SEMIANNUAL
REPORT
August 31, 2015
PREFX
T. Rowe Price
Tax-Efficient Equity
Fund
A fund designed for tax-conscious investors seeking long-term capital
appreciation.
T. R owe P rice T ax- E fficient E quity F und
HIGHLIGHTS
• U.S. stocks declined in the six months ended August 31, 2015, against
a backdrop of heightened market volatility.
• The Tax-Efficient Equity Fund outperformed for the six-month period
versus the Russell 3000 Growth Index and the Lipper Multi-Cap Growth
Funds Index.
• Your fund continues to be highly tax-efficient. Its 99.89% tax-efficiency
ratio shows that it has made minimal capital gain distributions since its
inception on December 29, 2000.
• The fund’s consumer discretionary and health care holdings recorded
modest gains, while energy, materials, and industrials and business
services stocks lost ground.
• We expect modest stock returns going forward that should provide
better long-term returns than fixed income investments.
The views and opinions in this report were current as of August 31, 2015.
They are not guarantees of performance or investment results and
should not be taken as investment advice. Investment decisions reflect
a variety of factors, and the managers reserve the right to change their
views about individual stocks, sectors, and the markets at any time.
As a result, the views expressed should not be relied upon as a forecast of the fund’s future investment intent. The report is certified under
the Sarbanes-Oxley Act, which requires mutual funds and other public
companies to affirm that, to the best of their knowledge, the information in their financial reports is fairly and accurately stated in all material
respects.
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T. Rowe Price Tax-Efficient Equity Fund
Manager’s Letter
Fellow Shareholders
U.S. stocks recorded moderate losses over the six months ended August 31, 2015,
in a period marked by heightened market volatility. Investor sentiment seesawed
between optimism about modest U.S. economic growth and accommodative monetary
policies overseas and concerns about the timing and pace of Federal Reserve interest
rate hikes expected later in 2015 and a sharper-than-expected economic slowdown
in China. As shown in the Performance Comparison table, the Tax-Efficient Equity
Fund returned -2.38% for the six months ended August 31, 2015, outpacing the
Russell 3000 Growth Index and the Lipper Multi-Cap Growth Funds Index over
the period.
Seven out of the fund’s
10 sector allocations
Six-Month Period Ended 8/31/15
Total Return
generated absolute gains
for the six-month period.
Tax-Efficient Equity Fund*
-2.38%
A small position in utilities
Russell 3000 Growth Index
-3.87
rose by double digits and
Lipper Multi-Cap Growth
was followed by more
Funds Index
-3.53
modest gains in our
*The performance information shown does not reflect
consumer discretionary
the deduction of a 1% redemption fee on shares
and health care shares.
held for less than 365 days; if it did, the performance
Information technology
would be lower.
and financials performed
roughly in line with our
benchmark, while telecommunication services and consumer staples
posted steeper losses. Energy, materials, and industrials and business
services fell the most during the period. Very strong stock selection
helped performance versus the Russell benchmark, while sector
weightings had little net impact on relative results. This is consistent
with the fund’s management style, featuring sector weights that are
similar to those of its Russell benchmark and a focus on the careful
selection of companies that we expect to succeed over the long term.
P erformance C omparison
1
T he A dvantages of T ax- E fficient I nvesting
Studies show that taxes can reduce a taxable portfolio’s return by as much as 2%
annually. That may not sound like much, but it adds up over time. While it’s impossible
to eliminate taxes altogether, a tax-efficient investment strategy can help reduce the
drag that taxes typically have on your portfolio. Here’s how:
• Asset
Location: After an investor has determined an asset allocation strategy
appropriate for his or her individual circumstances, tax efficiency starts with holding
investments in the appropriate account. A taxable account is best for individual
securities held for a longer time period; tax-advantaged securities, such as municipal
bond funds; or mutual funds with a low-turnover, growth-oriented investment
approach—such as the Tax-Efficient Equity Fund. Investments with high interest
income, high dividends, or high turnover typically are more appropriate for a taxdeferred investment account since these could all trigger tax implications. These
strategies are also managed to maximize pretax returns, and tax implications are
not considered.
• L ong-Term Perspective: In order to minimize taxable capital gain distributions and
maximize after-tax returns, a tax-efficient investment approach invests for the long
term, focusing on companies with strong, sustainable market positions and high
returns on capital. Investing systematically and avoiding attempts to time the
market—a daunting challenge even for the most experienced investors—will also help
to limit short-term distributions and missing major market moves.
