%=========================================================
Trucking, Shipping, Air Freight 0.2%
Expeditors International of Washington 2,200 83
- -----------------------------------------------------------------------------
Total Transportation 83
- -----------------------------------------------------------------------------
Total Common Stocks (Cost $11,536) 21,084
<PAGE>
MUNICIPAL=BONDS==51.4%=======================================================
CONNECTICUT==1.0%============================================================
Connecticut Dev. Auth.
Mystic Marinelife Aquarium
6.875%, 12/1/17 $ 100,000 99
- -----------------------------------------------------------------------------
Mashantucket
5.50%, 9/1/28 200,000 170
- -----------------------------------------------------------------------------
5.75%, 9/1/27 200,000 177
- -----------------------------------------------------------------------------
Total Connecticut (Cost $458) 446
- -----------------------------------------------------------------------------
DISTRICT=OF=COLUMBIA==0.4%===================================================
District of Columbia Hosp.
Medlantic Healthcare Group
5.25%, 8/15/19 (MBIA Insured)
(Escrowed to Maturity) $ 200,000 $ 184
- -----------------------------------------------------------------------------
Total District of Columbia (Cost $188) 184
- -----------------------------------------------------------------------------
FLORIDA==2.3%================================================================
Florida Board of Ed., GO, Capital Outlay
5.00%, 6/1/03 1,000,000 1,008
- -----------------------------------------------------------------------------
Total Florida (Cost $1,021) 1,008
- -----------------------------------------------------------------------------
GEORGIA==1.0%================================================================
Municipal Electric Auth. of Georgia
Zero Coupon, 1/1/09 585,000 341
- -----------------------------------------------------------------------------
5.70%, 1/1/19 (MBIA Insured) 100,000 99
- -----------------------------------------------------------------------------
Total Georgia (Cost $458) 440
- -----------------------------------------------------------------------------
HAWAII==0.5%=================================================================
Hawaii Dept. of Budget and Fin., Hawaiian Electric
4.95%, 4/1/12 (MBIA Insured) 250,000 237
- -----------------------------------------------------------------------------
Total Hawaii (Cost $250) 237
- -----------------------------------------------------------------------------
<PAGE>
ILLINOIS==4.1%===============================================================
Chicago Water, Capital Appreciation
Zero Coupon, 11/1/11 (FGIC Insured) 500,000 258
- -----------------------------------------------------------------------------
Illinois Health Fac. Auth., Resurrection Health Care
VRDN (Currently 3.85%) (FSA Insured) 200,000 200
- -----------------------------------------------------------------------------
Illinois HFA, Riverside Health Systems
6.00%, 11/15/18 500,000 459
- -----------------------------------------------------------------------------
Metropolitan Pier & Expo. Auth.
McCormick Place Expedition Project
5.25%, 12/15/28 (FGIC Insured) 1,000,000 874
- -----------------------------------------------------------------------------
Total Illinois (Cost $1,914) 1,791
- -----------------------------------------------------------------------------
INDIANA==0.5%================================================================
Goshen, Greencroft Obligation Group
5.75%, 8/15/28 $ 250,000 $ 197
- -----------------------------------------------------------------------------
Total Indiana (Cost $246) 197
- -----------------------------------------------------------------------------
LOUISIANA==0.6%==============================================================
West Feliciana Parish, PCR, Entergy Gulf States
5.65%, 9/1/28 250,000 248
- -----------------------------------------------------------------------------
Total Louisiana (Cost $250) 248
- -----------------------------------------------------------------------------
MAINE==0.7%==================================================================
Maine Housing Auth., Mortgage Purchase
5.70%, 11/15/15 300,000 289
- -----------------------------------------------------------------------------
Total Maine (Cost $301) 289
- -----------------------------------------------------------------------------
MASSACHUSETTS==3.0%==========================================================
Massachusetts, Municipal Wholesale Electric
6.75%, 7/1/05 (MBIA Insured) 250,000 265
- -----------------------------------------------------------------------------
Massachusetts Water Pollution
6.00%, 8/1/18 1,000,000 1,026
- -----------------------------------------------------------------------------
Total Massachusetts (Cost $1,281) 1,291
- -----------------------------------------------------------------------------
<PAGE>
MICHIGAN==4.5%===============================================================
Detroit School Dist., GO, 5.25%, 5/1/14 (FGIC Insured) 500,000 481
- -----------------------------------------------------------------------------
Kalamazoo HFA, Bronson Methodist Hosp.
