T. Rowe Price
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Semiannual Report
Tax-Efficient Funds
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August 31, 2000
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REPORT HIGHLIGHTS
-----------------
* Despite high volatility in the technology sector, the broad market
posted strong gains during the six months ended August 31. Municipal
bonds also rallied.
* The Tax-Efficient Balanced Fund delivered excellent performance,
exceeding the returns of both benchmarks during the past 6- and
12-month periods.
* The Tax-Efficient Growth Fund also rose strongly in both periods and
outperformed both its new Lipper category and the S&P 500 Stock Index.
* Though overall valuations remain high, many quality stocks are
available at reasonable prices. The outlook for tax-exempt bonds is
also positive barring any increase in inflation.
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
-------------------
Despite aggressive Federal Reserve rate hikes, the collapse of most
"dot-com" stocks, and a wrenching but short-lived 37% plunge in the Nasdaq
Composite, the six months ended August 31 were rewarding for long-term investors
in both stocks and municipal bonds. Gone was the heady exuberance of last year,
but gone too was a market where only technology stocks performed well and bonds
declined. Instead, tax-exempt bonds bounced back smartly and stock market
participation broadened to include previously neglected sectors. Performance was
strong for the Tax-Efficient Funds in both relative and absolute terms.
<PAGE>
MARKET ENVIRONMENT
------------------
30-Year AAA 5-Year AAA 1-Year Moody's
General Obligation General Obligation Investment Grade Note 1
8/31/1999 5.60 4.40 3.75
5.70 4.43 3.75
5.89 4.58 3.95
11/30 5.87 4.53 3.95
5.93 4.68 4.10
6.03 4.90 4.10
2/29 5.90 4.94 4.20
5.69 4.82 4.30
5.80 4.96 4.35
5/31 5.91 5.04 4.70
5.72 4.74 4.35
5.60 4.58 4.30
8/31/2000 5.50 4.43 4.30
The Fed's determination to keep inflation in check appears to be paying
off. Six interest rate hikes since June 1999 -- including increases totaling a
full percentage point in the first half of 2000 -- appear to have the economy on
track to meet the central bank's expressed goal of a soft landing. While rising
rates hit bond markets hard in 1999 and early in 2000, the Fed's
anti-inflationary medicine proved to be a tonic for bonds beginning in the
spring, and since May investors have shown confidence that the Fed's monetary
policy will result in a favorable environment for bonds.
The rate hikes also injected a note of sobri-ety into equity markets. The
Standard & Poor's 500 Stock Index gained just 4% in the first eight months of
the year, the Nasdaq rose nearly 7%, and the Dow Jones Industrial Average fell
slightly. Those returns are not only far from the stellar results of the past
few years, but have been accompanied by wild price swings, especially in the
March-June period. The heightened volatility in stocks increased the allure of
the steadier bond markets, especially for more conservative investors.
Municipal bond yields fell as prices rose due to heavy demand from buyers
enticed by high taxable-equivalent yields and a diminished supply of available
issues. New issues were down 20% nationally through August versus the same
period last year as a result of higher borrowing costs and the lower borrowing
needs of state and local governments.
As discussed in our last letter, investors in early 2000 lowered their
sights for most Internet-related stocks and broadened their investment horizons
to include more so-called Old Economy stocks. This new attitude -- enforced by
Fed rate hikes and the punishing decline of many Internet and new-age
telecommunications stocks -- was manifest in the outperformance of value and
mid-cap stocks during the six months ended August 31. The Standard & Poor's
500/Barra Value Index surged 15.33% during the period compared with a gain of
8.81% for the S&P 500/Barra Growth Index. The S&P 500 Stock Index as a whole
gained a healthy 11.73% after a difficult start to the year, while the S&P
MidCap Index vaulted 18.34%. The technology-dominated Nasdaq, meanwhile, fell
10.44% during the past six months, giving back nearly all of its January and
February advance.
<PAGE>
*****************************
The market landscape
was full of pitfalls
during this period.
*****************************
The market landscape was full of pitfalls during this period. Momentum
investing, fear and greed, and a strong residual impulse to find profits in the
New Economy led to stark divergences in performance among the market's most
well-known names. Thus Microsoft plunged following an initial adverse
development in its federal antitrust case, while Intel surged. (In fact,
Microsoft's decline helped precipitate the Nasdaq's steep correction, which
began in March.) Corning, once perceived as a stodgy old-line company, is now
highly valued as a dominant supplier of optical communications infrastructure.
By contrast, Amazon.com, once synonymous with Internet commerce, now faces
significant questions about its viability. With profit prospects uncertain and
valuations extraordinarily high among many New Economy companies, investors
shifted focus to the infrastructure providers expected to benefit regardless of
who succeeds in e-commerce. Companies that make communica-tions chips were
generally strong, such as Altera and Maxim Integrated Products, though
bellwether Texas Instruments declined. And while wireless communications is one
of the buzzwords of the New Economy, static has developed over the rollout of
new services and the soaring cost of buying spectrum licenses at government
auctions. Wireless leaders Vodafone, Nokia, Ericsson, and Motorola performed
poorly during the period.
Expectations of slowing consumer spending hurt retail stocks such as Home
Depot, but related assumptions that an end to Fed rate hikes may be near spurred
financial stocks like Citigroup, Northern Trust, State Street, and Mellon
Financial. Fast-paced consolidation also boosted the financial sector. Among
many other significant transactions, Charles Sch wab purchased wealth manager
U.S. Trust during the period.
Despite the strong economy, the operating environment proved challenging
for many leading companies. Procter & Gamble, Computer Associates, BMC Software,
and Lucent Technologies each announced significantly worse than expected
results, and the stocks were punished.
INVESTMENT STRATEGY
-------------------
Our equity investment approach for both funds is stable and we have not
made any significant changes in strategy. The equity portfolios are broadly
diversified and structured similarly to other large-cap core funds,1 but do have
important differences, as illustrated by the portfolio characteristics tables
that appear in our discussion of each fund. (In past reports, we have compared
our equity portfolios to the Lipper Growth Funds Average, but Lipper now places
the Tax-Efficient Growth Fund in its new category of Large-Cap Core Funds
Average, as discussed in our report on that fund's performance.)
<PAGE>
Whereas our approach was typically less aggressive than that of the average
growth fund, it is somewhat more aggressive than that of the average large-cap
core fund. Market capitalization is in line with that of the S&P 500 and
large-cap core funds. However, we do have modest exposure to smaller companies.
We have higher return on capital than the S&P 500 and other large-cap core
funds, as well as a higher price/earnings (P/E) ratio, a higher anticipated
long-term growth rate, and a lower yield. A high return on capital that is
sustainable is one of our most important criteria. The funds remain fully
invested, and we construct the best buy-and-hold portfolio we can focusing on
companies that have strong market positions, good growth prospects, and
reasonable valuations. 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 lower than that of other growth funds, but higher than the S&P
500's.
1 Comparisons to the Lipper Large-Cap Core Fund Index use calculations
by T. Rowe Price based on the most current available data from Lipper
Inc.
One hallmark of our approach is to try to make our longer time horizons
work for us. Investors not concerned with tax efficiency often have a tendency
to look for investments that will appreciate significantly in the short run,
perhaps within six months or a year. Stocks with no "catalyst" are overlooked.
Our belief, however, is that over time the market will get the pricing right.
Several examples illustrate how we implement this strategy. For instance, Fannie
Mae and Freddie Mac, the government-sponsored mortgage-lending corporations
charged with expanding access to affordable housing loans, are precisely the
type of companies that attract us. Yet they have been out of favor for more than
a year, first because of rising interest rates and now because of political
controversy. Competitors are lobbying Congress to limit their activities. We
expect this political tempest to largely blow over. When it does, investors will
once again focus on the investment characteristics we find compelling, such as
the durable, mid-teens growth rates of Fannie and Freddie, their status as bona
fide blue chip financial services firms, and, most importantly, the value they
deliver to consumers. Both companies are significant investments for the
Tax-Efficient Funds.
Health care remains the third-largest sector of both equity portfolios, and
health care stocks remain attractively valued. The sector faces significant
political risk in the near term, however, particularly in relation to the
presidential race and rhetoric about greater government involvement in drug
pricing. We believe that, in the end, the U.S. will not want to socialize its
health care system, and Americans will remain willing to pay for innovation and
recognize the overall savings that new drug treatments can provide for the
health care system.
<PAGE>
In our last report, we touched on consumer nondurables, and the sector
remains very attractively valued. While companies such as Coca-Cola, Pepsi, and
Wrigley offer more moderate growth rates than we typically look for, they also
have a high probability of sustaining those growth rates over time.
Both funds have been highly tax-efficient since inception, and should
remain so going forward. This is a result of both our buy-and-hold philosophy
and our aggressive "harvesting" of losses. When our stock selections don't work
out, we sell losing positions to realize tax losses on behalf of shareholders.
Selling losers is also a good investment discipline, and provides a good
"cooling off" period during which we can reassess our opinion when our original
investment hypothesis isn't working. It is not unusual for us to repurchase a
stock that we earlier sold for a loss, but in almost all cases we do so only
after 30 days have passed, so that we can comply with the Internal Revenue
Service's "wash sale" rule and still deduct the loss.
The flip side of selling our losers is letting our winners run, also called
a buy-and-hold strategy. Investors who focus on pretax returns tend to incur
large capital gains liabilities as a result of frequent trading. It is our
belief that few investors can trade actively and still beat the averages on an
after-tax basis. Our impressive record, with both funds, of minimizing realized
capital gains clearly demonstrates that indexing is not the only way to invest
in a tax-efficient manner.