• C
areful Stock Selection: In a “buy and hold” investment approach, the ability to
select investments that have long-term performance potential is critical. We focus on
a company’s fundamentals, homing in on those with solid pricing power, sustainable
competitive advantages, and good earnings growth. A growth tilt is a key point of
emphasis in our approach: Companies that are relatively early in their life cycle tend
to plow profits into additional growth rather than cause taxable dividend payments.
• H
arvest Losses: Stocks that have lost value provide an opportunity to offset the tax
liabilities produced by the gains realized on other stocks in our portfolio. This
advantage holds even in a down market where a portfolio may not have any gains to
offset since the Internal Revenue Service currently allows investors to carry losses
forward indefinitely to future years until they are used up.
While taxes should never be the primary focus of your investment decisions or strategy,
they should be considered as a means of maximizing your after-tax returns. By making
the right decisions early on, you can have more capital available for your investment
objectives and enjoy the benefits of a tax-efficient portfolio for years to come.
MARKET ENVIRONMENT
The U.S. economy improved from sluggish first-quarter growth,
expanding at an annualized pace of 3.7% in the second quarter of
2015. The labor market continued to strengthen, with solid job gains
driving the national unemployment rate down to 5.1% in August, its
2
lowest level since 2008. Inflation is likely to remain very low in the
near term due to recent declines in oil and other commodity prices,
although evidence suggests that wages are beginning to rise from
trough levels as the labor market has improved. Despite the recent
global financial market volatility, the Federal Reserve is on track to
begin raising short-term U.S. interest rates in the months ahead. Once
they have begun, rate hikes are expected to be gradual.
Apart from energy-related sectors, healthy corporate balance sheets
and cash flows provide flexibility in the use of capital to increase capital
spending, return capital to shareholders, and engage in mergers and
acquisitions (M&A). Supported by low financing costs and improved
corporate confidence, M&A activity neared peak levels and had a
positive effect on your fund’s returns. U.S. profit growth expanded by
low single digits in the second quarter and outperformed expectations,
while revenue growth remained negative for a second quarter in a row,
due in part to the drag from the energy sector.
P erformance of G rowth S tocks vs. V alue S tocks
Periods Ended 8/31/15
Large-Cap
Russell 1000 Growth Index
6 Months
12 Months
5 Years*
-3.88%
4.26%
17.40%
Russell 1000 Value Index
-6.73
-3.48
14.68
Russell 1000 Index
-5.29
0.40
16.07
Mid-Cap
Russell Midcap Growth Index
-5.12
2.46
17.13
Russell Midcap Value Index
-6.90
-2.54
15.96
Russell Midcap Index
-5.98
0.02
16.56
Small-Cap
Russell 2000 Growth Index
-3.67
5.11
17.83
Russell 2000 Value Index
-7.10
-4.95
13.23
Russell 2000 Index
-5.36
0.03
15.55
*5-year returns are annualized. Past performance cannot guarantee future results.
Market volatility was high during the period as optimism about the
U.S. economy and stimulus measures in Europe and Japan alternated
with concerns about the impact of pending Federal Reserve interest rate
hikes and uncertainty in China’s economy and markets. As measured
by various Russell indexes, stocks fell over the past six months across
3
all market capitalization ranges. Large-caps declined less than smalland mid-caps, though the differences were slight. Growth stocks
outperformed value stocks in all market caps. Consumer discretionary
shares posted a slim gain, but all other sectors in the benchmark Russell
3000 Growth Index finished in negative territory for the reporting
period. Health care and consumer staples outpaced the index with
modest losses, followed by moderately larger declines in information
technology, financials, and telecommunication services. Utilities
and industrials and business services stocks fell more steeply, while
materials and energy shares continued to struggle with an unfavorable
global supply/demand dynamic and posted the largest losses.
PORTFOLIO CHARACTERISTICS
The Tax-Efficient Equity Fund seeks to buy and hold attractively
valued, high-quality growth companies with good business models,
strong management, and favorable long-term prospects. Our goal is to
build a portfolio that provides strong after-tax returns.
T ax- E fficient A ttributes
As of 8/31/15
Tax-Efficient Equity Fund
(Inception date: 12/29/00)
Tax-Efficiency Ratio
Since Inception*
(After-Tax Return Divided
by Pretax Return)
99.89%
12-Month
Portfolio
Turnover Rate
11.70%
*The ratio assumes that you did not sell your shares at the end of our reporting period.
• Tax-Efficiency Ratio: Our 99.89% tax-efficiency ratio reflects that
the fund has made only minimal capital gain distributions since its
inception on December 29, 2000. (The fund’s tax-efficiency ratio
is calculated by dividing the fund’s after-tax return by its pretax
return.) Although we expect to make a small distribution later in
2015, it is likely to be very modest in comparison with distributions
from mutual funds managed with a focus on pretax returns.