5.50%, 5/15/12 (MBIAInsured) 500,000 496
- -----------------------------------------------------------------------------
Michigan Hosp. Fin. Auth., Ascension Health Credit
5.20%, 11/15/33 1,000,000 990
- -----------------------------------------------------------------------------
Total Michigan (Cost $2,030) 1,967
- -----------------------------------------------------------------------------
MISSISSIPPI==1.2%============================================================
Mississippi, GO, Capital Improvements
5.00%, 11/1/05 515,000 514
- -----------------------------------------------------------------------------
Total Mississippi (Cost $537) 514
- -----------------------------------------------------------------------------
NEVADA==1.1%=================================================================
Nevada Housing Division, Single Family Mortgage
5.60%, 4/1/17 $ 500,000 $ 475
- -----------------------------------------------------------------------------
Total Nevada (Cost $500) 475
- -----------------------------------------------------------------------------
NEW=JERSEY==1.5%=============================================================
New Jersey Economic Dev. Auth., Franciscan Oaks
5.75%, 10/1/23 100,000 80
- -----------------------------------------------------------------------------
New Jersey Housing and Mortgage Fin. Agency,
Multi-Family
5.55%, 11/1/09 (FSA Insured) 260,000 262
- -----------------------------------------------------------------------------
New Jersey Transportion Auth., Trust Fund
4.50%, 6/15/00 (Escrowed to Maturity) 300,000 300
- -----------------------------------------------------------------------------
Total New Jersey (Cost $659) 642
- -----------------------------------------------------------------------------
NEW=MEXICO==0.7%=============================================================
Farmington, PCR
6.30%, 12/1/16 300,000 288
- -----------------------------------------------------------------------------
Total New Mexico (Cost $292) 288
- -----------------------------------------------------------------------------
<PAGE>
NEW=YORK==4.3%===============================================================
Dormitory Auth. of the State of New York
Court Fac., Westchester County
5.00%, 8/1/09 500,000 488
- -----------------------------------------------------------------------------
State Univ. Ed. Fac.
5.40%, 5/15/23 250,000 225
- -----------------------------------------------------------------------------
Long Island Power Auth.
5.00%, 4/1/02 250,000 251
- -----------------------------------------------------------------------------
New York City, GO
7.50%, 2/1/01 100,000 103
- -----------------------------------------------------------------------------
7.625%, 2/1/15 (Prerefunded 2/1/02+) 235,000 251
- -----------------------------------------------------------------------------
New York City Transitional Fin. Auth.
5.75%, 11/15/20 500,000 488
- -----------------------------------------------------------------------------
New York Thruway Auth., Local Highway and Bridge
6.25%, 4/1/07 (Prerefunded 4/1/02+) 40,000 42
- -----------------------------------------------------------------------------
Total New York (Cost $1,889) 1,848
- -----------------------------------------------------------------------------
NORTH=CAROLINA==0.7%=========================================================
North Carolina Eastern Municipal Power Agency
6.00%, 1/1/05 $ 300,000 $ 303
- -----------------------------------------------------------------------------
Total North Carolina (Cost $304) 303
- -----------------------------------------------------------------------------
PENNSYLVANIA==3.3%===========================================================
Beaver County IDA, PCR, Toledo Edison
4.85%, 6/1/04 500,000 474
- -----------------------------------------------------------------------------
Bucks County IDA, Chandler Hall
6.30%, 5/1/29 250,000 213
- -----------------------------------------------------------------------------
Montgomery County, HHEFA, Faulkeways at Gwynedd
6.75%, 11/15/24 200,000 184
- -----------------------------------------------------------------------------
Pennsylvania Intergovernmental Cooperative Auth.
5.25%, 6/15/11 (FGIC Insured) 545,000 536
- -----------------------------------------------------------------------------
Total Pennsylvania (Cost $1,472) 1,407
- -----------------------------------------------------------------------------
<PAGE>
SOUTH=CAROLINA==1.2%=========================================================
Connector 2000 Assoc., Greenville Toll Road
Zero Coupon, 1/1/09 500,000 254
- -----------------------------------------------------------------------------
Piedmont Municipal Power Agency, Electric
5.75%, 1/1/24 300,000 255
- -----------------------------------------------------------------------------
Total South Carolina (Cost $572) 509
- -----------------------------------------------------------------------------
TENNESSEE==0.4%==============================================================
Tennessee, HDA, Homeownership
Zero Coupon, 7/1/16 500,000 183
- -----------------------------------------------------------------------------
Total Tennessee (Cost $199) 183
- -----------------------------------------------------------------------------
TEXAS==7.8%==================================================================
Brazos River Auth., Reliant Energy
5.20%, 12/1/18 500,000 493
- -----------------------------------------------------------------------------
Dallas County Utility & Reclamation Dist.
