Item 1. Report to Shareholders
T. Rowe Price Tax-Efficient Multi-Cap Growth Fund
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February 29, 2004
Certified Annual Report
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This report is certified under the Sarbanes-Oxley Act of 2002, which requires
that public companies, including mutual funds, affirm that the information
provided in their annual and semiannual shareholder reports fully and fairly
represents their financial position.
T. Rowe Price Tax-Efficient Multi-Cap Growth Fund
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Certified Annual Report
Performance Comparison
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This chart shows the value of a hypothetical $10,000 investment in the fund over
the past 10 fiscal year periods or since inception (for funds lacking 10-year
records). The result is compared with benchmarks, which may include a
broad-based market index and a peer group average or index. Market indexes do
not include expenses, which are deducted from fund returns as well as mutual
fund averages and indexes.
[Graphic Omitted]
TAX-EFFICIENT MULTI-CAP GROWTH FUND
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As of 2/29/04
Tax-Efficient Multi-Cap Growth Fund $9,880
Russell Midcap Growth Index $8,689
Lipper Mid-Cap Growth Funds Index $7,947
Lipper
Mid-Cap Tax-Efficient
Russell Midcap Growth Funds Multi-Cap
Growth Index Index Growth Fund
12/00 10,000 10,000 10,000
2/01 8,743 8,615 9,250
2/02 7,288 7,214 8,600
2/03 5,690 5,476 6,660
2/04 8,689 7,947 9,880
Average Annual Compound Total Return
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Since
Inception
Periods Ended 2/29/04 1 Year 12/29/00
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Tax-Efficient Multi-Cap
Growth Fund 46.86%* -0.38%
Lipper Mid-Cap Growth
Funds Index 45.11 -7.01**
Russell Midcap Growth Index 52.71 -4.34
* Adjusted to reflect a 1% redemption fee on shares held less than two years.
Without the adjustment, the return would have been 48.35%.
** Since 12/31/00.
Returns do not reflect taxes that the shareholder may pay on fund distributions
or the redemption of fund shares. Past performance cannot guarantee future
results.
T. Rowe Price Tax-Efficient Multi-Cap Growth Fund
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Certified Annual Report
Dear Shareholder,
We are pleased to report that your fund returned 46.86% in the 12-month period
ended February 29, 2004. (The 12-month return has been adjusted to reflect a 1%
redemption fee, which would apply if shares held less than two years were sold
at the end of the period. Without the adjustment, the 12-month return would have
been 48.35%.) The fund outperformed the Lipper Mid-Cap Growth Funds Index but
trailed the Russell Midcap Growth Index, as shown in the table on the preceding
page.
As you know, the fund seeks to maximize after-tax growth of capital through
investments primarily in common stocks of mid- and small-cap companies, but it
has the flexibility to purchase some larger companies. Stock selection is based
on a combination of fundamental, bottom-up analysis and top-down quantitative
strategies in an effort to identify companies with superior long-term
appreciation prospects. We generally use a growth approach, looking for
companies with one or more of the following characteristics: a demonstrated
ability to consistently increase revenues, earnings, and cash flow; capable
management; attractive business niches; and a sustainable competitive advantage.
The Major Index Returns table shows how various domestic market indexes
performed over the fund's fiscal year. As you can see, the small-cap Russell
2000 Index produced very strong returns over the last 12 months. Large-cap
stocks, as measured by the S&P 500 Stock Index, were less robust.
Major Index Returns
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12-Month
Period Ended 2/29/04 Return
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S&P 500 Stock Index 38.52%
S&P MidCap 400 Index 49.72
Russell 2000 Index 64.41
Nasdaq Composite Index 51.76
Top 5 Sectors
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Percent of Percent of
Net Assets Net Assets
Periods Ended 2/28/03 2/29/04
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Information Technology 20.7% 26.5%
Health Care 18.5 23.4
Consumer Discretionary 24.8 21.4
Financials 16.2 13.5
Industrials and Business Services 15.9 10.1
Historical weightings reflect current sector classifications.
The Top 5 Sectors table shows how our largest sector allocations have changed
over the last year.
Our exposure to information technology and health care companies increased over
the last year, while our allocations to the consumer discretionary, financials,
and industrial and business services sectors decreased.
Finally, I'm sure you are aware that mutual fund companies have recently come
under scrutiny for their trading policies. The investigations have led to
allegations that executives of several mutual fund companies permitted or
engaged in improper mutual fund trading. In addition, certain intermediaries
that process fund transactions are alleged to have assisted some investors in
executing improper mutual fund trades. I want T. Rowe Price shareholders to know
that we emphatically condemn the abuses that have been revealed or alleged
against other firms in our industry. Our firm has not entered and will not enter
into any agreements with any investors or intermediaries that authorize
after-hours trading or excessive short-term trading in any of our funds. T. Rowe
Price investors can be assured that our firm unequivocally opposes illegal or
inappropriate trading of any nature and has policies and procedures in place
designed to protect the best interests of our long-term shareholders. We have
reviewed trading by T. Rowe Price personnel in the T. Rowe Price mutual funds
over the last several years and did not uncover the existence of any of the
abusive trading practices described in recent regulatory enforcement actions
relating to fund portfolio managers and senior fund executives. You may find out
more about our trading policies and the steps we take to protect your interests
by visiting our Web site (troweprice.com). These policies are also spelled out
in your fund's prospectus.