TAX-EFFICIENT BALANCED FUND
---------------------------
PERFORMANCE COMPARISON
----------------------
Periods Ended 8/31/00 6 Months 12 Months
Tax-Efficient Balanced Fund 10.86% 19.88%
Lipper Balanced Funds Average 8.47 12.25
Combined Index Portfolio * 9.26 11.56
* An unmanaged portfolio of 48% stocks (S&P 500 Stock
Index) and 52% bonds (Lehman Municipal Bond Index).
Performance was excellent in both absolute and relative terms during the
past six and 12 months, aided by a healthy advance in blue chip stocks, strong
stock selection, and a powerful rebound in municipal bond prices.
<PAGE>
The Tax-Efficient Balanced Fund gained 10.86% and 19.88% in each period,
respectively, as shown in the table, well ahead of our benchmarks even on a
pretax basis. Balanced funds generally have a higher equity exposure than your
fund (usually about 60%), typically invest in taxable bonds, and most do not
employ tax-efficient strategies. We typically maintain a 48% allocation to
stocks since we are required to keep at least 50% of the fund in municipal
securities at all times to retain the tax-exempt status of our bond income.
Since inception on June 30, 1997, the fund has posted average annual compound
total returns of 16.23% before taxes, compared with 11.42% for the Lipper
Balanced Funds Average and 12.78% for the Combined Index Portfolio. Your fund
was 99.3% tax-efficient for investors in the 39.6% federal tax bracket during
the past 12 months, and has been 99.1% tax-efficient since inception. Therefore,
on an after-tax basis, relative performance is even better, especially against
the Lipper category.
We will again make a modest taxable dividend distribution at calendar
year-end, though we do not expect to make any capital gain distributions;
indeed, we have made none in the fund's history. The fund has built a loss
carryforward of about $1.36 million, or 2.7% of assets. This carryforward will
be used in the future to offset capital gains that the fund incurs so they are
not passed on to you.
EQUITY PORTFOLIO CHARACTERISTICS
--------------------------------
Tax-Efficient
As of 8/31/00 Balanced Fund S&P 500
------------- ------------- -------
Earnings Growth Rate
Past 5 Years 22.1% 15.4%
Projected 5 Years * 19.9 14.7
Profitability - Return on
Equity Latest 12 Months 24.7 23.5
Dividend Yield on Stocks 0.6 1.1
P/E Ratio (Based on Next 12
Months' Estimated Earnings) 38.9X 30.6X
Market Capitalization (mil) 78,747 92,883
* Earnings forecasts are based on estimates by I/B/E/S
International and are in no way indicative of future
investment returns.
<PAGE>
Technology remains the largest sector in the equity portfolio, and stock
selection within that group aided results over the past six months. As we
indicated in our last letter, though the fundamentals in this group are strong,
valuations, in general, are full. Most of our new purchases have been in other
sectors over the past six months, as discussed in the Investment Strategy
section. Our emphasis on established, market-leading technology companies and
avoidance of more speculative stocks served us well during the period, as we had
virtually no direct exposure to pure Internet stocks. Among our best
contributors were chip companies Intel, Altera, and Maxim Integrated Products.
Fiber optic cable and components maker Corning and network computing storage
leader EMC also added significantly to performance.
By the same token, blue chip technology companies Microsoft, Texas
Instruments, Computer Associates, Lucent Technologies, Motorola, and Ericsson
dominated our list of worst detractors. Each faces significant challenges in the
near term. We remain committed to them because we like their longer-term
fundamentals.
******************************************************************
Sector Diversification chart. Pie chart with wedges as follows: Investment
Grade Municipal Bonds, 44%; Noninvestment Grade Municipal Bonds, 4%; Large-Cap
Stocks, 45%; Mid- and Small-Cap Stocks, 1%; International Stocks, 2%; Other and
Reserves, 4%.
******************************************************************
Overweighting the financial services sector against the S&P 500 also added
to performance. As discussed in our last report, we emphasized niche companies
that dominate their respec-tive markets and generate attractive returns on
capital. Six months ago, the sector was struggling under the weight of Fed rate
hikes. Since then, however, holdings like diversified giant Citigroup and trust
bank Northern Trust have surged. Our position in U.S. Trust soared due to its
acquisition by Charles Schwab, an outstanding organization that is building an
incredible franchise. During the past six months, we added materially to our
holdings in Freddie Mac and, to a lesser extent, Fannie Mae. Both stocks are
trading at attractive valuations because of political concerns that we consider
temporary.
Municipal bonds outperformed taxable issues during the past six months,
which aided results versus the Lipper Balanced Funds Average. In addition, our
portfolio of tax-exempt bonds outperformed the Lehman Municipal Bond Index and
the Lipper General Municipal Debt Funds Average for the period. Our longer
duration posture aided results. (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.) With tax-exempt yields at their highest levels
in years at the beginning of the period, we modestly lengthened portfolio
duration to lock in a higher income stream and benefit from potential price
appreciation if rates fell, which they did. As yields declined during the
summer, however, we shifted back to a slightly more conservative interest rate
posture.
<PAGE>
In the bond portion of the fund, we generally maintain a balance between
higher-coupon, premium-priced bonds, which bolster income, and lower-coupon,
discounted bonds, which have better appreciation potential when rates fall.
Recently, we have directed cash flows toward higher-coupon bonds, focusing on
income more than potential price appreciation. This approach should moderate
portfolio volatility, particularly in a rising rate environment. We continue to
be fully invested in order to maximize shareholder income. As on the equity
side, we try to identify bonds that we feel can be owned for the long term,
including those that are noncallable. Though these bonds pay slightly less
income, this approach helps us keep turnover -- and therefore realized capital
gains -- to a minimum. Though we like to limit trading activity, interest rate
volatility early in the period gave us ample opportunity to realize losses by
selling bonds that had declined in value.
TAX-EFFICIENT GROWTH FUND
-------------------------
PERFORMANCE COMPARISON
----------------------
Periods Ended 8/31/00 6 Months 12 Months
--------------------- -------- ---------
Tax-Efficient Growth Fund 14.42% 27.86%
Lipper Large-Cap Core
Funds Average 10.69 21.62
S&P 500 Stock Index 11.73 16.32
The Tax-Efficient Growth Fund posted excellent gains in both absolute and
relative terms during the 6- and 12-month periods ended August 31, 2000, as
shown in the table. Performance handily exceeded that of both the S&P 500 Index
and our new peer group, the Lipper Large-Cap Core Funds Average, which we
introduce in this report. Your fund also outperformed the 8.71% six-month gain
of its former benchmark, the Lipper Growth Funds Average, but lagged its 31.52%
advance over 12 months. Previously, Lipper Inc. assigned a fund to a category
based on its objective as outlined in its prospectus. The new categories are
based on the major characteristics of each fund's actual portfolio holdings,
such as market capitalization, price/earnings ratios, and other valuation
measures. The Tax-Efficient Growth Fund takes a somewhat more aggressive
approach to investing than the average competitor in the Lipper Large-Cap Core
Funds Average, while our style is less aggressive than that represented by the
Lipper Growth Funds Average.
<PAGE>
Our avoidance of the more speculative and less seasoned companies in the
technology sector explains both our underperformance of the Lipper Growth Funds
Average over the past 12 months and our outperformance in the past six months.
In the past year, the fortunes of aggressive growth funds have soared along with
the exceptional performance of technology and Internet stocks in the fourth
quarter of 1999 and the first two months of this year. More recently, however,
many aggressive funds have stumbled along with many of last year's highflying
stocks.
It's important to note that because of our long-term, buy-and-hold
investment philosophy, performance over short time periods will often deviate,
both positively and negatively, from that of competing funds more focused on
pretax returns. Still, results like those of the past six and 12 months -- when
the fund outperforms its benchmarks on a pretax basis -- are particularly
encouraging to us. Our thesis has always been 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 13 months ago,
the fund has made no distributions, so our after-tax returns are the same as our
pretax returns. Thus our tax efficiency is 100%, meaning that after-tax
performance is even better when compared with our competitors who focus on
pretax performance. At the end of this year, we do expect to make a modest
taxable income distribution. We hope to avoid capital gain distributions for as
long as possible, however, and have built a loss carryforward of about $5.2
million (5.8% of fund assets) that will be used to offset future capital gains.
PORTFOLIO CHARACTERISTICS
-------------------------
Tax-Efficient
As of 8/31/00 Growth Fund S&P 500
------------- ----------- -------
Earnings Growth Rate
Past 5 Years 19.5% 15.4%
Projected 5 Years* 18.4 14.7
Profitability - Return on
Equity Latest 12 Months 24.6 23.5
Dividend Yield on Stocks 0.7 1.1
P/E Ratio (Based on Next 12
Months' Estimated Earnings) 34.3X 30.6X
Market Capitalization (mil) 78,747 92,883
* Earnings forecasts are based on estimates by I/B/E/S
International and are in no way indicative of future
investment returns.
<PAGE>
Technology is our largest sector at 36% of net assets. Our focus on
semiconductors and Internet infrastructure was rewarded as chipmakers Intel and
Altera, fiber optic leader Corning, and network storage provider EMC were among
our top contributors. However, we were not able to sidestep all the landmines in
the technology sector, even among profitable, blue chip companies. Computer
Associates, Microsoft, Lucent Technologies, Motorola, Texas Instruments, and BMC
Software were all among our top detractors to performance. Among our significant
purchases during the period were Nokia and a new position in Nortel Networks.
Both will help to build the worldwide infrastructure for next-generation
wireless services, while Nortel is also a leader in the cutting-edge field of
optical networking.
******************************************************************
Sector Diversification chart. Pie chart with eight wedges, as follows:
Technology, 36%; Financial, 21%; Health Care, 14%; Consumer Nondurables, 7%;
Consumer Discretionary, 7%; Retail, 5%; Business Services, 4%; All Other, 6%.