5.875%, 2/15/29 (AMBAC Insured) 1,000,000 971
- -----------------------------------------------------------------------------
Houston Water and Sewer System
5.375%, 12/1/27 (FGIC Insured) $ 1,000,000 $ 902
- -----------------------------------------------------------------------------
Texas, GO, TRAN, 4.50%, 8/31/00 1,000,000 1,004
- -----------------------------------------------------------------------------
Total Texas (Cost $3,370) 3,370
- -----------------------------------------------------------------------------
UTAH==2.0%===================================================================
Intermountain Power Agency
5.375%, 7/1/08 850,000 847
- -----------------------------------------------------------------------------
Total Utah (Cost $854) 847
- -----------------------------------------------------------------------------
VIRGINIA==3.9%===============================================================
Henrico County IDA, Bon Secours Health
6.00%, 8/15/16 (MBIA Insured) 185,000 190
- -----------------------------------------------------------------------------
Hopewell IDA, Westport Convalescent Center
6.00%, 10/1/06 145,000 140
- -----------------------------------------------------------------------------
Pocahontas Parkway Assoc., Toll Road
Zero Coupon, 8/15/18 900,000 222
- -----------------------------------------------------------------------------
Virginia College Building Auth.,
Washington and Lee Univ.
5.25%, 1/1/31 (MBIA Insured) 750,000 667
- -----------------------------------------------------------------------------
Virginia HDA
5.60%, 11/1/18 500,000 470
- -----------------------------------------------------------------------------
Total Virginia (Cost $1,866) 1,689
- -----------------------------------------------------------------------------
<PAGE>
WASHINGTON==0.2%=============================================================
Washington, GO, 5.375%, 9/1/02 100,000 101
- -----------------------------------------------------------------------------
Total Washington (Cost $102) 101
- -----------------------------------------------------------------------------
WEST=VIRGINIA==2.3%==========================================================
West Virginia, GO, 5.75%, 6/1/15 1,000,000 1,004
- -----------------------------------------------------------------------------
Total West Virginia (Cost $1,036) 1,004
- -----------------------------------------------------------------------------
WISCONSIN==1.1%==============================================================
Wisconsin HEFA, Childrens Hosp.
5.625%, 2/15/15 (AMBAC Insured) 500,000 493
- -----------------------------------------------------------------------------
Total Wisconsin (Cost $522) 493
- -----------------------------------------------------------------------------
WYOMING==1.1%================================================================
Wyoming Community Dev. Auth., 5.70%, 12/1/35 $ 500,000 $ 463
- -----------------------------------------------------------------------------
Total Wyoming (Cost $500) 463
- -----------------------------------------------------------------------------
Total Municipal Bonds (Cost 23,071) 22,234
=============================================================================
=Total=Investments=in=Securities=============================================
100.2% of Net Assets (Cost $34,607) $ 43,318
Other Assets Less Liabilities (70)
=============================================================================
<PAGE>
NET ASSETS $ 43,248
=============================================================================
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ 10
Accumulated net realized gain/loss -
net of distributions (1,112)
Net unrealized gain (loss) 8,711
Paid-in-capital applicable to 3,143,187
shares of $0.0001 par
value capital stock outstanding;
1,000,000,000 shares authorized 35,639
- -----------------------------------------------------------------------------
NET ASSETS $ 43,248
=============================================================================
NET ASSET VALUE PER SHARE $ 13.76
=============================================================================
* Non-income producing
+ Used in determining portfolio maturity
ADR American Depository Receipt
AMBAC AMBAC Indemnity Corp.
FGIC Financial Guaranty Insurance Company
FSA Financial Security Assurance Corp.
GO General Obligation
HDA Housing Development Authority
HEFA Health & Educational Facility Authority
HFA Health Facility Authority
HHEFA Health & Higher Educational 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.