Thank you for your continued support.
Respectfully submitted,
James S. Riepe
Chairman
March 30, 2004
T. Rowe Price Tax-Efficient Multi-Cap Growth Fund
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Certified Annual Report February 29, 2004
Financial Highlights For a share outstanding throughout each period
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Year 12/29/00
Ended Through
2/29/04 2/28/03 2/28/02 2/28/01
NET ASSET VALUE
Beginning of period $ 6.66 $ 8.60 $ 9.25 $ 10.00
Investment activities
Net investment income
(loss) (0.06)* (0.06)* (0.06)* (0.01)*
Net realized and
unrealized gain
(loss) 3.28 (1.88) (0.59) (0.74)
Total from
investment
activities 3.22 (1.94) (0.65) (0.75)
NET ASSET VALUE
End of period $ 9.88 $ 6.66 $ 8.60 $ 9.25
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Ratios/Supplemental Data
Total return^ 48.35%* (22.56)%* (7.03)%* (7.50)%*
Ratio of total expenses
to average net assets 1.25%* 1.25%* 1.25%* 1.25%*!
Ratio of net investment
income (loss) to average
net assets (0.80)%* (0.78)%* (0.78)%* (0.60)%*!
Portfolio turnover
rate 15.3% 27.0% 15.4% 10.4%!
Net assets,
end of period
(in thousands) $ 26,663 $ 16,798 $ 19,256 $ 14,253
^ 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 1.25% contractual expense limitation in
effect through 2/29/04.
! Annualized
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Efficient Multi-Cap Growth Fund
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Certified Annual Report February 29, 2004
Portfolio of Investments (ss.) Shares Value
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($000s)
COMMON STOCKS 100.0%
CONSUMER DISCRETIONARY 21.4%
Automobiles 0.6%
Harley-Davidson 2,000 106
Winnebago 1,000 67
173
Hotels, Restaurants & Leisure 3.5%
Carnival 1,500 66
International Game Technology 7,300 286
Marriott, Class A 3,700 165
Starbucks * 6,300 236
Station Casinos 3,500 132
The Cheesecake Factory * 1,100 52
937
Household Durables 0.4%
Lennar, Class A 2,400 119
119
Internet & Catalog Retail 0.9%
eBay * 3,400 234
234
Leisure Equipment & Products 0.7%
Brunswick 1,500 59
Mattel 6,100 116
175
Media 8.1%
Cox Radio, Class A * 4,700 103
Cumulus Media * 2,500 50
Dow Jones 1,300 63
EchoStar Communications, Class A * 1,500 54
Entercom Communications * 1,300 60
Harte-Hanks 2,900 64
Lamar Advertising, Class A * 1,400 56
McGraw-Hill 2,300 180
Meredith 4,000 201
New York Times, Class A 2,000 91
Omnicom 2,300 188
Radio One, Class D (Non Voting Shares) * 4,600 84
Regent Communications * 4,400 30
Salem Communications, Class A * 2,100 51
Scripps, Class A 1,600 156
Spanish Broadcasting, Class A * 9,500 106
Univision Communications, Class A * 6,375 227
Washington Post, Class B 200 179
Westwood One * 2,300 71
WPP Group ADR 2,400 135
2,149
Multiline Retail 2.1%
99 Cents Only Stores * 2,000 52
Dollar General 8,400 184
Dollar Tree Stores * 5,600 173
Family Dollar Stores 3,800 144
553
Specialty Retail 4.2%
AutoZone * 1,300 117
Bed Bath & Beyond * 3,800 155
PETsMART 2,500 68
Ross Stores 6,400 205
Staples * 5,500 144
Tiffany 4,100 173
TJX 6,300 148
Williams-Sonoma * 3,500 112
1,122
Textiles, Apparel, & Luxury Goods 0.9%
Coach * 2,200 87
Nike, Class B 2,000 147
234
Total Consumer Discretionary 5,696
CONSUMER STAPLES 2.9%
Beverages 0.1%
Cott * 500 15
15
Food & Staples Retailing 1.3%
Costco Wholesale * 1,000 39
CVS 3,900 146
Duane Reade * 2,500 43
Sysco 2,800 111
339
Food Products 1.1%
Delta Pine & Land 3,200 82
Hershey Foods 1,400 116
McCormick (Non Voting Shares) 500 16
Tootsie Roll Industries 1,030 38
Wrigley 1,000 56
308
Household Products 0.1%
Clorox 500 23
23
Personal Products 0.3%
Estee Lauder, Class A 2,200 94
94
Total Consumer Staples 779
ENERGY 1.2%
Energy Equipment & Services 1.2%
Baker Hughes 3,500 132
BJ Services * 2,500 108
Smith International * 1,500 76
Total Energy 316
FINANCIALS 13.5%
Capital Markets 5.8%
A.G. Edwards 400 15
AmeriTrade * 3,700 60
AMVESCAP ADR 3,000 49
Charles Schwab 8,100 99
Eaton Vance 2,100 81
Federated Investors, Class B 2,000 65
Franklin Resources 2,800 158
Investor's Financial Services 1,800 79
Janus Capital Group 2,500 43
Legg Mason 900 85
Lehman Brothers 758 66
Mellon Financial 3,500 113
Northern Trust 4,100 204
Raymond James Financial 600 23
SEI 1,300 46
State Street 5,100 274
Waddell & Reed Financial, Class A 3,100 80
1,540
Commercial Banks 1.4%
Boston Private Financial 2,700 74
City National 700 44
Community First Bankshares 1,100 31
North Fork Bancorporation 500 21
Silicon Valley Bancshares * 1,000 34
Synovus Financial 3,600 90
UCBH Holdings 2,200 86
380
Consumer Finance 0.7%
SLM Corporation 4,200 176
176
Diversified Financial Services 0.9%
Moody's 3,800 254
254
Insurance 4.0%
AFLAC 3,600 146
Ambac 2,100 164
Arthur J. Gallagher 1,200 40
Brown and Brown 1,000 37