According to data provided by the Investment Company Institute,
approximately 41% of all mutual fund assets are held in taxable
accounts, and capital gain distributions have jumped dramatically
over the two years ended 2014.
4
P ortfolio C haracteristics
As of 8/31/15
Tax-Efficient Equity Fund
Russell
3000
Growth
Index
Earnings Growth Rate Historical Growth 5 Years
(least squares)
16.1%
13.4%
Projected Long-Term
Earnings Growth Rate*
15.0
13.5
Profitability – Return on
Equity Latest 12 Months
Excluding Charges
19.0
24.2
P/E Ratio
12 Months Forward
Estimated Earnings*
21.2X
18.7X
Investment-Weighted Median
Market Capitalization (bil)
• Earnings Growth:
The earnings of the
companies in our
portfolio are expected
to grow faster than
companies in the
Russell 3000 Growth
Index. The fund’s
projected long-term
earnings growth rate
of 15.0% exceeds the
13.5% index rate,
while our historical
earnings growth rate
over the last five years
was 16.1% versus
13.4% for the index.
• Return on Equity: The
fund’s 12-month return
*Source for data: IBES. These statistics are based on
on equity (ROE) at the
the companies in the fund’s portfolio and are not a
end of our reporting
projection of future fund performance.
period was 19.0%. A
high, sustainable ROE
indicates that a company is using its investment dollars to generate
earnings growth. It is one of the most important characteristics we
consider when researching potential investments and reviewing
current holdings.
$22.1
$53.2
• Market Capitalization: The fund’s investment-weighted median
market capitalization was $22.1 billion versus $53.2 billion
for the index, reflecting the fund’s broad diversification and
greater exposure to mid-cap companies. Although diversification
cannot assure a profit or protect against loss in a declining
market, it may help to lower a portfolio’s volatility versus a more
concentrated strategy.
PORTFOLIO AND PERFORMANCE REVIEW
At the end of our reporting period, the fund’s largest sector allocations
were information technology, consumer discretionary, health care, and
industrials and business services. We had relatively small allocations
5
S ector D iversification
Percent of
Net Assets
as of 8/31/15
Tax-
Efficient
Equity
Fund
Russell
3000
Growth
Index
Information Technology
23.5%
27.0%
Consumer Discretionary
21.4
20.9
Health Care
20.4
18.5
Industrials and Business Services 13.1
11.2
Financials
7.3
5.5
Consumer Staples
6.1
10.3
Materials
3.6
3.7
Energy
2.2
0.8
Telecommunication Services
1.8
2.0
Utilities
0.2
0.1
Other and Reserves
0.4
0.0
Total
to materials, energy,
telecommunication
services, and utilities—
sectors that traditionally
do not have many of
the growth-oriented
companies that are the
focus of our investment
approach. Health care,
industrials and business
services, and financials
were our largest
overweight allocations
relative to the benchmark
Russell 3000 Growth
Index. Consumer
staples and information
technology were our
largest underweights.
The fund’s consumer
discretionary stocks
produced moderate
absolute gains for the six-month period and comfortably outpaced
the broader market. Many companies in the sector feature good
business models, excellent cash flow, and other favorable attributes.
Consumer discretionary is our second-largest allocation, with a
focus on leading companies within their respective niches. Internet
catalog and retail names were our strongest contributors, led by
Netflix and Amazon.com. Investors were pleased to see continued
strong growth in Netflix subscribership in the U.S. and abroad,
and they were cheered by the company’s moves into new markets.
Amazon’s decision earlier this year to reveal details about its Amazon
Web Services division demonstrated the strength and opportunities
available in that segment. The company revealed that its hosting
business was on track to pull in roughly $6 billion in revenue for
the year while generating roughly $1 billion in earnings for the
company. Specialty retailer O’Reilly Automotive and Signet Jewelers,
the leading mid-market jewelry retailer in the U.S. and UK, also
generated good gains. Gaming company Wynn Resorts weighed on
returns due to weakness in its Macau operations, where revenues
100.0%
6
100.0%
have tumbled in the wake of a slowing economy and reduced leisure
spending in China. (Please refer to the fund’s portfolio of investments
for a complete list of holdings and the amount each represents in
the portfolio.)
Our health care stocks posted modest gains and outperformed the
benchmark. For several years, we have focused on the promising
growth potential of biotechnology companies addressing unmet
medical needs rather than large-cap pharmaceutical firms. Biotechs
have been lifted by strong sales of various new drugs and promising
FDA trial data or approvals for prospective medicines. M&A activity
has also been a big positive and benefited several of our names,
including Pharmacyclics (acquired by AbbVie), Synageva BioPharma
(acquired by Alexion Pharmaceuticals), and Receptos (acquired by
Celgene). Heath insurer Humana and pharmacy benefits manager
Catamaran were also good contributors on news that the companies
would be acquired by Aetna and UnitedHealth Group, respectively.