#
================================================================================
<PAGE>
T. Rowe Price Tax-Efficient Growth Fund
- --------------------------------------- February 29, 2000
PORTFOLIO OF INVESTMENTS
- ------------------------
Shares Value
In thousands
COMMON STOCKS 99.3%
FINANCIAL==17.9%==============================================================
Banks 8.7%
Bank of New York 15,200 $ 506
- ------------------------------------------------------------------------------
Citigroup 23,000 1,189
- ------------------------------------------------------------------------------
Mellon Financial 35,700 1,075
- ------------------------------------------------------------------------------
Northern Trust 18,400 1,039
- ------------------------------------------------------------------------------
State Street 12,700 926
- ------------------------------------------------------------------------------
US Trust 8,400 1,163
- ------------------------------------------------------------------------------
Wells Fargo 10,700 354
- ------------------------------------------------------------------------------
6,252
- ------------------------------------------------------------------------------
Financial Services 6.6%
American Express 6,400 859
- ------------------------------------------------------------------------------
Equifax 7,000 148
- ------------------------------------------------------------------------------
Fannie Mae 26,500 1,404
- ------------------------------------------------------------------------------
Freddie Mac 35,500 1,482
- ------------------------------------------------------------------------------
Marsh & McLennan 11,500 890
- ------------------------------------------------------------------------------
4,783
- ------------------------------------------------------------------------------
Life & Health Insurance 0.3%
American General 4,400 230
- ------------------------------------------------------------------------------
230
- ------------------------------------------------------------------------------
Property & Casualty Insurance 1.6%
AMBAC 6,700 295
- ------------------------------------------------------------------------------
American International Group 10,000 884
- ------------------------------------------------------------------------------
1,179
- ------------------------------------------------------------------------------
<PAGE>
Securities & Asset Management 0.7%
Charles Schwab 5,500 230
- ------------------------------------------------------------------------------
Franklin Resources 10,400 283
- ------------------------------------------------------------------------------
513
- ------------------------------------------------------------------------------
Total Financial 12,957
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS==0.8%======================================================
Wireless Telecommunications 0.8%
Vodafone Airtouch ADR 10,500 606
- ------------------------------------------------------------------------------
Total Telecommunications 606
- ------------------------------------------------------------------------------
CONSUMER=NONDURABLES==7.2%====================================================
Home Products 2.6%
Avon 9,000 $ 243
- ------------------------------------------------------------------------------
Colgate-Palmolive 6,800 355
- ------------------------------------------------------------------------------
Gillette 14,300 504
- ------------------------------------------------------------------------------
Procter & Gamble 9,100 801
- ------------------------------------------------------------------------------
1,903
- ------------------------------------------------------------------------------
Beverages 2.2%
Coca-Cola 16,300 790
- ------------------------------------------------------------------------------
PepsiCo 25,000 806
- ------------------------------------------------------------------------------
1,596
- ------------------------------------------------------------------------------
Food 1.3%
General Mills 10,900 359
- ------------------------------------------------------------------------------
Sysco 10,100 331
- ------------------------------------------------------------------------------
Wrigley 4,000 271
- ------------------------------------------------------------------------------
961
- ------------------------------------------------------------------------------
Textiles and Apparel 0.4%
NIKE (Class B) 9,500 270
- ------------------------------------------------------------------------------
270
- ------------------------------------------------------------------------------
<PAGE>
Liquor 0.7%
Anheuser-Busch 7,700 494
- ------------------------------------------------------------------------------
494
- ------------------------------------------------------------------------------
Total Consumer Nondurables 5,224
- ------------------------------------------------------------------------------
RETAIL==6.3%==================================================================
Department Stores 2.0%
Wal-Mart 30,000 1,461
- ------------------------------------------------------------------------------
1,461
- ------------------------------------------------------------------------------
Specialty Retail 4.3%
Bed Bath & Beyond * 10,600 300
- ------------------------------------------------------------------------------
CVS 11,000 385
- ------------------------------------------------------------------------------
Dollar General 15,500 325
- ------------------------------------------------------------------------------
Home Depot 18,300 1,058
- ------------------------------------------------------------------------------
Tiffany & Company 7,100 456
- ------------------------------------------------------------------------------
Walgreen 12,800 330
- ------------------------------------------------------------------------------
Williams-Sonoma * 7,500 232
- ------------------------------------------------------------------------------
3,086
- ------------------------------------------------------------------------------
Total Retail 4,547
- ------------------------------------------------------------------------------
TECHNOLOGY==37.9%=============================================================
Electronic Equipment 1.7%
Corning 4,500 $ 846