******************************************************************
Our second-largest sector is financial services, at 21% of net assets, and
our overweight position in the sector helped drive performance. We have
emphasized, in most cases, market-leading companies with recurring revenues and
high returns on capital. This paid off in outstanding performance from banks
such as State Street, Mellon Financial (parent of Mellon Bank and Dreyfus mutual
funds), Northern Trust, and U.S. Trust, which was acquired by discount broker
Charles Schwab during the period. Many of these financial services companies
have since become fully valued, in our view. We added significantly to our
holdings in Fannie Mae and Freddie Mac, which have lagged of late due to
political concerns.
OUTLOOK
-------
The market environment is significantly more healthy today than late last
year and early this year, when investors threw caution to the wind and the Fed
felt compelled to take away the punch bowl. Words like risk, operating earnings,
and business model have once again become important on Wall Street. Investors
have become more discriminating and will no longer buy every new "dot-com"
company that comes along. More traditional companies, like those in financial
services and health care, have gained new respect. At the same time, any hint of
disappointment causes some investors to scurry for the exits. Unexpected
weakness in the European single currency, the euro, combined with rising oil
prices, has created a more challenging operating environment for many companies,
and many have warned of shortfalls ahead. The net result is that despite high
overall market valuations, we still have no trouble finding attractively valued,
market-leading companies with bright prospects in which to invest for the long
term.
<PAGE>
While the higher price of oil has not yet caused significant deterioration
in the inflation outlook, it is acting like a tax on consumer activity. Slower
consumer demand growth and the reduced pace of inventory accumulation will
continue to restrain production and hiring. Energy price pressures may persist,
but the other costs should continue to ease as production growth moderates. As a
result, it appears increasingly likely that the Fed has succeeded in slowing
economic activity to a more sustainable level, and may be done raising interest
rates for the foreseeable future.
We began the year believing that the municipal market was substantially
undervalued after a particularly weak period in late 1999. Municipal bonds have
recovered much ground in 2000, and we expect performance to be more in line with
the taxable bond markets going forward. T he economic backdrop suggests stable
to improving municipal bond prices. Yields on municipal bonds remain attractive
compared with taxable yields.
Respectfully submitted,
/s/
Hugh D. McGuirk
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
September 22, 2000
================================================================================
<PAGE>
T. Rowe Price Tax-Efficient Funds
---------------------------------
PORTFOLIO HIGHLIGHTS
--------------------
LARGEST HOLDINGS
----------------
TAX-EFFICIENT BALANCED FUND
---------------------------
Percent of
Net Assets
8/31/00
-------
STOCKS
------
Intel 2.5%
Cisco Systems 1.8
GE 1.6
Maxim Integrated Products 1.6
Oracle 1.6
Microsoft 1.2
Pfizer 1.2
Linear Technology 1.2
Altera 1.2
Charles Schwab 1.2
Total 15.1%
BONDS
-----
District of Columbia 3.1%
Georgia 2.2
Massachusetts Water Pollution 2.1
Baltimore 2.1
West Virginia 2.0
New York City Transitional
Finance Authority 2.0
Florida Board of Education 2.0
Dallas County Utility and
Reclamation District 2.0
Michigan Hospital Finance Authority 2.0
Puerto Rico Electric Power Authority 1.9
Total 21.4%
================================================================================
<PAGE>
T. Rowe Price Tax-Efficient Funds
---------------------------------
PORTFOLIO HIGHLIGHTS
--------------------
SECTOR DIVERSIFICATION
----------------------
TAX-EFFICIENT BALANCED FUND
---------------------------
Percent of Percent of
Net Assets Net Assets
2/29/00 8/31/00
------- -------
STOCKS
------
Technology 22% 20%
Financial 8 10
Health Care 6 6
Consumer Discretionary 3 3
Retail 3 3
Consumer Nondurables 3 2
Industrial 2 2
All Other 2 3
Total 49% 49%
BONDS AND RESERVES
------------------
General Obligation - State 6% 8%
Dedicated Tax Revenue 7 7
Water and Sewer Revenue 5 7
Nuclear Revenue 7 5
General Obligation - Local 1 4
Hospital Revenue 6 3
Housing Finance Revenue 5 3
Electric Revenue 2 3
Air and Sea Transportation Revenue - 2
All Other 8 5
Reserves 4 4
Total 51% 51%
================================================================================
<PAGE>
T. Rowe Price Tax-Efficient Funds
---------------------------------
PORTFOLIO HIGHLIGHTS
--------------------
TWENTY-FIVE LARGEST HOLDINGS
----------------------------
TAX-EFFICIENT GROWTH FUND
-------------------------
Percent of
Net Assets
8/31/00
-------------------------------------------------------------------------------
Intel 4.0%
-------------------------------------------------------------------------------
Cisco Systems 3.9
-------------------------------------------------------------------------------
GE 2.9
-------------------------------------------------------------------------------
Microsoft 2.9
-------------------------------------------------------------------------------
Pfizer 2.6
-------------------------------------------------------------------------------
Oracle 2.5
-------------------------------------------------------------------------------
Charles Schwab 2.2
-------------------------------------------------------------------------------
Freddie Mac 2.1
-------------------------------------------------------------------------------
Citigroup 2.0
-------------------------------------------------------------------------------
Fannie Mae 2.0
-------------------------------------------------------------------------------
Time Warner 1.8
-------------------------------------------------------------------------------
Mellon Financial 1.8
-------------------------------------------------------------------------------
Johnson and Johnson 1.8
-------------------------------------------------------------------------------
Northern Trust 1.7
-------------------------------------------------------------------------------
Wal-Mart 1.7
-------------------------------------------------------------------------------
State Street 1.7
-------------------------------------------------------------------------------
<PAGE>
Corning 1.6
-------------------------------------------------------------------------------
EMC 1.6
-------------------------------------------------------------------------------
Merck 1.6
-------------------------------------------------------------------------------
Marsh and McLennan 1.5
-------------------------------------------------------------------------------
American International Group 1.5
-------------------------------------------------------------------------------
Altera 1.4
-------------------------------------------------------------------------------
Sun Microsystems 1.4
-------------------------------------------------------------------------------
Texas Instruments 1.4
-------------------------------------------------------------------------------
Nortel Networks 1.3
-------------------------------------------------------------------------------
Total 50.9%
Note: Table excludes reserves.
================================================================================
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 8/31/00
TEN BEST CONTRIBUTORS
---------------------
Intel 13 cents
Corning 9
Citigroup 9
GE 9
State Street 8
Charles Schwab 8
Mellon Financial 8
EMC 8
Northern Trust 7
Altera 7
Total 86 cents
<PAGE>
TEN WORST CONTRIBUTORS
----------------------
Computer Associates -9 cents
Microsoft 8
Symbol Technologies 6
Lucent Technologies 4
Procter & Gamble 4
Motorola 4
Texas Instruments 4
BMC Software 4
Vodafone 3
Home Depot 3
Total -49 cents
12 Months Ended 8/31/00
TEN BEST CONTRIBUTORS
---------------------
Oracle 28 cents
Cisco Systems 24
Intel 23
Corning * 18
Sun Microsystems 14
Altera 13
GE 13
EMC 13
Northern Trust 12
State Street 11
Total 169 cents
TEN WORST CONTRIBUTORS
----------------------
Microsoft -9 cents
Computer Associates 7
Lucent Technologies 7
Procter & Gamble 6
Freddie Mac 5
BMC Software 5
Mattel ** 4
Bristol-Myers Squibb 4
Fannie Mae 3
Gillette 3
Total -53 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.