Shares of Biogen fell sharply amid disappointing revenues from
one of its multiple sclerosis drugs. We are holding the stock due to
the promising long-term potential for several drugs currently in the
company’s pipeline.
Our energy and materials stocks weighed on results for the period
in a difficult operating environment marked by ample supplies and
soft global demand. Low oil prices punished a number of our oil
producers, including Pioneer Natural Resources. Precious metals
companies Silver Wheaton and Stillwater Mining also
detracted from results. Vulcan Materials was a bright
Our exposure to spot in the sector, buoyed by growth in U.S. residential
and commercial construction. As our longer-term
the energy and investors know, we do not invest in energy or materials
materials sectors companies based on commodity price forecasts, nor
do we try to predict such movements. Our exposure to
remains small…
the energy and materials sectors remains small, with a
focus on differentiated service companies and low-cost
producers with strong balance sheets. We believe that our holdings
are reasonably well positioned to endure the current price downturn
and emerge in a stronger competitive position once commodity
prices normalize.
The fund’s industrials and business services stocks struggled with soft
capital spending in the energy sector and sluggish global economic
growth. We look for attractively valued companies that are world-class
7
in their respective niches, favoring high-quality industrials that can
generate steady earnings throughout varying economic conditions.
A number of our airline holdings, including American Airlines and
Spirit Airlines, weighed on performance amid investor concerns
about companies adding seat capacity and the resulting price pressure.
Rail companies Union Pacific and Kansas City Southern declined
amid concerns that soft economic growth overseas and tepid global
demand would weigh on transport volumes. Filtration-systems maker
Pall was a good contributor. The company has been a strong longterm holding for the fund and was recently acquired by Danaher.
OUTLOOK
Our expectations for equity returns are relatively modest: We are not
particularly bearish, but neither are we especially enthusiastic about
the near-term prospects. Share prices have appreciated significantly
over the last six years—rewarding investors who have
stayed the course—but valuations are now around
Investment gains long-term averages. In addition, corporate earnings
growth has moderated. Investment gains in the years
in the years ahead ahead are likely to be less robust than those we
are likely to have experienced.
be less robust Nevertheless, we believe stocks are the best assets
for investors seeking long-term capital appreciation,
than those we particularly when compared with the low nominal and
have experienced.
negative real (inflation-adjusted) returns available for
many fixed income investments. After six years with
the federal funds rate near 0%, the Fed is preparing
to raise interest rates. While the precise timing and pace of Fed rate
hikes remains unknown, it’s clear that rates will move higher, signaling
potential trouble ahead for some sectors of the bond market. Higher
interest rates could undercut bond returns as there is little yield in most
core bond strategies to offset expected price declines.
Even as the Fed is preparing to raise rates, global monetary policy
remains broadly accommodative and continues to provide support for
equities. Central banks in Europe and Japan, most notably, are enacting
aggressive stimulus measures. Underlying corporate fundamentals
for corporations look solid, and the current environment—though
unexciting—should enable us to distinguish ourselves through
our dedication to rigorous, fundamental research and disciplined
portfolio management.
8
Whether the market rises, falls, or stays flat in the coming months,
we expect to find good investment candidates. We believe that active
management of our portfolio—built one stock at a time, based on
our proprietary research, and focused on finding companies with
sustainable growth and other favorable characteristics that can be
held over long periods—will produce attractive long-term returns
for our investors.
As always, thank you for your confidence in T. Rowe Price.
Respectfully submitted,
Donald J. Peters
Portfolio manager and chairman of the fund’s Investment
Advisory Committee
September 16, 2015
The committee chairman has day-to-day responsibility for managing the
portfolio and works with committee members in developing and executing
the fund’s investment program.
9
T. Rowe Price Tax-Efficient Equity Fund
R isks of S tock I nvesting
The stock market as a whole can decline for many reasons, including adverse political or
economic developments here or abroad, changes in investor psychology, or heavy
institutional selling. The prospects for an industry or company may deteriorate because
of a variety of factors, including disappointing earnings or changes in the competitive
environment. In addition, our assessment of companies held in the funds may prove
incorrect, resulting in losses or poor performance even in a rising market.
Growth stocks can be volatile for several reasons. Since growth companies usually
reinvest a high proportion of their earnings in their own businesses, they may lack the
dividends often associated with value stocks that could cushion their decline in a falling
market. Also, since investors buy growth stocks because of their expected superior
earnings growth, earnings disappointments often result in sharp price declines.