- ------------------------------------------------------------------------------
Molex (Class A) 8,900 377
- ------------------------------------------------------------------------------
1,223
- ------------------------------------------------------------------------------
Communications Equipment 5.1%
LM Ericsson (Class B) ADR 9,200 883
- ------------------------------------------------------------------------------
Lucent Technologies 21,000 1,250
- ------------------------------------------------------------------------------
Motorola 4,500 767
- ------------------------------------------------------------------------------
Nokia ADR 2,500 496
- ------------------------------------------------------------------------------
<PAGE>
Tellabs * 5,400 259
- ------------------------------------------------------------------------------
3,655
- ------------------------------------------------------------------------------
Semiconductors 9.5%
Altera * 10,000 798
- ------------------------------------------------------------------------------
Intel 23,000 2,599
- ------------------------------------------------------------------------------
Linear Technology 5,900 619
- ------------------------------------------------------------------------------
Maxim Integrated Products * 10,000 668
- ------------------------------------------------------------------------------
Texas Instruments 8,300 1,382
- ------------------------------------------------------------------------------
Xilinx * 10,200 814
- ------------------------------------------------------------------------------
6,880
- ------------------------------------------------------------------------------
Miscellaneous Computer Hardware 3.1%
EMC * 6,500 773
- ------------------------------------------------------------------------------
Pitney Bowes 7,000 347
- ------------------------------------------------------------------------------
Symbol Technologies 12,100 1,151
- ------------------------------------------------------------------------------
2,271
- ------------------------------------------------------------------------------
Computer Software 7.7%
BMC Software * 8,200 377
- ------------------------------------------------------------------------------
Computer Associates 12,800 823
- ------------------------------------------------------------------------------
Intuit * 3,000 157
- ------------------------------------------------------------------------------
Microsoft * 26,600 2,377
- ------------------------------------------------------------------------------
Oracle * 24,800 1,841
- ------------------------------------------------------------------------------
5,575
- ------------------------------------------------------------------------------
Information Services 1.3%
Automatic Data Processing 16,700 727
- ------------------------------------------------------------------------------
First Data 5,000 225
- ------------------------------------------------------------------------------
952
- ------------------------------------------------------------------------------
<PAGE>
Computer Communications Equipment 4.2%
Cisco Systems * 22,800 3,013
- ------------------------------------------------------------------------------
3,013
- ------------------------------------------------------------------------------
Computer Makers 4.0%
Dell Computer * 20,500 $ 836
- ------------------------------------------------------------------------------
Hewlett-Packard 8,200 1,103
- ------------------------------------------------------------------------------
Sun Microsystems * 10,200 972
- ------------------------------------------------------------------------------
2,911
- ------------------------------------------------------------------------------
Semiconductor Capital Equipment 1.3%
Applied Materials * 5,000 915
- ------------------------------------------------------------------------------
915
- ------------------------------------------------------------------------------
Total Technology 27,395
- ------------------------------------------------------------------------------
BUSINESS=SERVICES==4.3%=======================================================
Business Services 1.2%
IMS Health 18,100 364
- ------------------------------------------------------------------------------
Paychex 10,500 526
- ------------------------------------------------------------------------------
890
- ------------------------------------------------------------------------------
Industrial Services 1.6%
Cintas 5,500 221
- ------------------------------------------------------------------------------
Devry * 18,900 341
- ------------------------------------------------------------------------------
Robert Half International * 14,200 600
- ------------------------------------------------------------------------------
1,162
- ------------------------------------------------------------------------------
Advertising 1.5%
Interpublic Group 8,900 358
- ------------------------------------------------------------------------------
Omnicom 3,800 358
- ------------------------------------------------------------------------------
Young & Rubicam 6,500 328
- ------------------------------------------------------------------------------
1,044
- ------------------------------------------------------------------------------
Total Business Services 3,096
- ------------------------------------------------------------------------------
<PAGE>
BASIC=MATERIALS==1.7%=========================================================
Chemicals 0.9%
Ecolab 5,400 152
- ------------------------------------------------------------------------------
Illinois Tool Works 2,900 150
- ------------------------------------------------------------------------------
Valspar 9,700 318
- ------------------------------------------------------------------------------
620
- ------------------------------------------------------------------------------
Forest Products & Paper 0.8%
Kimberly-Clark 11,100 574
- ------------------------------------------------------------------------------
574
- ------------------------------------------------------------------------------
Total Basic Materials 1,194
- ------------------------------------------------------------------------------
CONSUMER=DISCRETIONARY==6.7%==================================================
Restaurants 1.0%
McDonald's 7,400 $ 233