Markel * 300 82
MBIA 1,550 102
Progressive Corporation 1,700 141
Renaissance Re Holdings 1,000 53
Triad Guaranty * 800 44
Willis Group Holdings 6,400 245
1,054
Real Estate 0.2%
Jones Lang Lasalle * 2,300 55
Trammell Crow * 400 6
61
Thrifts & Mortgage Finance 0.5%
MGIC Investment 1,000 66
Radian Group 1,300 57
123
Total Financials 3,588
HEALTH CARE 23.4%
Biotechnology 3.5%
Amgen * 616 39
Biogen Idec * 2,700 150
Cephalon * 1,800 107
Chiron * 500 25
Genzyme * 1,800 91
Gilead Sciences * 4,000 217
Human Genome Sciences * 1,500 19
MedImmune * 1,300 33
Millennium Pharmaceuticals * 2,500 45
Protein Design Labs * 1,000 24
Techne * 4,400 178
Vertex Pharmaceuticals * 1,500 17
945
Health Care Equipment & Supplies 7.8%
Applied Biosystems Group - Applera 1,400 32
ArthroCare * 500 12
Becton, Dickinson 500 24
Biomet 5,350 209
C. R. Bard 200 19
Dentsply International 3,900 171
Edwards Lifesciences * 500 16
Guidant 3,000 204
Invitrogen * 2,200 162
Millipore * 1,400 73
ResMed * 1,400 66
Respironics * 1,500 78
St. Jude Medical * 2,800 203
Stryker 2,700 240
Varian Medical Systems * 2,900 243
Waters Corporation * 1,900 70
Zimmer Holdings * 3,300 250
2,072
Health Care Providers & Services 10.6%
AmerisourceBergen 1,600 93
Anthem * 2,800 241
Caremark RX * 5,500 177
Coventry Health Care * 3,750 163
Davita * 3,000 137
Express Scripts * 1,500 109
Health Management, Class A 3,000 67
Henry Schein * 3,000 215
IMS Health 3,134 78
Laboratory Corporation of America * 1,900 74
Lincare Holdings * 2,900 94
McKesson HBOC 4,000 109
Medco * 2,000 65
Omnicare 4,800 221
Patterson Dental * 2,600 176
Quest Diagnostics 1,100 91
Renal Care Group * 4,100 191
UnitedHealth Group 820 51
WellChoice * 6,000 222
WellPoint Health Networks * 2,400 261
2,835
Pharmaceuticals 1.5%
Allergan 2,000 175
Forest Laboratories * 2,800 211
386
Total Health Care 6,238
INDUSTRIALS & BUSINESS SERVICES 10.1%
Aerospace & Defense 0.7%
Mercury Computer Systems * 2,500 73
Rockwell Collins 3,600 117
190
Air Freight & Logistics 1.0%
C.H. Robinson Worldwide 2,400 95
Expeditors International of Washington 3,000 115
UTi Worldwide 1,300 59
269
Commercial Services & Supplies 6.2%
Apollo Group, Class A * 4,050 308
ARAMARK, Class B 1,000 28
Avery Dennison 1,400 89
Career Education * 4,000 200
ChoicePoint * 3,900 147
Cintas 2,700 115
Corinthian Colleges * 500 30
Corporate Executive Board * 1,500 75
Devry * 2,300 68
Education Management * 5,200 167
Equifax 3,000 79
ITT Educational Services * 2,000 76
Manpower 2,300 103
Robert Half International * 3,000 67
University of Phoenix Online * 1,000 80
Viad 1,300 32
1,664
Electrical Equipment 0.1%
Franklin Electric 300 18
18
Industrial Conglomerates 0.3%
Roper Industries 1,500 73
73
Machinery 1.7%
Cuno * 1,600 68
Danaher 1,100 99
Donaldson 800 46
Dover 200 8
IDEX 1,300 55
ITT Industries 1,400 106
Kaydon 1,100 30
Pall 2,000 52
464
Road & Rail 0.1%
Landstar Systems * 500 18
18
Total Industrials & Business Services 2,696
INFORMATION TECHNOLOGY 26.5%
Communications Equipment 1.6%
Corning * 8,000 100
JDS Uniphase * 18,000 88
Juniper Networks * 1,500 39
Plantronics * 1,700 68
QLogic * 1,500 63
Research In Motion * 800 79
437
Computer & Peripherals 1.8%
Diebold 300 16
EMC * 11,000 157
Lexmark International, Class A * 2,500 206
Network Appliance * 4,100 89
468
Electronic Equipment & Instruments 1.2%
CDW 1,500 104
Jabil Circuit * 500 14
Littelfuse * 1,000 33
Mettler-Toledo International * 800 35
Molex, Class A 3,000 80
National Instruments 450 15
Symbol Technologies 2,400 41
322
Internet Software & Services 2.7%
InterActiveCorp * 6,000 196
Internet Security Systems * 500 9
Monster Worldwide * 4,500 99
Sina Com * 2,000 88
VeriSign * 8,000 139
Yahoo! * 4,500 200
731
IT Services 3.8%
Affiliated Computer Services, Class A * 1,900 92
BISYS Group * 500 9
Certegy 4,600 157
Cognizant Technology Solutions, Class A * 500 24
DST Systems * 2,500 112
Fiserv * 4,100 158
Hewitt Associates, Class A * 300 10
Iron Mountain * 3,600 161
Paychex 3,900 125
Sabre Holdings 2,500 57
SunGard Data Systems * 4,000 116
1,021
Semiconductor & Semiconductor Equipment 7.0%
Altera * 8,500 188
Analog Devices 4,400 220
Broadcom, Class A * 4,000 162
Intersil Holding, Class A 2,000 47
KLA-Tencor * 2,200 116
Lam Research * 3,200 82
Linear Technology 4,400 176
Marvell Technology Group * 1,000 46
Maxim Integrated Products 4,063 203
Microchip Technology 6,500 185
National Semiconductor * 2,000 79
Novellus Systems * 1,400 45
Semtech * 3,000 72
Xilinx * 5,500 231
1,852
Software 8.4%
Adobe Systems 4,100 153
Barra 500 16
BEA Systems * 3,500 48
BMC Software * 5,000 98
Cadence Design Systems * 6,100 94
Check Point Software Technologies * 2,700 62
Cognos * 1,500 47
Computer Associates 7,900 210
Electronic Arts * 4,400 208
FactSet Research Systems 1,200 44