The stocks of mid-cap companies entail greater risk and are usually more volatile than
the shares of large companies. Investing in small companies also involves greater risk
than is customarily associated with larger companies. Stocks of small companies are
subject to more abrupt or erratic price movements than larger company stocks. Small
companies often have limited product lines, markets, or financial resources, and their
managements may lack depth and experience. Such companies seldom pay significant
dividends that could cushion returns in a falling market.
Technology stocks are particularly volatile and subject to greater price swings than the
broad market. It is possible that companies whose products and services first appear
promising may not succeed over the long term; they may succumb to intense competition or could quickly become obsolete in a rapidly developing marketplace. Earnings
projections for developing companies that are not met can result in sharp price declines.
This is true even in a generally rising stock market environment.
Glossary
Earnings growth rate: Measures the annualized percent change in earnings per share for
a given time period.
Historical growth five years (least squares): Least squares growth calculation attempts
to find the “normal” growth rate given a stream of historical growth rates. It searches for
the growth rate that best fits the line produced by a stream of growth numbers.
Investment-weighted median market capitalization: The investment weighted midpoint
market capitalization (shares outstanding multiplied by current price) representing a
typical security in a portfolio. An investment-weighted median represents the breakpoint
where 50% of the values are above and 50% of the values are below based on
portfolio weight.
10
T. Rowe Price Tax-Efficient Equity Fund
G lossary ( continued )
Lipper indexes: Fund benchmarks that consist of a small number (10 to 30) of the largest
mutual funds in a particular category as tracked by Lipper Inc.
Market capitalization: The total value of a company’s publicly traded shares.
Price-to-book ratio: A valuation measure that compares a stock’s market price with its
book value (i.e., the company’s net worth divided by the number of outstanding shares).
Price-to-earnings (P/E) ratio – 12 months forward: A valuation measure calculated by
dividing the price of a stock by the analysts’ forecast of the next 12 months’ expected
earnings. The ratio is a measure of how much investors are willing to pay for the company’s
future earnings. The higher the P/E, the more investors are paying for a company’s
earnings growth in the next 12 months.
Projected earnings growth rate (IBES): A company’s expected earnings per share growth
rate for a given time period based on the forecast from the Institutional Brokers’
Estimate System, which is commonly referred to as IBES.
Return on equity (ROE) – current fiscal year: A valuation measure calculated by dividing
the company’s current fiscal year net income by shareholders’ equity (i.e., the company’s
book value). ROE measures how much a company earns on each dollar that common
stock investors have put into the company. It indicates how effectively and efficiently a
company and its management are using stockholder investments.
Russell 1000 Index: An index that tracks the performance of the 1,000 largest companies
in the Russell 3000 Index.
Russell 1000 Growth Index: An index that tracks the performance of large-cap stocks
with higher price-to-book ratios and higher forecast growth values.
Russell 1000 Value Index: An index that tracks the performance of large-cap stocks with
lower price-to-book ratios and lower forecast growth values.
Russell 2000 Index: An unmanaged index that tracks the stocks of 2,000 small
U.S. companies.
Russell 2000 Growth Index: An index that tracks the performance of small-cap stocks
with higher price-to-book ratios and higher forecast growth values.
Russell 2000 Value Index: An index that tracks the performance of small-cap stocks with
lower price-to-book ratios and lower forecast growth values.
Russell 3000 Index: An index that tracks the performance of the 3,000 largest U.S.
companies, representing approximately 98% of the investable U.S. equity market.
11
T. Rowe Price Tax-Efficient Equity Fund
G lossary ( continued )
Russell 3000 Growth Index: An index that measures the performance of those Russell
3000 companies with higher price-to-book ratios and higher forecast growth values.
Russell Midcap Index: An unmanaged index that tracks the performance of the 800
smallest companies in the Russell 1000 Index.
Russell Midcap Growth Index: An index that tracks the performance of mid-cap stocks
with higher price-to-book ratios and higher forecast growth values.
Russell Midcap Value Index: An index that tracks the performance of mid-cap stocks
with lower price-to-book ratios and lower forecast growth values.
Note: Russell Investment Group is the source and owner of the trademarks, service marks, and
copyrights related to the Russell indexes. Russell® is a trademark of Russell Investment Group.