- ------------------------------------------------------------------------------
Starbucks * 14,400 507
- ------------------------------------------------------------------------------
740
- ------------------------------------------------------------------------------
Entertainment 0.3%
Carnival (Class A) 7,900 228
- ------------------------------------------------------------------------------
228
- ------------------------------------------------------------------------------
Publishing 1.0%
McGraw-Hill 14,500 738
- ------------------------------------------------------------------------------
738
- ------------------------------------------------------------------------------
Media 4.4%
AMFM * 5,800 356
- ------------------------------------------------------------------------------
CBS * 12,500 745
- ------------------------------------------------------------------------------
Clear Channel Communications * 5,200 346
- ------------------------------------------------------------------------------
Disney 23,100 774
- ------------------------------------------------------------------------------
Time Warner 10,800 923
- ------------------------------------------------------------------------------
3,144
- ------------------------------------------------------------------------------
Total Consumer Discretionary 4,850
- ------------------------------------------------------------------------------
<PAGE>
INDUSTRIAL==2.7%==============================================================
Defense & Aerospace 0.4%
Boeing 9,100 336
- ------------------------------------------------------------------------------
336
- ------------------------------------------------------------------------------
Heavy Electical Equipment 2.3%
GE 12,500 1,652
- ------------------------------------------------------------------------------
1,652
- ------------------------------------------------------------------------------
Total Industrial 1,988
- ------------------------------------------------------------------------------
HEALTH=CARE==13.4%============================================================
Drugs 9.7%
American Home Products 16,700 726
- ------------------------------------------------------------------------------
Amgen * 6,800 464
- ------------------------------------------------------------------------------
AstraZeneca Group ADR 8,400 278
- ------------------------------------------------------------------------------
Bristol-Myers Squibb 12,600 716
- ------------------------------------------------------------------------------
Eli Lilly 10,500 624
- ------------------------------------------------------------------------------
Glaxo Wellcome ADR 6,700 327
- ------------------------------------------------------------------------------
Merck 18,100 1,114
- ------------------------------------------------------------------------------
Pfizer 28,000 $ 900
- ------------------------------------------------------------------------------
Pharmacia & Upjohn 5,500 262
- ------------------------------------------------------------------------------
Schering-Plough 15,000 523
- ------------------------------------------------------------------------------
SmithKline Beecham ADR 5,400 303
- ------------------------------------------------------------------------------
Warner-Lambert 9,200 787
- ------------------------------------------------------------------------------
7,024
- ------------------------------------------------------------------------------
Medical Products 3.7%
Abbott Laboratories 13,400 439
- ------------------------------------------------------------------------------
Boston Scientific * 13,200 241
- ------------------------------------------------------------------------------
Guidant * 7,000 471
- ------------------------------------------------------------------------------
Johnson & Johnson 13,000 933
- ------------------------------------------------------------------------------
Medtronic 12,100 586
- ------------------------------------------------------------------------------
2,670
- ------------------------------------------------------------------------------
Total Health Care 9,694
- ------------------------------------------------------------------------------
<PAGE>
TRANSPORTATION==0.4%==========================================================
Trucking, Shipping, Air Freight 0.4%
Expeditors International of Washington 7,700 292
- ------------------------------------------------------------------------------
Total Transportation 292
- ------------------------------------------------------------------------------
Total Common Stocks (Cost $63,007) 71,843
SHORT-TERM=INVESTMENTS==0.8%==================================================
Money Market Funds 0.8%
Reserve Investment Fund, 5.97% # 568,318 568
- ------------------------------------------------------------------------------
Total Short-Term Investments (Cost $568) 568
=Total=Investments=in=Securities==============================================
100.1% of Net Assets (Cost $63,575) $ 72,411
Other Assets Less Liabilities (75)
NET ASSETS $ 72,336
# Seven-day yield
* Non-income producing
ADR American Depository Receipt
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. Rowe Price Tax-Efficient Growth Fund
- --------------------------------------- February 29, 2000
STATEMENT OF ASSETS AND LIABILITIES
- ----------------------------------- In thousands
Assets
Investments in securities, at value (cost $63,575) $ 72,411
Securities lending collateral 9,306
Other assets 71
- -------------------------------------------------------------------------------
Total assets 81,788
- -------------------------------------------------------------------------------
Liabilities
Obligation to return securities lending collateral 9,306
Other liabilities 146
- -------------------------------------------------------------------------------
Total liabilities 9,452
- -------------------------------------------------------------------------------
NET ASSETS $ 72,336
Net Assets Consist of:
Accumulated net realized gain/loss - net of distributions $ (2,687)
Net unrealized gain (loss) 8,836
Paid-in-capital applicable to 6,560,956 shares of
$0.0001 par value capital stock outstanding;
1,000,000,000 shares authorized 66,187
NET ASSETS $ 72,336
NET ASSET VALUE PER SHARE $ 11.03
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. Rowe Price Tax-Efficient Funds