TAX-EFFICIENT BALANCED FUND
---------------------------
Combined Index Tax-Efficient
Portfolio Balanced Fund
--------- -------------
6/30/1997 10000 10000
8/31/1997 10192 10233
8/31/1998 11107 11170
8/31/1999 13121 13435
8/31/2000 14638 16106
TAX-EFFICIENT GROWTH FUND
-------------------------
Lipper Growth Tax-Efficient
S&P 500 Funds Average Growth Fund
------- ------------- -----------
7/30/1999 10000 10000 10000
8/31/1999 9951 9908 9870
8/31/2000 11574 12053 12620
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 8/31/00 1 Year 3 Years Inception Date
--------------------- ------ ------- --------- ---------
Tax-Efficient Balanced Fund 19.88% 16.32% 16.23% 6/30/97
Tax-Efficient Growth Fund 27.86 - 23.86 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
----------------------------------------- Unaudited
For a share outstanding throughout each period
FINANCIAL HIGHLIGHTS
--------------------
6 Months Year 6/30/97
Ended Ended Through
8/31/00 2/29/00 2/28/99 2/28/98
NET ASSET VALUE
Beginning of period $ 13.76 $ 12.72 $ 11.34 $ 10.00
---------------------------------------------------------------------------
Investment activities
Net investment income (loss) 0.15 0.25* 0.24* 0.15*
Net realized and
unrealized gain (loss) 1.34 1.06 1.38 1.34
---------------------------------------------------------------------------
Total from
investment activities 1.49 1.31 1.62 1.49
---------------------------------------------------------------------------
Distributions
Net investment income (0.14) (0.27) (0.24) (0.15)
---------------------------------------------------------------------------
NET ASSET VALUE
End of period $ 15.11 $ 13.76 $ 12.72 $ 11.34
Ratios/Supplemental Data
Total return** 10.86% 10.42%* 14.45%* 14.96%*
---------------------------------------------------------------------------
Ratio of total expenses to
average net assets 1.00%+ 1.00%* 1.00%* 1.00%*+
---------------------------------------------------------------------------
Ratio of net investment
income (loss) to average
net assets 2.08%+ 1.99%* 2.03%* 2.31%*+
---------------------------------------------------------------------------
Portfolio turnover rate 30.1%+ 40.0% 19.8% 12.5%+
---------------------------------------------------------------------------
Net assets, end of period
(in thousands) $ 51,148 $ 43,248 $ 33,767 $ 17,714
---------------------------------------------------------------------------
** Total return reflects the rate that an investor would hearned 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 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
--------------------------------------- Unaudited
For a share outstanding throughout each period
FINANCIAL HIGHLIGHTS
6 Months 7/30/99
Ended Through
8/31/00 2/29/00
NET ASSET VALUE
Beginning of period $ 11.03 $ 10.00
----------------------------------------------------------------------------
Investment activities
Net investment income (loss) (0.02) (0.01)*
Net realized and
unrealized gain (loss) 1.61 1.04
----------------------------------------------------------------------------
Total from
investment activities 1.59 1.03
----------------------------------------------------------------------------
NET ASSET VALUE
End of period $ 12.62 $ 11.03
Ratios/Supplemental Data
Total return** 14.42% 10.30%*
----------------------------------------------------------------------------
Ratio of total expenses to
average net assets 1.10%+ 1.10%*+
----------------------------------------------------------------------------
Ratio of net investment
income (loss) to average
net assets (0.31)%+ (0.11)%*+
----------------------------------------------------------------------------
Portfolio turnover rate 12.8%+ 23.4%+
----------------------------------------------------------------------------
Net assets, end of period
(in thousands) $ 89,924 $ 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
-----------------------------------------
Unaudited August 31, 2000
STATEMENT OF NET ASSETS
----------------------- Shares/Par Value
In thousands
COMMON STOCKS 48.5%
FINANCIAL 9.9%
Banks 4.3%
Bank of New York 3,900 $ 205
-------------------------------------------------------------------------------
Citigroup 9,500 555
-------------------------------------------------------------------------------
Mellon Financial 7,000 317
-------------------------------------------------------------------------------
Northern Trust 6,000 506
-------------------------------------------------------------------------------
State Street 3,200 377
-------------------------------------------------------------------------------
Wells Fargo 5,100 220
-------------------------------------------------------------------------------
2,180
-------------------------------------------------------------------------------
Financial Services 3.3%
American Express 7,800 461
-------------------------------------------------------------------------------
Equifax 1,500 38
-------------------------------------------------------------------------------
Fannie Mae 7,800 419
-------------------------------------------------------------------------------
Freddie Mac 9,400 396
-------------------------------------------------------------------------------
Marsh & McLennan 2,950 350
-------------------------------------------------------------------------------
1,664
-------------------------------------------------------------------------------
Life & Health Insurance 0.1%
American General 600 44
-------------------------------------------------------------------------------
44
-------------------------------------------------------------------------------
Property & Casualty Insurance 0.9%
AMBAC 1,200 78
-------------------------------------------------------------------------------
American International Group 4,359 388
-------------------------------------------------------------------------------
466
-------------------------------------------------------------------------------
Securities & Asset Management 1.3%
Charles Schwab 15,435 589
-------------------------------------------------------------------------------
Franklin Resources 1,800 68
-------------------------------------------------------------------------------
657
-------------------------------------------------------------------------------
Total Financial 5,011
-------------------------------------------------------------------------------
<PAGE>
CONSUMER NONDURABLES 2.3%
Home Products 0.6%
Avon 1,700 67
-------------------------------------------------------------------------------
Colgate-Palmolive 3,200 163
-------------------------------------------------------------------------------
Gillette 2,300 69
-------------------------------------------------------------------------------
299
-------------------------------------------------------------------------------
Beverages 0.8%
Coca-Cola 5,100 $ 268
-------------------------------------------------------------------------------
PepsiCo 3,700 158
-------------------------------------------------------------------------------
426
-------------------------------------------------------------------------------
Food 0.5%
General Mills 1,900 61
-------------------------------------------------------------------------------
Sysco 3,500 148
-------------------------------------------------------------------------------
Wrigley 600 44
-------------------------------------------------------------------------------
253
-------------------------------------------------------------------------------
Apparel & Textiles 0.1%
NIKE (Class B) 1,600 63
-------------------------------------------------------------------------------
63
-------------------------------------------------------------------------------
Alcohol 0.3%
Anheuser-Busch 1,700 134
-------------------------------------------------------------------------------
134
-------------------------------------------------------------------------------
Total Consumer Nondurables 1,175
-------------------------------------------------------------------------------
TECHNOLOGY 20.1%
Electronic Equipment 1.3%
Agilent Technologies * 1,144 69
-------------------------------------------------------------------------------
Corning 1,500 492
-------------------------------------------------------------------------------
Molex (Class A) 2,687 108
-------------------------------------------------------------------------------
669
-------------------------------------------------------------------------------
<PAGE>
Communications Equipment 1.8%
LM Ericsson (Class B) ADR 17,200 353
-------------------------------------------------------------------------------
Lucent Technologies 5,500 230
-------------------------------------------------------------------------------
Motorola 3,600 130
-------------------------------------------------------------------------------
Nokia ADR 2,100 94
-------------------------------------------------------------------------------
Tellabs * 1,700 96
-------------------------------------------------------------------------------
903
-------------------------------------------------------------------------------
Semiconductors 8.1%
Altera * 9,200 596
-------------------------------------------------------------------------------
Intel 16,800 1,258
-------------------------------------------------------------------------------
Linear Technology 8,400 603
-------------------------------------------------------------------------------
Maxim Integrated Products * 9,400 824
-------------------------------------------------------------------------------
Texas Instruments 7,200 482
-------------------------------------------------------------------------------
Xilinx * 4,000 356
-------------------------------------------------------------------------------
4,119
-------------------------------------------------------------------------------
Miscellaneous Computer Hardware 1.3%
EMC * 4,400 $ 431
-------------------------------------------------------------------------------
Symbol Technologies 5,175 214
-------------------------------------------------------------------------------
645
-------------------------------------------------------------------------------
Computer Software 3.0%
BMC Software * 700 19
-------------------------------------------------------------------------------
Computer Associates 2,000 64
-------------------------------------------------------------------------------
Microsoft * 8,900 622
-------------------------------------------------------------------------------
Oracle * 8,850 805
-------------------------------------------------------------------------------
1,510
-------------------------------------------------------------------------------
Information Services 0.4%
Automatic Data Processing 3,800 227
-------------------------------------------------------------------------------
227
-------------------------------------------------------------------------------
<PAGE>
Computer Communications Equipment 1.8%
Cisco Systems * 13,500 927
-------------------------------------------------------------------------------
927
-------------------------------------------------------------------------------
Computer Makers 2.0%
Dell Computer * 4,500 196
-------------------------------------------------------------------------------
Hewlett-Packard 3,000 362
-------------------------------------------------------------------------------
Sun Microsystems * 3,800 482
-------------------------------------------------------------------------------
1,040
-------------------------------------------------------------------------------
Semiconductor Capital Equipment 0.4%
Applied Materials * 2,600 224
-------------------------------------------------------------------------------
224
-------------------------------------------------------------------------------
Total Technology 10,264
-------------------------------------------------------------------------------
BASIC MATERIALS 0.5%
Forest Products & Paper 0.3%
Kimberly-Clark 2,100 123
-------------------------------------------------------------------------------
123
-------------------------------------------------------------------------------
Chemicals 0.2%
Ecolab 2,300 90
-------------------------------------------------------------------------------
Valspar 1,000 30
-------------------------------------------------------------------------------
120
-------------------------------------------------------------------------------
Total Basic Materials 243
-------------------------------------------------------------------------------
BUSINESS SERVICES 1.5%
Industrial 0.7%
Cintas 2,250 $ 93
-------------------------------------------------------------------------------
DeVry * 3,400 127
-------------------------------------------------------------------------------
Robert Half International * 4,000 127
-------------------------------------------------------------------------------
347
-------------------------------------------------------------------------------
Business Services 0.3%
Paychex 3,150 141
-------------------------------------------------------------------------------
141
-------------------------------------------------------------------------------
<PAGE>
Advertising 0.5%
Interpublic Group 2,800 107