12
T. Rowe Price Tax-Efficient Equity Fund
P ortfolio H ighlights
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
8/31/15
Visa Google
Facebook
MasterCard
Netflix
2.4%
2.3
2.1
2.1
2.1
Amazon.com
SBA Communications
Regeneron Pharmaceuticals
Crown Castle International
Priceline
1.9
1.7
1.6
1.5
1.4
Boeing
UnitedHealth Group
Incyte
McKesson
Biogen
1.3
1.3
1.2
1.1
1.0
Philip Morris International
BlackRock
Union Pacific
Home Depot
CarMax
1.0
1.0
1.0
1.0
0.9
Alexion Pharmaceuticals
Starbucks
Allergan
BioMarin Pharmaceutical
Fidelity National Information
0.9
0.8
0.7
0.7
0.7
Total
33.7%
Note: The information shown does not reflect any exchange-traded funds (ETFs), cash
reserves, or collateral for securities lending that may be held in the portfolio.
13
T. Rowe Price Tax-Efficient Equity Fund
P ortfolio H ighlights
CONTRIBUTIONS TO THE CHANGE IN NET ASSET VALUE
Six Months Ended 8/31/15.
Best Contributors
Netflix
Amazon.com
Regeneron Pharmaceuticals
Incyte
Google
Facebook
Pharmacyclics*
Airbnb
Altera*
Visa
Total
Worst Contributors
20¢
11
7
7
6
5
4
4
3
3
70¢
Biogen
Union Pacific
LinkedIn
Twitter
BlackRock
Boeing
McKesson
Vipshop Holdings
Qualcomm
Wynn Resorts
Total
-9¢
-9
-5
-5
-4
-4
-4
-4
-4
-3
-51¢
12 Months Ended 8/31/15.
Best Contributors
Netflix
22¢
Amazon.com
15
Incyte
15
Visa
15
Regeneron Pharmaceuticals
12
Pharmacyclics*
11
UnitedHealth Group
8
MasterCard
8
Facebook
8
Valeant Pharmaceuticals International 7
Total
121¢
*Position eliminated.
14
Worst Contributors
Range Resources
Wynn Resorts
Pioneer Natural Resources
Continental Resources
Union Pacific
Qualcomm
Twitter
SanDisk
Biogen
Baidu
Total
-7¢
-7
-6
-6
-5
-4
-4
-4
-4
-4
-51¢
T. Rowe Price Tax-Efficient Equity Fund
Performance and Expenses
G rowth of $10,000
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.
TA X- E F F I C I E N T E Q U I TY F U N D
As of 8/31/15
$35,000
Tax-Efficient Equity Fund $21,932
30,000
Russell 3000 Growth Index $22,425
Lipper Multi-Cap Growth Funds Index $21,457
25,000
20,000
15,000
10,000
8/05
8/06
8/07
8/08
8/09
8/10
8/11
8/12
8/13
8/14
8/15
A verage A nnual C ompound T otal R eturn
Periods Ended 8/31/15
Tax-Efficient Equity Fund
1 Year
5 Years
10 Years
8.10%
17.31%
8.17%
This table shows how the fund would have performed each year if its actual (or cumulative)
returns for the periods shown had been earned at a constant rate. 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. When assessing performance, investors
should consider both short- and long-term returns.
15
T. Rowe Price Tax-Efficient Equity Fund
F und E xpense E xample
As a mutual fund shareholder, you may incur two types of costs: (1) transaction costs,
such as redemption fees or sales loads, and (2) ongoing costs, including management fees,
distribution and service (12b-1) fees, and other fund expenses. The following example is
intended to help you understand your ongoing costs (in dollars) of investing in the fund and
to compare these costs with the ongoing costs of investing in other mutual funds. The
example is based on an investment of $1,000 invested at the beginning of the most recent
six-month period and held for the entire period.
Actual Expenses
The first line of the following table (Actual) provides information about actual account values
and expenses based on the fund’s actual returns. You may use the information on this line,
together with your account balance, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value divided
by $1,000 = 8.6), then multiply the result by the number on the first line under the heading
“Expenses Paid During Period” to estimate the expenses you paid on your account during
this period.
Hypothetical Example for Comparison Purposes
The information on the second line of the table (Hypothetical) is based on hypothetical
account values and expenses derived from the fund’s actual expense ratio and an assumed
5% per year rate of return before expenses (not the fund’s actual return). You may compare
the ongoing costs of investing in the fund with other funds by contrasting this 5% hypothetical
example and the 5% hypothetical examples that appear in the shareholder reports of the
other funds. The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period.
Note: T. Rowe Price charges an annual account service fee of $20, generally for accounts
with less than $10,000. The fee is waived for any investor whose T. Rowe Price mutual fund
accounts total $50,000 or more; accounts electing to receive electronic delivery of account
statements, transaction confirmations, prospectuses, and shareholder reports; or accounts
of an investor who is a T. Rowe Price Preferred Services, Personal Services, or Enhanced
Personal Services client (enrollment in these programs generally requires T. Rowe Price
assets of at least $100,000). This fee is not included in the accompanying table. If you are
subject to the fee, keep it in mind when you are estimating the ongoing expenses of
investing in the fund and when comparing the expenses of this fund with other funds.