Fair Isaac 500 30
Intuit * 4,200 186
Jack Henry & Associates 500 9
Kronos * 3,750 126
Mercury Interactive * 3,400 165
NetIQ * 1,000 13
Network Associates * 4,500 79
PeopleSoft * 3,000 65
Red Hat * 3,500 63
Siebel Systems * 5,000 65
Symantec * 6,400 263
Synopsys * 2,700 80
VERITAS Software * 4,000 122
2,246
Total Information Technology 7,077
MATERIALS 1.0%
Chemicals 1.0%
Ecolab 4,800 131
Sigma Aldrich 1,200 69
Symyx Technologies * 800 21
Valspar 1,200 60
Total Materials 281
Total Common Stocks (Cost $17,945) 26,671
SHORT-TERM INVESTMENTS 0.2%
Money Market Fund 0.2%
T. Rowe Price Reserve
Investment Fund, 1.10% # 35,942 36
Total Short-Term Investments (Cost $36) 36
SECURITIES LENDING COLLATERAL 2.7%
Money Market Trust 2.7%
State Street Bank and
Trust Company of New Hampshire N.A.
Securities Lending
Quality Trust units, 1.16% # 717,465 718
Total Securities Lending
Collateral (Cost $718) 718
Total Investments in Securities
102.9% of Net Assets (Cost $18,699) $ 27,425
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(ss.) Denominated in U.S. dollar unless otherwise noted
# Seven-day yield
* Non-income producing
ADR American Depository Receipts
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Efficient Multi-Cap Growth Fund
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Certified Annual Report February 29, 2004
Statement of Assets and Liabilities
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($ 000s)
Assets
Investments in securities, at value (cost $18,699) $ 27,425
Other assets 35
Total assets 27,460
Liabilities
Total liabilities 797
NET ASSETS $ 26,663
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Net Assets Consist of:
Undistributed net realized gain (loss) (7,152)
Net unrealized gain (loss) 8,726
Paid-in-capital applicable to 2,697,507 shares of
$0.0001 par value capital stock outstanding;
1,000,000,000 shares of the Corporation authorized 25,089
NET ASSETS $ 26,663
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NET ASSET VALUE PER SHARE $ 9.88
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The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Efficient Multi-Cap Growth Fund
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Certified Annual Report
Statement of Operations
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($ 000s)
Year
Ended
2/29/04
Investment Income (Loss)
Income
Dividend $ 97
Securities lending 3
Total income 100
Expenses
Investment management 146
Custody and accounting 102
Shareholder servicing 37
Registration 29
Legal and audit 15
Prospectus and shareholder reports 5
Directors 5
Miscellaneous 5
Reductions/repayments pursuant
to expense limitation
Investment management
fees (waived) repaid (69)
Total expenses 275
Net investment income (loss) (175)
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securitie (606)
Change in net unrealized gain (loss) on securitie 9,041
Net realized and unrealized gain (loss) 8,435
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 8,260
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The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Efficient Multi-Cap Growth Fund
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Certified Annual Report
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
($ 000s)
Year
Ended
2/29/04 2/28/03
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ (175) $ (144)
Net realized gain (loss) (606) (3,533)
Change in net unrealized gain (loss) 9,041 (1,193)
Increase (decrease) in net assets
from operations 8,260 (4,870)
Capital share transactions *
Shares sold 4,043 4,964
Shares redeemed (2,441) (2,564)
Redemption fees received 3 12
Increase (decrease) in net assets from
capital share transactions 1,605 2,412
Net Assets
Increase (decrease) during period 9,865 (2,458)
Beginning of period 16,798 19,256
End of period $ 26,663 $ 16,798
------------------------------------
*Share information
Shares sold 464 638
Shares redeemed (289) (353)
Increase (decrease) in shares
outstanding 175 285
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Efficient Multi-Cap Growth Fund
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Certified Annual Report February 29, 2004
Notes to Financial Statements
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Note 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Tax-Efficient Funds, Inc. (the corporation) is registered under
the Investment Company Act of 1940 (the 1940 Act). The Tax-Efficient Multi-Cap
Growth Fund (the fund), a diversified, open-end management investment company,
is one portfolio established by the corporation and commenced operations on
December 29, 2000. The fund seeks to maximize after-tax growth of capital
through investments primarily in common stocks.