-------------------------------------------------------------------------------
Omnicom 1,600 134
-------------------------------------------------------------------------------
241
-------------------------------------------------------------------------------
Total Business Services 729
-------------------------------------------------------------------------------
HEALTH CARE 6.2%
Drugs 4.6%
American Home Products 3,300 179
-------------------------------------------------------------------------------
Amgen * 2,700 205
-------------------------------------------------------------------------------
AstraZeneca Group ADR 2,100 96
-------------------------------------------------------------------------------
Bristol-Myers Squibb 4,900 260
-------------------------------------------------------------------------------
Eli Lilly 1,700 124
-------------------------------------------------------------------------------
Glaxo Wellcome ADR 1,500 86
-------------------------------------------------------------------------------
Merck 5,800 405
-------------------------------------------------------------------------------
Pfizer 13,975 604
-------------------------------------------------------------------------------
Pharmacia 2,690 158
-------------------------------------------------------------------------------
Schering-Plough 3,600 144
-------------------------------------------------------------------------------
SmithKline Beecham ADR 1,600 105
-------------------------------------------------------------------------------
2,366
-------------------------------------------------------------------------------
Medical Products 1.6%
Abbott Laboratories 2,700 118
-------------------------------------------------------------------------------
Guidant * 1,000 67
-------------------------------------------------------------------------------
Johnson & Johnson 4,100 377
-------------------------------------------------------------------------------
Medtronic 5,200 267
-------------------------------------------------------------------------------
829
-------------------------------------------------------------------------------
Total Health Care 3,195
-------------------------------------------------------------------------------
<PAGE>
RETAIL 2.7%
Department Stores 0.8%
Wal-Mart 8,300 $ 394
-------------------------------------------------------------------------------
394
-------------------------------------------------------------------------------
Specialty Retail 1.9%
Bed Bath & Beyond * 3,600 63
-------------------------------------------------------------------------------
CVS 1,500 55
-------------------------------------------------------------------------------
Dollar General 4,906 101
-------------------------------------------------------------------------------
Home Depot 5,200 250
-------------------------------------------------------------------------------
Tiffany & Company 7,200 300
-------------------------------------------------------------------------------
Walgreen 3,400 112
-------------------------------------------------------------------------------
Williams-Sonoma * 3,200 115
-------------------------------------------------------------------------------
996
-------------------------------------------------------------------------------
Total Retail 1,390
-------------------------------------------------------------------------------
CONSUMER DISCETIONARY 2.7%
Restaurants 0.3%
McDonald's 2,000 66
-------------------------------------------------------------------------------
Starbucks * 2,600 95
-------------------------------------------------------------------------------
161
-------------------------------------------------------------------------------
Entertainment 1.0%
Viacom * 4,882 329
-------------------------------------------------------------------------------
Disney 4,100 160
-------------------------------------------------------------------------------
489
-------------------------------------------------------------------------------
Publishing 0.5%
McGraw Hill 4,000 248
-------------------------------------------------------------------------------
248
-------------------------------------------------------------------------------
<PAGE>
Media 0.9%
Clear Channel Communications * 2,146 155
-------------------------------------------------------------------------------
Time Warner 4,100 350
-------------------------------------------------------------------------------
505
-------------------------------------------------------------------------------
Total Consumer Discretionary 1,403
-------------------------------------------------------------------------------
INDUSTRIAL 2.1%
Defense and Aerospace 0.3%
Boeing 3,100 166
-------------------------------------------------------------------------------
166
-------------------------------------------------------------------------------
Heavy Electical Equipment 1.6%
GE 14,200 $ 833
-------------------------------------------------------------------------------
833
-------------------------------------------------------------------------------
Industrial Parts 0.2%
Illinois Tool Works 1,300 73
-------------------------------------------------------------------------------
73
-------------------------------------------------------------------------------
Total Industrial 1,072
-------------------------------------------------------------------------------
TELECOMMUNICATIONS 0.3%
Wireless Telecommunications 0.3%
Vodafone Group ADR 4,000 164
-------------------------------------------------------------------------------
Total Telecommunications 164
-------------------------------------------------------------------------------
TRANSPORTATION 0.2%
Trucking, Shipping, Air Freight 0.2%
Expeditors International of Washington 2,200 107
-------------------------------------------------------------------------------
Total Transportation 107
-------------------------------------------------------------------------------
Total Common Stocks (Cost $11,893) 24,753
<PAGE>
MUNICIPAL BONDS 51.1%
ALABAMA 0.5%
Selma Ind. Dev. Board, International Paper,
5.50%, 7/15/01$ 250,000 250
-------------------------------------------------------------------------------
Total Alabama (Cost $250) 250
-------------------------------------------------------------------------------
ARIZONA 1.0%
Phoenix, GO, 5.875%, 7/1/18 500,000 526
-------------------------------------------------------------------------------
Total Arizona (Cost $514) 526
-------------------------------------------------------------------------------
ARKANSAS 0.4%
Valdez Marine Terminal, Exxon Pipeline,
VRDN (Currently 4.30%) 100,000 100
-------------------------------------------------------------------------------
Valdez, PCR, Exxon Pipeline, VRDN (Currently 4.30%) 100,000 100
-------------------------------------------------------------------------------
Total Arkansas (Cost $200) 200
-------------------------------------------------------------------------------
CONNECTICUT 0.9%
Connecticut Dev. Auth.
Mystic Marinelife Aquarium
6.875%, 12/1/17 $ 100,000 $ 101
-------------------------------------------------------------------------------
Mashantucket
5.50%, 9/1/28 200,000 180
-------------------------------------------------------------------------------
5.75%, 9/1/27 200,000 186
-------------------------------------------------------------------------------
Total Connecticut (Cost $458) 467
-------------------------------------------------------------------------------
DISTRICT OF COLUMBIA 3.5%
District of Columbia, GO
6.00%, 6/1/15 1,000,000 1,072
-------------------------------------------------------------------------------
6.00%, 6/1/17 (MBIA Insured) 500,000 532
-------------------------------------------------------------------------------
District of Columbia Hosp.
Medlantic Healthcare Group
5.25%, 8/15/19 (MBIA Insured)
(Escrowed to Maturity) 200,000 194
-------------------------------------------------------------------------------
Total District of Columbia (Cost $1,718) 1,798
-------------------------------------------------------------------------------
<PAGE>
FLORIDA 3.0%
Florida Board of Ed., GO, Capital Outlay,
5.00%, 6/1/03 1,000,000 1,016
-------------------------------------------------------------------------------
Hillsborough County IDA, PCR
Tampa Electric
VRDN (Currently 4.35%) 200,000 200
-------------------------------------------------------------------------------
Jacksonville HFA, Genesis Rehabilitation Hosp.
VRDN (Currently 4.30%) 300,000 300
-------------------------------------------------------------------------------
Total Florida (Cost $1,518) 1,516
-------------------------------------------------------------------------------
GEORGIA 2.2%
Georgia, GO, 6.25%, 8/1/13 1,000,000 1,123
-------------------------------------------------------------------------------
Total Georgia (Cost $1,093) 1,123
-------------------------------------------------------------------------------
IDAHO 0.4%
Idaho HFA, St. Lukes Regional Medical Center
VRDN (Currently 4.30%) 205,000 205
-------------------------------------------------------------------------------
Total Idaho (Cost $205) 205
-------------------------------------------------------------------------------
ILLINOIS 2.6%
Chicago Water, Capital Appreciation
Zero Coupon, 11/1/11 (FGIC Insured) $ 500,000 $ 284
-------------------------------------------------------------------------------
Illinois HFA, Riverside Health Systems,
6.00%, 11/15/18 115,000 110
-------------------------------------------------------------------------------
Metropolitan Pier & Expo Auth.
McCormick Place Expedition Project
5.25%, 12/15/28 (FGIC Insured) 1,000,000 946
-------------------------------------------------------------------------------
Total Illinois (Cost $1,318) 1,340
-------------------------------------------------------------------------------
INDIANA 0.4%
Goshen, Greencroft Obligation Group, 5.75%, 8/15/28 250,000 200
-------------------------------------------------------------------------------
Total Indiana (Cost $246) 200
-------------------------------------------------------------------------------
<PAGE>
LOUISIANA 1.3%
Louisiana Offshore Terminal Auth.,
VRDN (Currently 4.30%) 400,000 400
-------------------------------------------------------------------------------
West Feliciana Parish, PCR, Entergy Gulf States,
5.65%, 9/1/04 250,000 252
-------------------------------------------------------------------------------
Total Louisiana (Cost $650) 652
-------------------------------------------------------------------------------
MARYLAND 2.1%
Baltimore, 6.00%, 7/1/18 (FSA Insured) 1,000,000 1,059
-------------------------------------------------------------------------------
Total Maryland (Cost $1,030) 1,059
-------------------------------------------------------------------------------
MASSACHUSETTS 2.6%
Massachusetts Municipal Wholesale Electric
6.75%, 7/1/05 (MBIA Insured) 250,000 264
-------------------------------------------------------------------------------
Massachusetts Water Pollution, 6.00%, 8/1/18 1,000,000 1,082
-------------------------------------------------------------------------------
Total Massachusetts (Cost $1,278) 1,346
-------------------------------------------------------------------------------
MICHIGAN 2.5%
Michigan Hosp. Fin. Auth., Ascension Health Credit
5.20%, 11/15/05 1,000,000 999
-------------------------------------------------------------------------------
Univ. of Michigan
Hosp., VRDN (Currently 4.35%) 100,000 100
-------------------------------------------------------------------------------
Medical Service Plan, VRDN (Currently 4.35%) 200,000 200
-------------------------------------------------------------------------------
Total Michigan (Cost $1,300) 1,299
-------------------------------------------------------------------------------
MISSISSIPPI 1.0%
Mississippi, GO, Capital Improvements,
5.00%, 11/1/05 $ 515,000 $ 526
-------------------------------------------------------------------------------
Total Mississippi (Cost $535) 526
-------------------------------------------------------------------------------
MISSOURI 0.5%
St. Louis Airport, 6.25%, 1/1/03 250,000 254
-------------------------------------------------------------------------------
Total Missouri (Cost $252) 254
-------------------------------------------------------------------------------
<PAGE>
NEW JERSEY 0.7%
New Jersey Economic Dev. Auth., Franciscan Oaks
5.75%, 10/1/23 100,000 82
-------------------------------------------------------------------------------
New Jersey Housing and Mortgage Fin. Agency,
Multi-Family
5.55%, 11/1/09 (FSA Insured) 260,000 267
-------------------------------------------------------------------------------
Total New Jersey (Cost $359) 349
-------------------------------------------------------------------------------
NEW MEXICO 1.0%
New Mexico Mortgage Fin. Auth.
Single Family Mortgage
6.00%, 3/1/27 500,000 504
-------------------------------------------------------------------------------
Total New Mexico (Cost $500) 504
-------------------------------------------------------------------------------
NEW YORK 5.3%
Dormitory Auth. of the State of New York,
State Univ. Ed. Fac.