You should also be aware that the expenses shown in the table highlight only your ongoing
costs and do not reflect any transaction costs, such as redemption fees or sales loads.
Therefore, the second line of the table is useful in comparing ongoing costs only and will not
help you determine the relative total costs of owning different funds. To the extent a fund
charges transaction costs, however, the total cost of owning that fund is higher.
16
T. Rowe Price Tax-Efficient Equity Fund
F und E xpense E xample ( continued )
T ax- E fficient E quity F und
Actual
Hypothetical (assumes 5%
return before expenses)
Beginning
Account Value
3/1/15
Ending Account Value
8/31/15
Expenses Paid
During Period*
3/1/15 to 8/31/15
$1,000.00 $976.20
$4.22
1,000.00 1,020.86
4.32
*Expenses are equal to the fund’s annualized expense ratio for the 6-month period
(0.85%), multiplied by the average account value over the period, multiplied by the
number of days in the most recent fiscal half year (184), and divided by the days in the
year (366) to reflect the half-year period.
17
T. Rowe Price Tax-Efficient Equity Fund
Q uarter- E nd R eturns
Periods Ended 6/30/15
Tax-Efficient Equity Fund
1 Year
5 Years
10 Years
13.86%
18.55%
8.79%
After Taxes on Distributions
12.74
18.16
8.61
After Taxes on Distributions
and Sale of Fund Shares
8.65
15.08
7.19
Current performance may be higher or lower than the quoted past performance, which
cannot guarantee future results. Share price, principal value, and return will vary, and you
may have a gain or loss when you sell your shares. For the most recent month-end performance, please visit our website (troweprice.com) or contact a T. Rowe Price representative
at 1-800-225-5132. The performance information shown does not reflect the deduction
of the fund’s 1% redemption fee on shares held for less than 365 days; if it did, the
performance would be lower.
This table provides returns through the most recent calendar quarter-end rather than
through the end of the fund’s fiscal periods. Average annual total returns include changes
in principal value, reinvested dividends, and capital gain distributions.
The returns presented in this table reflect the return before taxes; the return after taxes
on dividends and capital gain distributions; and the return after taxes on dividends,
capital gain distributions, and gains (or losses) from the redemption of shares held for
1-, 5-, and 10-year or since-inception periods, as applicable. After-tax returns reflect the
highest federal income tax rates but exclude state and local taxes. The after-tax returns
reflect the rates applicable to ordinary and qualified dividends and capital gain effective
in 2003. During periods when the fund incurs a loss, the post-liquidation after-tax return
may exceed the fund’s other returns because the loss generates a tax benefit that is
factored into the result.
An investor’s actual after-tax return will likely differ from those shown and depend on his
or her tax situation. The fund’s past returns (before and after taxes) do not necessarily
indicate future performance. When assessing performance, investors should consider
both short- and long-term returns.
E xpense R atio
Tax-Efficient Equity Fund
0.87%
The expense ratio shown is as of the fund’s fiscal year ended 2/28/15. This number may
vary from the expense ratios shown elsewhere in this report because it is based on a
different time period and, if applicable, includes acquired fund fees and expenses but
does not include fee or expense waivers.
18
T. Rowe Price Tax-Efficient Equity Fund
Unaudited
F inancial H ighlights
For a share outstanding throughout each period
6 Months
Ended
8/31/15
Year
Ended
2/28/15
2/28/14
2/28/13
2/29/12
2/28/11
NET ASSET VALUE
Beginning of period
$ 22.67
$ 21.00
$ 16.24
$ 14.98
$ 14.23
$ 11.07
0.02
0.02
0.05
0.02
0.01
(0.54)
2.56
5.20
1.26
0.76
3.17
(0.54)
2.58
5.22
1.31
0.78
3.18
(0.01)
(0.90)
(0.91)
(0.06)
(0.40)
(0.46)
(0.05)
–
(0.05)
(0.03)
–
(0.03)
(0.02)
–
(0.02)
Investment activities
Net investment income
(1)
–
Net realized and
unrealized gain / loss
Total from investment
activities
Distributions
Net investment income
Net realized gain
Total distributions
(2)
–
–
–
NET ASSET VALUE
End of period
$ 22.13
$ 22.67
$ 21.00
$ 16.24
$ 14.98
$ 14.23
12.63%
32.37%
8.77%
5.47%
28.75%
0.87%
0.89%
0.98%
1.03%
1.22%
Ratios/Supplemental Data
(3)
Total return
Ratio of total expenses to
average net assets
(2.38)%
0.85%
(4)
Ratio of net investment
income to average net
assets
0.04%
(4)
Portfolio turnover rate
5.1%
Net assets, end of period
(in thousands)
0.07%
16.8%
0.11%
18.0%
0.33%
28.9%
0.16%
25.1%
0.10%
38.7%
$ 184,055 $ 173,444 $ 149,821 $ 107,129 $ 93,756 $ 89,862
(1)
Per share amounts calculated using average shares outstanding method.