- ---------------------------------
STATEMENT OF OPERATIONS
- ----------------------- In thousands
Balanced Growth
Fund Fund
---- ----
Year 7/30/99
Ended Through
2/29/00 2/29/00
------- -------
Investment Income (Loss)
Income
Interest $ 1,028 $ 54
Dividend 157 298
Securities lending 4 9
- -------------------------------------------------------------------------------
Total income 1,189 361
- -------------------------------------------------------------------------------
Expenses
Investment management 200 192
Custody and accounting 94 60
Shareholder servicing 54 80
Prospectus and shareholder reports 18 16
Legal and audit 18 7
Directors 6 3
Registration 5 3
Organization - 39
Miscellaneous 4 -
- -------------------------------------------------------------------------------
Total expenses 399 400
Expenses paid indirectly (1) -
- -------------------------------------------------------------------------------
Net expenses 398 400
- -------------------------------------------------------------------------------
Net investment income (loss) 791 (39)
- -------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities (612) (2,687)
Change in net unrealized gain or loss on securities 3,719 8,836
- -------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 3,107 6,149
- -------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 3,898 $ 6,110
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. Rowe Price Tax-Efficient Funds
- ---------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------- In thousands
Balanced Fund Growth Fund
------------- -----------
Year 7/30/99
Ended Through
2/29/00 2/28/99 2/29/00
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 791 $ 519 $ (39)
Net realized gain (loss) (612) (422) (2,687)
Change in net unrealized gain or loss 3,719 3,510 8,836
- ------------------------------------------------------------------------------
Increase (decrease) in
net assets from operations 3,898 3,607 6,110
- ------------------------------------------------------------------------------
Distributions to shareholders
Net investment income (834) (536) -
- ------------------------------------------------------------------------------
Capital share transactions *
Shares sold 11,588 14,811 68,616
Distributions reinvested 702 450 -
Shares redeemed (5,888) (2,293) (2,410)
Redemption fees received 15 14 20
- ------------------------------------------------------------------------------
Increase (decrease) in
net assets from capital
share transactions 6,417 12,982 66,226
- ------------------------------------------------------------------------------
Net Assets
Increase (decrease)
during period 9,481 16,053 72,336
Beginning of period 33,767 17,714 -
- ------------------------------------------------------------------------------
End of period $ 43,248 $ 33,767 $ 72,336
* Share information
Shares sold 881 1,242 6,786
Distributions reinvested 53 38 -
Shares redeemed (445) (188) (225)
- ------------------------------------------------------------------------------
Increase (decrease)
in shares outstanding 489 1,092 6,561
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. Rowe Price Tax-Efficient Funds
- --------------------------------- February 29, 2000
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
T. Rowe Price Tax-Efficient Funds, Inc. (the corporation) is registered
under the Investment Company Act of 1940. The Tax-Efficient Balanced Fund (the
Balanced Fund) and the Tax-Efficient Growth Fund (the Growth Fund), diversified,
open-end management investment companies, are two of the portfolios established
by the corporation and commenced operations on June 30, 1997, and July 30, 1999,
respectively.
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.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair value
as determined in good faith by or under the supervision of the officers of that
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.
<PAGE>
***********************************************************************
Balanced Growth
Fund Fund
-------- ------
Purchases $ 21,315,000 $74,048,000
Sales 15,252,000 8,354,000
***********************************************************************
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 each 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. Expenses paid indirectly reflect credits earned
on daily uninvested cash balances at the custodian and are used to reduce each
fund's custody charges.
NOTE 2 - INVESTMENT TRANSACTIONS
- --------------------------------
Consistent with its investment objective, the Growth 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 Growth 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 Growth 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 February 29, 2000, the value of
loaned securities by the Growth Fund was $9,186,000; aggregate collateral
consisted of $9,306,000 in the securities lending collateral pool. Other
Purchases and sales of portfolio securities, other than short-term securities,
for the period ended February 29, 2000, were as follows:
<PAGE>
NOTE 3 - FEDERAL INCOME TAXES
- -----------------------------
No provision for federal income taxes is required since each fund intends
to continue to qualify as a regulated investment company and distribute all of
its income. As of February 29, 2000, the Balanced Fund had capital loss
carryforwards for federal income tax purposes of $1,112,000, of which $17,000
expires in 2006, $425,000 expires in 2007, and $670,000 expires in 2008. As of
February 29, 2000, the Growth Fund had capital loss carryforwards for federal
income tax purposes of $1,717,000, all of which expires in 2008. The funds
intend to retain gains realized in future periods that may be offset by
available capital loss carryforwards.
***********************************************************************
Balanced Growth
Fund Fund
-------- ------
Undistributed net investment income $ 11,000 $ 39,000
Paid-in-capital (11,000) (39,000)
***********************************************************************
In order for each fund's capital accounts and distributions to shareholders
to reflect the tax character of certain transactions, the following
reclassifications were made during the period ended February 29, 2000. The
results of operations and net assets were not affected by the
increases/(decreases) to these accounts.