5.40%, 5/15/23 250,000 241
-------------------------------------------------------------------------------
Long Island Power Auth., 5.00%, 4/1/02 250,000 252
-------------------------------------------------------------------------------
Municipal Assistance Corporation New York
6.00%, 7/1/07 750,000 812
-------------------------------------------------------------------------------
New York City, GO
7.50%, 2/1/01 100,000 101
-------------------------------------------------------------------------------
7.625%, 2/1/15 (Prerefunded 1/2/02+) 235,000 249
-------------------------------------------------------------------------------
New York City Transitional Fin Auth., Future Tax
5.75%, 11/15/20 500,000 513
-------------------------------------------------------------------------------
5.875%, 11/1/16 500,000 529
-------------------------------------------------------------------------------
Total New York (Cost $2,625) 2,697
-------------------------------------------------------------------------------
NORTH CAROLINA 0.6%
North Carolina Eastern Municipal Power Agency
6.00%, 1/1/05 $ 300,000 $ 309
-------------------------------------------------------------------------------
Total North Carolina (Cost $304) 309
-------------------------------------------------------------------------------
<PAGE>
PENNSYLVANIA 1.8%
Beaver County IDA, PCR, Toledo Edison, 4.85%,6/1/04 500,000 485
-------------------------------------------------------------------------------
Bucks County IDA, Chandler Hall, 6.30%, 5/1/29 250,000 216
-------------------------------------------------------------------------------
Montgomery County, HHEFA, Faulkeways at Gwynedd
6.75%, 11/15/24 200,000 199
-------------------------------------------------------------------------------
Total Pennsylvania (Cost $904) 900
-------------------------------------------------------------------------------
PUERTO RICO 1.9%
Puerto Rico Electric Power Auth.
5.375%, 7/1/27 (MBIA Insured) 1,000,000 994
-------------------------------------------------------------------------------
Total Puerto Rico (Cost $914) 994
-------------------------------------------------------------------------------
SOUTH CAROLINA 1.1%
Connector 2000 Assoc., Greenville Toll Road
Zero Coupon, 1/1/09 500,000 270
-------------------------------------------------------------------------------
Piedmont Municipal Power Agency, Electric,
5.75%, 1/1/24 300,000 274
-------------------------------------------------------------------------------
Total South Carolina (Cost $581) 544
-------------------------------------------------------------------------------
TENNESSEE 0.4%
Tennessee HDA, Homeownership, Zero Coupon, 7/1/16 500,000 194
-------------------------------------------------------------------------------
Total Tennessee (Cost $205) 194
-------------------------------------------------------------------------------
TEXAS 5.0%
Brazos River Auth., Reliant Energy, 5.20%, 12/1/02 500,000 500
-------------------------------------------------------------------------------
Dallas County Utility & Reclamation Dist.
5.875%, 2/15/29 (AMBAC Insured) 1,000,000 1,010
-------------------------------------------------------------------------------
Harris County HFA, St. Luke's Episcopal Hosp.
VRDN (Currently 4.35%) 100,000 100
-------------------------------------------------------------------------------
Houston Water and Sewer System
5.375%, 12/1/27 (FGIC Insured) 1,000,000 962
-------------------------------------------------------------------------------
Total Texas (Cost $2,469) 2,572
-------------------------------------------------------------------------------
<PAGE>
UTAH 1.9%
Emery County, PCR, Pacificorp
4.35%, 9/1/00 (AMBAC Insured) $ 100,000 $ 100
-------------------------------------------------------------------------------
Intermountain Power Agency
5.375%, 7/1/08 310,000 317
-------------------------------------------------------------------------------
5.375%, 7/1/08 (Escrowed to Maturity) 540,000 554
-------------------------------------------------------------------------------
Total Utah (Cost $954) 971
-------------------------------------------------------------------------------
VIRGINIA 1.4%
Pocahontas Parkway Assoc., Toll Road,
Zero Coupon, 8/15/18 900,000 238
-------------------------------------------------------------------------------
Virginia HDA, 5.60%, 11/1/18 500,000 495
-------------------------------------------------------------------------------
Total Virginia (Cost $774) 733
-------------------------------------------------------------------------------
WASHINGTON 2.1%
Port of Seattle, 5.50%, 2/1/26 (MBIA Insured) 1,000,000 984
-------------------------------------------------------------------------------
Washington, GO, 5.375%, 9/1/02 100,000 102
-------------------------------------------------------------------------------
Total Washington (Cost $1,068) 1,086
-------------------------------------------------------------------------------
WEST VIRGINIA 2.0%
West Virginia, GO, 5.75%, 6/1/15 1,000,000 1,047
-------------------------------------------------------------------------------
Total West Virginia (Cost $1,035) 1,047
-------------------------------------------------------------------------------
WISCONSIN 1.0%
Wisconsin HEFA, Children's Hosp.
5.625%, 2/15/15 (AMBAC Insured) 500,000 515
-------------------------------------------------------------------------------
Total Wisconsin (Cost $521) 515
-------------------------------------------------------------------------------
Total Municipal Bonds (Cost $25,778) 26,176
<PAGE>
Total Investments in Securities
99.5% of Net Assets (Cost $37,671) $ 50,929
Other Assets Less Liabilities 219
NET ASSETS $ 51,148
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ 37
Accumulated net realized gain/loss -
net of distributions (1,357)
Net unrealized gain (loss) 13,258
Paid-in-capital applicable to 3,385,668
shares of $0.0001 par value capital
stock outstanding; 1,000,000,000
shares authorized 39,210
NET ASSETS $ 51,148
NET ASSET VALUE PER SHARE $ 15.11
* 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
VRDN Variable Rate Demand Note
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. Rowe Price Tax-Efficient Growth Fund
---------------------------------------
Unaudited August 31, 2000
STATEMENT OF NET ASSETS
----------------------- Shares Value
In thousands
COMMON STOCKS 99.8%
FINANCIAL 20.8%
Banks 8.7%
Bank of New York 15,700 $ 823
------------------------------------------------------------------------------
Citigroup 31,200 1,821
------------------------------------------------------------------------------
Mellon Financial 35,700 1,616
------------------------------------------------------------------------------
Northern Trust 18,400 1,552
------------------------------------------------------------------------------
State Street 12,700 1,495
------------------------------------------------------------------------------
Wells Fargo 11,500 497
------------------------------------------------------------------------------
7,804
------------------------------------------------------------------------------
Financial Services 7.1%
American Express 19,200 1,135
------------------------------------------------------------------------------
Equifax 9,000 229
------------------------------------------------------------------------------
Fannie Mae 33,000 1,774
------------------------------------------------------------------------------
Freddie Mac 43,900 1,849
------------------------------------------------------------------------------
Marsh & McLennan 11,500 1,366
------------------------------------------------------------------------------
6,353
------------------------------------------------------------------------------
Life & Health Insurance 0.4%
American General 5,000 364
------------------------------------------------------------------------------
364
------------------------------------------------------------------------------
Property & Casualty Insurance 1.9%
AMBAC 6,000 388
------------------------------------------------------------------------------
American International Group 15,000 1,337
------------------------------------------------------------------------------
1,725
------------------------------------------------------------------------------
<PAGE>
Securities & Asset Management 2.7%
Charles Schwab 51,430 1,964
------------------------------------------------------------------------------
Franklin Resources 13,000 494
------------------------------------------------------------------------------
2,458
------------------------------------------------------------------------------
Total Financial 18,704
------------------------------------------------------------------------------
TELECOMMUNICATIONS 0.7%
Wireless Telecommunications 0.7%
Vodafone Group ADR 14,500 594
------------------------------------------------------------------------------
Total Telecommunications 594
------------------------------------------------------------------------------
CONSUMER NONDURABLES 6.5%
Home Products 1.8%
Avon 11,300 $ 443
------------------------------------------------------------------------------
Colgate-Palmolive 8,300 423
------------------------------------------------------------------------------
Gillette 13,500 405
------------------------------------------------------------------------------
Procter & Gamble 5,500 340
------------------------------------------------------------------------------
1,611
------------------------------------------------------------------------------
Beverages 2.3%
Coca-Cola 18,500 974
------------------------------------------------------------------------------
PepsiCo 26,500 1,129
------------------------------------------------------------------------------
2,103
------------------------------------------------------------------------------
Food 1.4%
General Mills 10,300 331
------------------------------------------------------------------------------
Sysco 11,600 491
------------------------------------------------------------------------------
Wrigley 5,600 414
------------------------------------------------------------------------------
1,236
------------------------------------------------------------------------------
<PAGE>
Apparel & Textiles 0.2%
NIKE (Class B) 5,700 225
------------------------------------------------------------------------------
225
------------------------------------------------------------------------------
Alcohol 0.8%
Anheuser-Busch 8,800 694
------------------------------------------------------------------------------
694
------------------------------------------------------------------------------
Total Consumer Nondurables 5,869
------------------------------------------------------------------------------
RETAIL 5.3%
Department Stores 1.7%
Wal-Mart 32,700 1,551
------------------------------------------------------------------------------
1,551
------------------------------------------------------------------------------
Specialty Retail 3.6%
Bed Bath & Beyond * 18,000 317
------------------------------------------------------------------------------
CVS 6,300 234
------------------------------------------------------------------------------
Dollar General 15,575 320
------------------------------------------------------------------------------
Home Depot 21,000 1,009
------------------------------------------------------------------------------
Tiffany & Company 14,200 591
------------------------------------------------------------------------------
Walgreen 13,300 437
------------------------------------------------------------------------------
Williams-Sonoma * 8,000 288
------------------------------------------------------------------------------
3,196
------------------------------------------------------------------------------
Total Retail 4,747
------------------------------------------------------------------------------
TECHNOLOGY 35.5%
Electronic Equipment 2.1%
Corning 4,500 $ 1,475
------------------------------------------------------------------------------
Molex (Class A) 11,125 448
------------------------------------------------------------------------------
1,923
------------------------------------------------------------------------------
<PAGE>
Communications Equipment 4.8%
LM Ericsson (Class B) ADR 37,600 772
------------------------------------------------------------------------------
Lucent Technologies 15,000 627
------------------------------------------------------------------------------
Motorola 16,000 577
------------------------------------------------------------------------------
Nokia ADR 20,500 921
------------------------------------------------------------------------------
Nortel Networks 14,000 1,142
------------------------------------------------------------------------------
Tellabs * 5,400 304
------------------------------------------------------------------------------
4,343
------------------------------------------------------------------------------
Semiconductors 9.7%
Altera * 20,000 1,296
------------------------------------------------------------------------------
Intel 48,000 3,594
------------------------------------------------------------------------------
Linear Technology 11,800 848
------------------------------------------------------------------------------
Maxim Integrated Products * 10,000 876