The accompanying financial statements were prepared in accordance with
accounting principles generally accepted in the United States of America, which
require the use of estimates made by fund management.
Valuation
The fund values its investments and computes its net asset value per share at
the close of the New York Stock Exchange (NYSE), normally 4 p.m. ET, each day
that the NYSE is open for business. Equity securities listed or regularly traded
on a securities exchange or in the over-the-counter market are valued at the
last quoted sale price at the time the valuations are made. A security that 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 are valued at the mean of the latest
bid and ask prices.
Investments in mutual funds are valued at the mutual fund's closing net asset
value per share on the day of valuation.
Other investments and those 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 the T. Rowe Price Valuation Committee,
established by the fund's Board of Directors.
Rebates and Credits
Subject to best execution, the fund may direct certain security trades to
brokers who have agreed to rebate a portion of the related brokerage commission
to the fund in cash. Commission rebates are included in realized gain on
securities in the accompanying financial statements. Additionally, the fund
earns credits on temporarily uninvested cash balances at the custodian that
reduce the fund's custody charges. Custody expense in the accompanying financial
statements is presented before reduction for credits.
Redemption Fees
A 1% fee is assessed on redemptions of fund shares held less than 2 years. Such
fees are withheld from redemption proceeds and retained by the fund, and have
the primary effect of increasing paid-in capital.
Investment Transactions, Investment Income, and Distributions
Income and expenses are recorded on the accrual basis. Dividend income and
capital gain distributions are recorded on the ex-dividend date. 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 on the ex-dividend date. Income distributions are declared and paid on
an annual basis. Capital gain distributions, if any, are declared and paid by
the fund, typically on an annual basis.
Other
In the normal course of business, the fund enters into contracts that provide
general indemnifications. The fund's maximum exposure under these arrangements
is dependent on claims that may be made against the fund in the future and,
therefore, cannot be estimated; however, based on experience, the risk of
material loss from such claims is considered remote.
Note 2 - INVESTMENT TRANSACTIONS
Consistent with its investment objective, the fund engages in the following
practices to manage exposure to certain risks or enhance performance. The
investment objective, policies, program, and risk factors of the fund are
described more fully in the fund's prospectus and Statement of Additional
Information.
Securities Lending
The fund lends its securities to approved brokers to earn additional income. It
receives as collateral cash and U.S. government securities valued at 102% to
105% of the value of the securities on loan. Cash collateral is invested in a
money market pooled account managed by the fund's lending agent in accordance
with investment guidelines approved by fund management. Collateral is maintained
over the life of the loan in an amount not less than the value of loaned
securities, as determined at the close of fund business each day; any additional
collateral required due to changes in security values is delivered to the fund
the next business day. 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 the securities. Securities
lending revenue recognized by the fund consists of earnings on invested
collateral and borrowing fees, net of any rebates to the borrower and
compensation to the lending agent. At February 29, 2004, the value of loaned
securities was $709,000; aggregate collateral consisted of $718,000 in the money
market pooled account.
Other
Purchases and sales of portfolio securities, other than short-term securities,
aggregated $4,855,000 and $3,344,000, respectively, for the year ended February
29, 2004.
Note 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company under Subchapter M of the
Internal Revenue Code and distribute to shareholders all of its taxable income
and gains. Federal income tax regulations differ from generally accepted
accounting principles; therefore, distributions determined in accordance with
tax regulations may differ significantly in amount or character from net
investment income and realized gains for financial reporting purposes. Financial
reporting records are adjusted for permanent book/tax differences to reflect tax
character. Financial records are not adjusted for temporary differences.