***********************************************************************
Balanced Growth
Fund Fund
-------- ------
Appreciated investments $ 9,826,000 $ 13,825,000
Depreciated investments (1,115,000) (4,989,000)
Net unrealized gain (loss) $ 8,711,000 $ 8,836,000
***********************************************************************
At February 29, 2000, the costs of investments for the Balanced Fund and
Growth Fund for federal income tax purposes were substantially the same as for
financial reporting and totaled $34,607,000 and $63,575,000, respectively. Net
unrealized gain (loss) on investments were as follows:
NOTE 4 - RELATED PARTY TRANSACTIONS
- -----------------------------------
The investment management agreement between each fund and T. Rowe Price
Associates, Inc. (the manager) provides for an annual investment management fee,
of which $19,000 and $40,000 were payable at February 29, 2000 by the Balanced
Fund and Growth Fund, respectively. The fee is computed daily and paid monthly,
and consists of an individual fund fee equal to 0.20% and 0.30% of average daily
net assets for the Balanced Fund and Growth Fund, respectively, 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 0.295% for
assets in excess of $120 billion. At February 29, 2000, and for the period then
ended, the effective annual group fee rate was 0.32%. Each fund pays a pro-rata
share of the group fee based on the ratio of its net assets to those of the
group.
<PAGE>
Under the terms of the investment management agreement, the manager is
required to bear any expenses through February 28, 2001 for both the Balanced
Fund and the Growth Fund, which would cause each fund's ratio of total expenses
to average net assets to exceed 1.00% and 1.10%, respectively. Thereafter,
through February 28, 2003, each 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% and 1.10%, respectively.
Pursuant to these agreements, $6,000 and $32,000 of management fees were not
accrued by the Balanced and Growth Funds, respectively, for the period ended
February 29, 2000. Additionally, $200,000 of the Balanced Fund's unaccrued
management fees and expenses from a previous agreement remains subject to
reimbursement through February 28, 2001.
In addition, each fund has entered into agreements with the manager and a
wholly owned subsidiary of the manager, pursuant to which each fund receives
certain other services. The manager computes the daily share price and maintains
the financial records of each fund. T. Rowe Price Services, Inc. is each fund's
transfer and dividend disbursing agent and provides shareholder and
administrative services to the funds. The Balanced Fund and Growth Fund incurred
expenses pursuant to these related party agreements totaling approximately
$110,000 and $104,000, respectively, for the period ended February 29, 2000, of
which $10,000 and $1,000, respectively, were payable at period-end.
The fund may invest in the Reserve Investment Fund and Government Reserve
Investment Fund (collectively, the Reserve Funds), open-end management
investment companies managed by T. Rowe Price Associates, Inc. The Reserve Funds
are offered as cash management options only to mutual funds and other accounts
managed by T. Rowe Price and its affiliates and are not available to the public.
The Reserve Funds pay no investment management fees. Distributions from the
Reserve Funds to the Growth Fund for the period ended February 29, 2000, totaled
$15,000 and are reflected as interest income in the accompanying Statement of
Operations.
================================================================================
<PAGE>
T. Rowe Price Tax-Efficient Funds
- ---------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------------------------------
To the Board of Directors of T. Rowe Price Tax-Efficient Funds, Inc.,
and Shareholders of T. Rowe Price Tax-Efficient Balanced Fund and
T. Rowe Price Tax-Efficient Growth Fund
In our opinion, the accompanying statement of net assets (T. Rowe Price
Tax-Efficient Balanced Fund) and the statement of asset and liabilities,
including the portfolio of investments (T. Rowe Price Tax-Efficient Growth
Fund), and the related statements of operations and of changes in net assets and
the financial highlights present fairly, in all material respects, the financial
position of T. Rowe Price Tax-Efficient Balanced Fund and T. Rowe Price
Tax-Efficient Growth Fund (comprising T. Rowe Price Tax-Efficient Funds, Inc.,
hereafter referred to as "the Funds") at February 29, 2000, and the results of
each of their operations, the changes in each of their net assets and the
financial highlights for each of their fiscal periods presented, in conformity
with accounting principles generally accepted in the United States. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at February 29, 2000, by correspondence with the custodian,
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
March 17, 2000
================================================================================
T. Rowe Price Tax-Efficient Funds
- ---------------------------------
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED 2/29/00
----------------------------------------------------------
We are providing this information as required by the Internal Revenue Code.
The amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The Balanced Fund's distributions to shareholders included $658,000 which
qualified as exempt interest dividend.
For corporate shareholders, $137,000 of the Balanced Fund's and $274,000 of
the Growth Fund's distributed income and short-term capital gains qualified for
the dividends-received deduction.
================================================================================
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
<PAGE>
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
T. Rowe Price Investment Services, Inc., Distributor. C119-050 2/29/00