------------------------------------------------------------------------------
Texas Instruments 18,600 1,245
------------------------------------------------------------------------------
Xilinx * 10,200 907
------------------------------------------------------------------------------
8,766
------------------------------------------------------------------------------
Miscellaneous Computer Hardware 2.5%
EMC * 15,000 1,470
------------------------------------------------------------------------------
Symbol Technologies 18,150 751
------------------------------------------------------------------------------
2,221
------------------------------------------------------------------------------
Computer Software 6.2%
BMC Software * 7,000 189
------------------------------------------------------------------------------
Computer Associates 9,300 295
------------------------------------------------------------------------------
Intuit * 4,500 270
------------------------------------------------------------------------------
Microsoft * 36,700 2,563
------------------------------------------------------------------------------
Oracle * 24,800 2,255
------------------------------------------------------------------------------
5,572
------------------------------------------------------------------------------
<PAGE>
Information Services 1.8%
Automatic Data Processing 17,200 1,026
------------------------------------------------------------------------------
First Data 12,100 577
------------------------------------------------------------------------------
1,603
------------------------------------------------------------------------------
Computer Communications Equipment 3.8%
Cisco Systems * 50,500 3,467
------------------------------------------------------------------------------
3,467
------------------------------------------------------------------------------
Computer Makers 3.6%
Dell Computer * 21,000 $ 917
------------------------------------------------------------------------------
Hewlett-Packard 8,200 990
------------------------------------------------------------------------------
Sun Microsystems * 10,200 1,295
------------------------------------------------------------------------------
3,202
------------------------------------------------------------------------------
Semiconductor Capital Equipment 1.0%
Applied Materials * 10,000 863
------------------------------------------------------------------------------
863
------------------------------------------------------------------------------
Total Technology 31,960
------------------------------------------------------------------------------
BUSINESS SERVICES 4.4%
Business Services 0.8%
Paychex 15,750 703
------------------------------------------------------------------------------
703
------------------------------------------------------------------------------
Industrial Services 2.2%
Cintas 9,250 384
------------------------------------------------------------------------------
Devry * 18,900 706
------------------------------------------------------------------------------
Robert Half International * 28,400 904
------------------------------------------------------------------------------
1,994
------------------------------------------------------------------------------
Advertising 1.4%
Interpublic Group 10,800 413
------------------------------------------------------------------------------
<PAGE>
Omnicom 5,300 442
------------------------------------------------------------------------------
TMP Worldwide * 4,000 277
------------------------------------------------------------------------------
Young & Rubicam 2,000 117
------------------------------------------------------------------------------
1,249
------------------------------------------------------------------------------
Total Business Services 3,946
------------------------------------------------------------------------------
BASIC MATERIALS 1.1%
Chemicals 0.4%
Ecolab 9,500 370
------------------------------------------------------------------------------
Valspar 1,600 47
------------------------------------------------------------------------------
417
------------------------------------------------------------------------------
Forest and Paper Products 0.7%
Kimberly-Clark 10,500 614
------------------------------------------------------------------------------
614
------------------------------------------------------------------------------
Total Basic Materials 1,031
------------------------------------------------------------------------------
CONSUMER DISCRETIONARY 7.0%
Restaurants 0.9%
McDonald's 8,100 $ 242
------------------------------------------------------------------------------
Starbucks * 14,400 526
------------------------------------------------------------------------------
768
------------------------------------------------------------------------------
Entertainment 2.3%
Disney 25,600 997
------------------------------------------------------------------------------
Viacom (Class B) * 16,105 1,084
------------------------------------------------------------------------------
2,081
------------------------------------------------------------------------------
Publishing 1.1%
McGraw-Hill 16,500 1,022
------------------------------------------------------------------------------
1,022
------------------------------------------------------------------------------
<PAGE>
Media 2.7%
Clear Channel Communications * 11,652 843
------------------------------------------------------------------------------
Time Warner 19,000 1,625
------------------------------------------------------------------------------
2,468
------------------------------------------------------------------------------
Total Consumer Discretionary 6,339
------------------------------------------------------------------------------
INDUSTRIAL 3.8%
Heavy Electical Equipment 2.9%
GE 44,800 2,629
------------------------------------------------------------------------------
2,629
------------------------------------------------------------------------------
Defense and Aerospace 0.6%
Boeing 9,600 515
------------------------------------------------------------------------------
515
------------------------------------------------------------------------------
Industrial Parts 0.3%
Illinois Tool Works 4,500 252
------------------------------------------------------------------------------
252
------------------------------------------------------------------------------
Total Industrial 3,396
------------------------------------------------------------------------------
HEALTH CARE 14.2%
Drugs 10.2%
American Home Products 16,700 905
------------------------------------------------------------------------------
Amgen * 6,800 516
------------------------------------------------------------------------------
AstraZeneca Group ADR 9,400 428
------------------------------------------------------------------------------
Bristol-Myers Squibb 14,600 774
------------------------------------------------------------------------------
Eli Lilly 10,500 $ 767
------------------------------------------------------------------------------
Glaxo Wellcome ADR 6,700 386
------------------------------------------------------------------------------
Merck 21,000 1,467
------------------------------------------------------------------------------
Pfizer 53,800 2,327
------------------------------------------------------------------------------
Pharmacia 11,805 691
------------------------------------------------------------------------------
Schering-Plough 15,500 622
------------------------------------------------------------------------------
SmithKline Beecham ADR 4,900 320
------------------------------------------------------------------------------
9,203
------------------------------------------------------------------------------
<PAGE>
Medical Products 4.0%
Abbott Laboratories 13,400 586
------------------------------------------------------------------------------
Guidant * 7,000 471
------------------------------------------------------------------------------
Johnson & Johnson 17,500 1,609
------------------------------------------------------------------------------
Medtronic 17,100 877
------------------------------------------------------------------------------
3,543
------------------------------------------------------------------------------
Total Health Care 12,746
------------------------------------------------------------------------------
TRANSPORTATION 0.5%
Trucking, Shipping, Air Freight 0.5%
Expeditors International of Washington 9,200 449
------------------------------------------------------------------------------
Total Transportation 449
------------------------------------------------------------------------------
Total Common Stocks (Cost $67,709) 89,781
SHORT-TERM INVESTMENTS 0.7%
Money Market Funds 0.7%
Reserve Investment Fund, 6.70% # 597,069 597
------------------------------------------------------------------------------
Total Short-Term Investments (Cost $597) 597
Total Investments in Securities
100.5% of Net Assets (Cost $68,306) $ 90,378
Other Assets Less Liabilities (454)
NET ASSETS $ 89,924
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ (128)
Accumulated net realized gain/loss -
net of distributions (5,206)
Net unrealized gain (loss) 22,072
Paid-in-capital applicable to 7,125,798 shares
of $0.0001 par value capital stock outstanding;
1,000,000,000 shares authorized 73,186
NET ASSETS $ 89,924
NET ASSET VALUE PER SHARE $ 12.62
# 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 Funds
--------------------------------- Unaudited
STATEMENT OF OPERATIONS
----------------------- In thousands
Balanced Growth
Fund Fund
6 Months 6 Months
Ended Ended
8/31/00 8/31/00
------- -------
Investment Income (Loss)
Income
Interest $ 647 $ 19
Dividend 74 301
Securities lending - 4
------------------------------------------------------------------------------
Total income 721 324
------------------------------------------------------------------------------
Expenses
Investment management 120 284
Custody and accounting 59 45
Shareholder servicing 24 84
Registration 10 13
Prospectus and shareholder reports 6 16
Legal and audit 5 6
Directors 4 3
Miscellaneous 2 1
------------------------------------------------------------------------------
Total expenses 230 452
Reimbursed by Manager 4 -
------------------------------------------------------------------------------
Net expenses 234 452
------------------------------------------------------------------------------
Net investment income (loss) 487 (128)
------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities (245) (2,519)
Change in net unrealized gain or loss on securities 4,547 13,236
------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 4,302 10,717
------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 4,789 $ 10,589
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. Rowe Price Tax-Efficient Funds
--------------------------------- Unaudited
STATEMENT OF CHANGES IN NET ASSETS
---------------------------------- In thousands
Balanced Fund Growth Fund
6 Months Year 6 Months 7/30/99
Ended Ended Ended Through
8/31/00 2/29/00 8/31/00 2/29/00
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 487 $ 791 $ (128) $ (39)
Net realized gain (loss) (245) (612) (2,519) (2,687)
Change in net unrealized
gain or loss 4,547 3,719 13,236 8,836
-------------------------------------------------------------------------------
Increase (decrease) in
net assets from operations 4,789 3,898 10,589 6,110
-------------------------------------------------------------------------------
Distributions to shareholders
Net investment income (460) (834) - -
-------------------------------------------------------------------------------
Capital share transactions *
Shares sold 5,389 11,588 11,233 68,616
Distributions reinvested 387 702 - -
Shares redeemed (2,211) (5,888) (4,271) (2,410)
Redemption fees received 6 15 37 20
-------------------------------------------------------------------------------
Increase (decrease) in
net assets from capital
share transactions 3,571 6,417 6,999 66,226
-------------------------------------------------------------------------------
Net Assets
Increase (decrease)
during period 7,900 9,481 17,588 72,336
Beginning of period 43,248 33,767 72,336 -
-------------------------------------------------------------------------------
End of period $ 51,148 $ 43,248 $ 89,924 $ 72,336
*Share information
Shares sold 372 881 936 6,786
Distributions reinvested 27 53 - -
Shares redeemed (156) (445) (371) (225)
-------------------------------------------------------------------------------
Increase (decrease)
in shares outstanding 243 489 565 6,561
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. Rowe Price Tax-Efficient Funds
---------------------------------
Unaudited August 31, 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),
nondiversified, 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 Balanced Fund seeks attractive
long-term total returns on an after-tax basis by investing in a balanced
portfolio of stocks and municipal bonds. The Growth Fund seeks attractive
long-term capital appreciation on an after-tax basis by investing primarily in
large-cap stocks selected mainly from the 1,000 largest U.S. companies.