There were no distributions in the year ended February 29, 2004. At February 29,
2004, the tax-basis components of net assets were as follows:
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Unrealized appreciation $ 8,898,000
Unrealized depreciation (183,000)
Net unrealized appreciation (depreciation) 8,715,000
Capital loss carryforwards (7,141,000)
Paid-in capital 25,089,000
Net assets $ 26,663,000
--------------------
The fund intends to retain realized gains to the extent of available capital
loss carryforwards for federal income tax purposes. As of February 29, 2004, the
fund had $142,000 of capital loss carryforwards that expire in fiscal 2006,
$2,010,000 that expire in fiscal 2010, $3,882,000 that expire in fiscal 2011,
and $1,107,000 that expire in fiscal 2012.
For the year ended 2004, the fund recorded the following permanent
reclassifications to reflect tax character. Reclassifications to paid-in
capital relate primarily to the current net operating loss. Results of
operations and net assets were not affected by these reclassifications.
- --------------------------------------------------------------------------------
Undistributed net investment income $ 175,000
Paid-in capital (175,000)
At February 29, 2004, the cost of investments for federal income tax purposes
was $18,710,000.
Note 4 - RELATED PARTY TRANSACTIONS
The fund is managed by T. Rowe Price Associates, Inc. (the manager or Price
Associates), a wholly owned subsidiary of T. Rowe Price Group, Inc. The
investment management agreement between the fund and the manager provides for an
annual investment management fee, which is computed daily and paid monthly. The
fee consists of an individual fund fee, equal to 0.35% of the fund's average
daily net assets, and the fund's pro-rata share of a group fee. The group fee is
calculated based on the combined net assets of certain mutual funds sponsored by
Price Associates (the group) applied to a graduated fee schedule, with rates
ranging from 0.48% for the first $1 billion of assets to 0.295% for assets in
excess of $120 billion. The fund's portion of the group fee is determined by the
ratio of its average daily net assets to those of the group. At February 29,
2004, the effective annual group fee rate was 0.32%, and investment management
fee payable totaled $10,000.
The fund is also subject to a contractual expense limitation through February
29, 2004. During the limitation period, the manager is required to waive its
management fee and reimburse the fund for any expenses, excluding interest,
taxes, brokerage commissions, and extraordinary expenses, that would otherwise
cause the fund's ratio of total expenses to average net assets (expense ratio)
to exceed its expense limitation of 1.25%. Through February 28, 2006, the fund
is required to repay the manager for expenses previously reimbursed and
management fees waived to the extent its net assets have grown or expenses have
declined sufficiently to allow repayment without causing the fund's expense
ratio to exceed its expense limitation. At February 29, 2004, management fees
waived remain subject to repayment by the fund in the amount of $170,000 through
February 28, 2006.
In addition, the fund has entered into service agreements with Price Associates
and a wholly owned subsidiary of Price Associates (collectively, Price). Price
Associates computes the daily share price and maintains the financial records of
the fund. T. Rowe Price Services, Inc., provides shareholder and administrative
services in its capacity as the fund's transfer and dividend disbursing agent.
Expenses incurred pursuant to these service agreements totaled $94,000 for the
year ended February 29, 2004, of which $8,000 was payable at period-end.
The fund may invest in the T. Rowe Price Reserve Investment Fund and the T. Rowe
Price Government Reserve Investment Fund (collectively, the Reserve Funds),
open-end management investment companies managed by Price Associates. The
Reserve Funds are offered as cash management options to mutual funds, trusts,
and other accounts managed by Price Associates and/or its affiliates, and are
not available for direct purchase by members of the public. The Reserve Funds
pay no investment management fees. During the year ended February 29, 2004,
dividend income from the Reserve Funds totaled $1,000.
T. Rowe Price Tax-Efficient Multi-Cap Growth Fund
- --------------------------------------------------------------------------------
Certified Annual Report
Report of Independent Auditors
- --------------------------------------------------------------------------------
To the Board of Directors of T. Rowe Price Tax-Efficient Funds, Inc. and
Shareholders of T. Rowe Price Tax-Efficient Multi-Cap Growth Fund
In our opinion, the accompanying statement of asset and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of T. Rowe Price Tax-Efficient
Multi-Cap Growth Fund (one of the portfolios comprising T. Rowe Price
Tax-Efficient Funds, Inc., hereafter referred to as the "Fund") at February 29,
2004, and the results its operations, the changes in its net assets and the
financial highlights for each of the fiscal periods presented, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at February 29, 2004 by correspondence with the
custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
March 22, 2004
T. Rowe Price Tax-Efficient Multi-Cap Growth Fund
- --------------------------------------------------------------------------------
Certified Semiannual Report
Information on Proxy Voting
- --------------------------------------------------------------------------------
A description of the policies and procedures that the T. Rowe Price
Tax-Efficient Multi-Cap Growth Fund uses to determine how to vote proxies
relating to portfolio securities is available, without charge, upon request by
calling 1-800-225-5132. It also appears in the fund's Statement of Additional
Information (Form 485B), which can be found on the SEC's Web site, www.sec.gov.
T. Rowe Price Tax-Efficient Multi-Cap Growth Fund
- --------------------------------------------------------------------------------
Certified Annual Report
About the Fund's Directors and Officers
- --------------------------------------------------------------------------------
Your fund is governed by a Board of Directors that meets regularly to review
investments, performance, expenses, and other business matters, and is
responsible for protecting the interests of shareholders. The majority of the
fund's directors are independent of T. Rowe Price Associates, Inc. (T. Rowe
Price); "inside" directors are officers of T. Rowe Price. The Board of Directors
elects the fund's officers, who are listed in the final table. The business
address of each director and officer is 100 East Pratt Street, Baltimore, MD
21202. The Statement of Additional Information includes additional information
about the fund directors and is available without charge by calling a T. Rowe
Price representative at 1-800-225-5132.
Independent Directors
Name
(Year of Birth)
Year Elected*
Principal Occupation(s) During Past 5 Years and Directorships of Other Public
Companies
Anthony W. Deering
(1945)
2001
Director, Chairman of the Board, President, and Chief Executive Officer, The
Rouse Company, real estate developers; Director, Mercantile Bank (4/03 to
present)
Donald W. Dick, Jr.
(1943)
1997
Principal, EuroCapital Advisors, LLC, an acquisition and management advisory
firm
David K. Fagin
(1938)
1997
Director, Golden Star Resources Ltd., Canyon Resources Corp. (5/00 to present),
and Pacific Rim Mining Corp. (2/02 to present); Chairman and President, Nye
Corp.
Karen N. Horn
(1943)
2003
Managing Director and President, Global Private Client Services, Marsh Inc.;
Managing Director and Head of International Private Banking, Bankers Trust;
Director, Eli Lilly and Company
F. Pierce Linaweaver
(1934)
2001
President, F. Pierce Linaweaver & Associates, Inc., consulting environmental and
civil engineers
John G. Schreiber
(1946)
2001
Owner/President, Centaur Capital Partners, Inc., a real estate investment
company; Senior Advisor and Partner, Blackstone Real Estate Advisors, L.P.;
Director, AMLI Residential Properties Trust, Host Marriott Corp., and The Rouse
Company
* Each independent director oversees 111 T. Rowe Price portfolios and serves
until retirement, resignation, or election of a successor.
Inside Directors
Name
(Year of Birth)
Year Elected*
[Number of T. Rowe Price Portfolios Overseen]
Principal Occupation(s) During Past 5 Years and Directorships of Other Public
Companies
James A.C. Kennedy, CFA
(1953)
1997
[43]
Director and Vice President, T. Rowe Price and T. Rowe Price Group, Inc.
James S. Riepe
(1943)
1997
[111]
Director and Vice President, T. Rowe Price; Vice Chairman of the Board,
Director, and Vice President, T. Rowe Price Group, Inc.; Chairman of the Board
and Director, T. Rowe Price Global Asset Management Limited, T. Rowe Price
Global Investment Services Limited, T. Rowe Price Investment Services, Inc.,
T. Rowe Price Retirement Plan Services, Inc., and T. Rowe Price Services, Inc.;
Chairman of the Board, Director, President, and Trust Officer, T. Rowe Price
Trust Company; Director, T. Rowe Price International, Inc.; Chairman of the
Board, Tax-Efficient Funds
M. David Testa, CFA, CIC
(1944)
1997
[111]
Director and Vice President, T. Rowe Price and T. Rowe Price Trust Company; Vice
Chairman of the Board, Director, and Vice President, T. Rowe Price Group, Inc.;
Chairman of the Board and Director, T. Rowe Price International, Inc.; Director,
T. Rowe Price Global Asset Management Limited and T. Rowe Price Global
Investment Services Limited
* Each inside director serves until retirement, resignation, or election of a
successor.
Officers
Name
(Year of Birth)
Title and Fund(s) Served
Principal Occupation(s)
Stephen V. Booth, CPA (1961)
Vice President, Tax-Efficient Funds
Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price
Trust Company
Joseph A. Carrier, CPA (1960)
Treasurer, Tax-Efficient Funds
Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price
Investment Services, Inc.
Roger L. Fiery III, CPA (1959)
Vice President, Tax-Efficient Funds
Vice President, T. Rowe Price, T. Rowe Price Group, Inc., T. Rowe Price Trust
Company, and T. Rowe Price International, Inc.
Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe
Price International for at least five years.
Officers (continued)
Name (Year of Birth)
Title and Fund(s) Served
Principal Occupation(s)
Jill L. Hauser (1958)
Vice President, Tax-Efficient Funds
Vice President, T. Rowe Price and T. Rowe Price Group, Inc.
Henry H. Hopkins (1942)
Vice President, Tax-Efficient Funds
Director and Vice President, T. Rowe Price Group, Inc., T. Rowe Price Investment
Services, Inc., T. Rowe Price Services, Inc., and T. Rowe Price Trust Company;
Vice President, T. Rowe Price, T. Rowe Price International, Inc., and T. Rowe
Price Retirement Plan Services, Inc.
Thomas J. Huber, CFA (1966)
Vice President, Tax-Efficient Funds
Vice President, T. Rowe Price and T. Rowe Price Group, Inc.