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.
<PAGE>
Premiums and Discounts Premiums and original issue discounts on municipal
securities are amortized for both financial reporting and tax purposes. Market
discounts are recognized upon disposition of the security as gain or loss for
financial reporting purposes and as ordinary income for tax purposes.
Other Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses are
reported on the identified cost basis. 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. Credits earned on daily uninvested cash balances at the
custodian 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 fund could
experience a delay in recovering its securities and a possible loss of income or
value if the borrower fails to return them. At August 31, 2000, the value of
loaned securities was $1,815,000; aggregate collateral consisted of $1,855,000
in the securities lending collateral pool.
Other Purchases and sales of portfolio securities, other than short-term
securities, for the six months ended August 31, 2000, were as follows:
Balanced Growth
Fund Fund
-------- ------
Purchases $ 9,592,000 $ 12,388,000
Sales 6,905,000 5,167,000
<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, $425,00 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.
At August 31, 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 $37,671,000 and $68,306,000 respectively. Net
unrealized gain (loss) on investments were as follows:
Balanced Growth
Fund Fund
-------- ------
Appreciated investments $ 13,624,000 $ 25,054,000
Depreciated investments (366,000) (2,982,000)
Net unrealized gain (loss) $ 13,258,000 $ 22,072,000
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 $24,000 and $55,000 were payable at August 31, 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 T. Rowe Price 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 August 31, 2000, and for the six months 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 each fund's ratio
of total expenses to average net assets to exceed 1.00% and 1.10%, respectively.
Pursuant to this agreement, $31,000 of the unaccrued fees were repaid by the
Growth Fund during the six months ended August 31, 2000, and $6,000 and $1,000
of management fees for the Balanced Fund and the Growth Fund, respectively,
remain unaccrued from a prior period. Pursuant to a previous agreement, $3,000
of the unaccrued fees and expenses were repaid by the Balanced Fund during the
six months ended August 31, 2000, and $197,000 remains subject to reimbursement
by the Balanced Fund 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 and Growth Funds incurred
expenses pursuant to these related party agreements totaling approximately
$65,000 and $106,000, respectively, for the six months ended August 31, 2000, of
which $12,000 and $11,000, respectively, were payable at period-end.
The Growth 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 six months ended August 31, 2000,
totaled $19,000 and are reflected as interest income in the accompanying
Statement of Operations.
================================================================================
<PAGE>
T. Rowe Price Shareholder Services
----------------------------------
INVESTMENT SERVICES AND INFORMATION
-----------------------------------
KNOWLEDGEABLE SERVICE REPRESENTATIVES
-------------------------------------
BY PHONE 1-800-225-5132 Available Monday through Friday from
8 a.m. to 10 p.m. ET and weekends from 8:30 a.m. to 5 p.m. ET.
IN PERSON Available in T. Rowe Price Investor Centers.
ACCOUNT SERVICES
----------------
CHECKING Available on most fixed-income funds ($500 minimum).
AUTOMATIC INVESTING From your bank account or paycheck.
AUTOMATIC WITHDRAWAL Scheduled, automatic redemptions.
DISTRIBUTION OPTIONS Reinvest all, some, or none of your distributions.
AUTOMATED 24-HOUR SERVICES Including Tele*AccessRegistration Mark and the
T. Rowe Price Web site on the Internet. Address: www.troweprice.com
BROKERAGE SERVICES*
-------------------
Individual Investments Stocks, bonds, options, precious metals,
and other securities at a savings over full-service commission rates. **
<PAGE>
INVESTMENT INFORMATION
----------------------
COMBINED STATEMENT Overview of all your accounts with T. Rowe Price.
SHAREHOLDER REPORTS Fund managers' reviews of their strategies and results.
T. ROWE PRICE REPORT Quarterly investment newsletter discussing
markets and financial strategies.
PERFORMANCE UPDATE Quarterly review of all T. Rowe Price fund results.
INSIGHTS Educational reports on investment strategies and financial markets.
INVESTMENT GUIDES Asset Mix Worksheet, College Planning Kit,
Diversifying Overseas: A Guide to International Investing, Personal
Strategy Planner, Retirees Financial Guide, and Retirement Planning Kit.
* T. Rowe Price Brokerage is a division of T. Rowe Price Investment
Services, Inc., Member NASD/SIPC.
** Based on a July 2000 survey for representative-assisted stock trades.
Services vary by firm, and commissions may vary depending on size of
order.T. Rowe Price Shareholder Services
================================================================================
<PAGE>
T. Rowe Price Mutual Funds
--------------------------
STOCK FUNDS
-----------
DOMESTIC
--------
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Developing Technologies
Diversified Small-Cap Growth
Dividend Growth
Equity Income
Equity Index 500
Extended Equity Market Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Media & Telecommunications
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons*
Real Estate
Science & Technology
Small-Cap Stock
Small-Cap Value
Spectrum Growth
Tax-Efficient Growth
Total
Equity Market Index
Value
INTERNATIONAL/GLOBAL
--------------------
Emerging Europe & Mediterranean
Emerging Markets Stock
European Stock
Global Stock
Global Technology
International Discovery*
International Growth & Income
International Stock
Japan
Latin America
New Asia
Spectrum International
<PAGE>
BOND FUNDS
----------
DOMESTIC TAXABLE
Corporate Income
GNMA
High Yield
New Income
Short-Term Bond
Short-Term U.S. Government *
Spectrum Income
Summit GNMA
Summit Limited-Term Bond *
U.S. Treasury Intermediate
U.S. Treasury Long-Term
DOMESTIC TAX-FREE
-----------------
California Tax-Free Bond
Florida Intermediate Tax-Free
Georgia Tax-Free Bond
Maryland Short-Term Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Summit Municipal Intermediate
Tax-Free High Yield
Tax-Free Income
Tax-Free Intermediate Bond
Tax-Free Short-Intermediate
Virginia Short-Term Tax-Free Bond *
Virginia Tax-Free Bond
INTERNATIONAL/GLOBAL
--------------------
Emerging Markets Bond
Global Bond *
International Bond
MONEY MARKET FUNDS
------------------
TAXABLE
-------
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
<PAGE>
TAX-FREE
--------
California Tax-Free Money
New York Tax-Free Money
Summit Municipal Money Market
Tax-Exempt Money
BLENDED ASSET FUNDS
---------------------
Balanced
Personal Strategy Balanced
Personal Strategy Growth
Personal Strategy Income
Tax-Efficient Balanced
T. ROWE PRICE NO-LOAD VARIABLE ANNUITY
--------------------------------------
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
Mid-Cap Growth Portfolio
New America Growth Portfolio
Personal Strategy Balanced
Portfolio
Prime Reserve Portfolio
* Closed to new investors.
+ Investments in the funds are not insured or guaranteed by the FDIC or
any other government agency. Although the funds seek to preserve the
value of your investment at $1.00 per share, it is possible to lose
money by investing in the funds.
Please call for a prospectus, which contains complete information,
including fees and expenses. Read it carefully before investing.
Please call for a prospectus, which contains complete information,
including fees and expenses. Read it carefully before investing. The T. Rowe
Price No-Load Variable Annuity [#V6021] is issued by Security Benefit Life
Insurance Company. In New York, it [#FSB201(11-96)] is issued by First Security
Benefit Life Insurance Company of New York, White Plains, NY. T. Rowe Price
refers to the underlying portfolios' investment managers and the distributors,
T. Rowe Price Investment Services, Inc.; T. Rowe Price Insurance Agency, Inc.;
and T. Rowe Price Insurance Agency of Texas, Inc. The Security Benefit Group of
Companies and the T. Rowe Price companies are not affiliated. The variable
annuity may not be available in all states. The contract has limitations. Call a
representative for costs and complete details of the coverage.
================================================================================
FOR FUND AND ACCOUNT INFORMATION
OR TO CONDUCT TRANSACTIONS,
24 HOURS, 7 DAYS A WEEK
By touch-tone telephone
TELE*ACCESS 1-800-638-2587
By Account Access on the Internet
WWW.TROWEPRICE.COM/ACCESS
FOR ASSISTANCE
WITH YOUR EXISTING
FUND ACCOUNT, CALL:
Shareholder Service Center
1-800-225-5132
TO OPEN A BROKERAGE ACCOUNT
OR OBTAIN INFORMATION, CALL:
1-800-638-5660
INTERNET ADDRESS:
www.troweprice.com
<PAGE>
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. C119-051 8/31/00