Patricia B. Lippert (1953)
Secretary, Tax-Efficient Funds
Assistant Vice President, T. Rowe Price and
T. Rowe Price Investment Services, Inc.
Hugh D. McGuirk, CFA (1960)
Executive Vice President, Tax-Efficient Funds
Vice President, T. Rowe Price and T. Rowe Price Group, Inc.
Mary J. Miller, CFA (1955)
Vice President, Tax-Efficient Funds
Vice President, T. Rowe Price and T. Rowe Price Group, Inc.
Donald J. Peters (1959)
President, Tax-Efficient Funds
Vice President, T. Rowe Price and T. Rowe Price Group, Inc.
William T. Reynolds, CFA, CIC (1948)
Vice President, Tax-Efficient Funds
Director and Vice President, T. Rowe Price and T. Rowe Price Group, Inc.;
Director, T. Rowe Price Global Asset Management Limited
William J. Stromberg, CFA (1960)
Vice President, Tax-Efficient Funds
Vice President, T. Rowe Price and T. Rowe Price Group, Inc.
Julie L. Waples (1970)
Vice President, Tax-Efficient Funds
Vice President, T. Rowe Price
Mark R. Weigman, CFA, CIC (1962)
Vice President, Tax-Efficient Funds
Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price
Trust Company
Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe
Price International for at least five years.
Item 2. Code of Ethics.
As of the end of the period covered by this report, the registrant has adopted a
code of ethics, as defined in Item 2 of Form N-CSR, applicable to its principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. A copy of this code of
ethics is filed as an exhibit to this Form N-CSR. No substantive amendments were
approved or waivers were granted to this code of ethics during the period
covered by this report.
Item 3. Audit Committee Financial Expert.
The registrant's Board of Directors/Trustees has determined that Mr. David K.
Fagin qualifies as an audit committee financial expert, as defined in Item 3 of
Form N-CSR. Mr. Fagin is considered independent for purposes of Item 3 of Form
N-CSR.
Item 4. Principal Accountant Fees and Services.
(a) - (d) Aggregate fees billed to the registrant for the last two fiscal years
for professional services rendered by the registrant's principal accountant were
as follows:
2004 2003
Audit Fees $7,781 $8,595
Audit-Related Fees 670 --
Tax Fees 2,169 2,174
All Other Fees 124 129
Audit fees include amounts related to the audit of the registrant's annual
financial statements and services normally provided by the accountant in
connection with statutory and regulatory filings. Audit-related fees include
amounts reasonably related to the performance of the audit of the registrant's
financial statements, specifically the issuance of a report on internal
controls. Tax fees include amounts related to tax compliance, tax planning, and
tax advice. Other fees include the registrant's pro-rata share of amounts for
agreed-upon procedures in conjunction with service contract approvals by the
registrant's Board of Directors/Trustees.
(e)(1) The registrant's audit committee has adopted a policy whereby audit and
non-audit services performed by the registrant's principal accountant for the
registrant, its investment adviser, and any entity controlling, controlled by,
or under common control with the investment adviser that provides ongoing
services to the registrant require pre-approval in advance at regularly
scheduled audit committee meetings. If such a service is required between
regularly scheduled audit committee meetings, pre-approval may be authorized by
one audit committee member with ratification at the next scheduled audit
committee meeting. Waiver of pre-approval for audit or non-audit services
requiring fees of a de minimis amount is not permitted.
(2) No services included in (b) - (d) above were approved pursuant to
paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not applicable.
(g) The aggregate fees billed for the most recent fiscal year and the preceding
fiscal year by the registrant's principal accountant for non-audit services
rendered to the registrant, its investment adviser, and any entity controlling,
controlled by, or under common control with the investment adviser that provides
ongoing services to the registrant were $719,000 and $671,000, respectively, and
were less than the aggregate fees billed for those same periods by the
registrant's principal accountant for audit services rendered to the T. Rowe
Price Funds.
(h) All non-audit services rendered in (g) above were pre-approved by the
registrant's audit committee. Accordingly, these services were considered by the
registrant's audit committee in maintaining the principal accountant's
independence.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 9. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 10. Controls and Procedures.
(a) The registrant's principal executive officer and principal financial officer
have evaluated the registrant's disclosure controls and procedures within 90
days of this filing and have concluded that the registrant's disclosure controls
and procedures were effective, as of that date, in ensuring that information
required to be disclosed by the registrant in this Form N-CSR was recorded,
processed, summarized, and reported timely.
(b) The registrant's principal executive officer and principal financial officer
are aware of no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 11. Exhibits.
(a)(1) The registrant's code of ethics pursuant to Item 2 of Form N-CSR is
attached.
(2) Separate certifications by the registrant's principal executive officer
and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 and required by Rule 30a-2(a) under the Investment Company Act of
1940, are attached.
(3) Not applicable.
(b) A certification by the registrant's principal executive officer and
principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940,
is attached.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
T. Rowe Price Tax-Efficient Funds, Inc.
By /s/ James S. Riepe
James S. Riepe
Principal Executive Officer
Date April 16, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ James S. Riepe
James S. Riepe
Principal Executive Officer
Date April 16, 2004
By /s/ Joseph A. Carrier
Joseph A. Carrier
Principal Financial Officer
Date April 16, 2004