(2)
Amounts round to less than $0.01 per share.
(3)
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. Total return is not annualized for periods less than one year.
Annualized.
(4)
The accompanying notes are an integral part of these financial statements.
19
T. Rowe Price Tax-Efficient Equity Fund
Unaudited
August 31, 2015
P ortfolio of I nvestments
‡
Shares
$ Value
Borg-Warner
7,600
331
Delphi Automotive
6,100
461
Gentex
9,400
146
(Cost and value in $000s)
COMMON STOCKS 98.7%
CONSUMER DISCRETIONARY 20.9%
Auto Components 0.5%
938
Automobiles 0.2%
Harley-Davidson
2,200
123
Tesla Motors (1)(2)
1,050
262
385
Diversified Consumer Services 0.2%
Service Corporation International
6,900
Sotheby's (1)
3,900
205
137
342
Hotels, Restaurants & Leisure 3.7%
Bloomin Brands
6,600
Brinker
3,100
165
Chipotle Mexican Grill (2)
1,600
1,136
Choice Hotels International
3,700
189
Extended Stay America, Equity Units
136
4,600
86
Hilton Worldwide Holdings
13,200
328
Marriott, Class A
10,907
771
MGM Resorts International (2)
8,500
174
Norwegian Cruise Line Holdings (2)
2,000
115
Panera Bread, Class A (2)
900
160
Papa John's International
3,000
202
Royal Caribbean Cruises
3,300
291
Starbucks
26,000
1,422
Starwood Hotels & Resorts Worldwide
8,800
629
Wynn Resorts
4,000
300
20
T. Rowe Price Tax-Efficient Equity Fund
Shares
$ Value
8,800
702
(Cost and value in $000s)
Yum! Brands
6,806
Household Durables 0.3%
Newell Rubbermaid
8,000
Toll Brothers (2)
4,600
337
170
507
Internet & Catalog Retail 6.5%
Amazon.com (2)
6,700
3,436
Ctrip.com International, ADR (2)
2,700
179
JD.com, ADR (2)
12,000
311
Liberty Interactive, The QVC Group (2)
16,300
441
Liberty Ventures, Series A (2)
2,317
92
32,900
3,784
Priceline (2)
2,100
2,622
TripAdvisor (2)
3,000
210
43,400
781
2,510
94
Netflix (2)
Vipshop Holdings, ADR (2)
Wayfair, Class A (1)(2)
11,950
Leisure Products 0.3%
Mattel (1)
4,900
115
Polaris Industries (1)
4,000
519
634
Media 0.5%
Charter Communications, Class A (2)
1,100
200
Discovery Communications, Class C (2)
4,500
114
Interpublic Group
7,200
136
Omnicom
1,500
100
Walt Disney
4,000
408
958
21
T. Rowe Price Tax-Efficient Equity Fund
Shares
$ Value
Burlington Stores (2)
5,200
276
Dollar General
7,500
559
Dollar Tree (2)
7,900
(Cost and value in $000s)
Multiline Retail 0.8%
602
1,437
Specialty Retail 6.1%
AutoZone (2)
1,000
716
27,000
1,647
Dick's Sporting Goods
2,600
130
Five Below (1)(2)
3,000
116
Home Depot
15,100
1,759
L Brands
10,600
889
CarMax (2)
Michaels (2)
7,400
194
O'Reilly Automotive (2)
5,400
1,296
Restoration Hardware Holdings (1)(2)
Ross Stores
Signet Jewelers
Tiffany
2,500
231
11,800
574
5,900
814
8,600
707
TJX
14,300
1,006
TSC
9,300
794
Ulta Salon Cosmetics & Fragrance (2)
1,100
174
Williams-Sonoma
3,300
251
11,298
Textiles, Apparel & Luxury Goods 1.8%
Coach
1,000
30
Hanesbrands
42,600
1,283
Kate Spade (2)
8,800
167
lululemon athletica (2)
2,000
128
11,600
1,296
2,700
321
Nike, Class B
PVH
22
T. Rowe Price Tax-Efficient Equity Fund
Shares
$ Value
4,000
108
(Cost and value in $000s)
Wolverine World Wide
3,333
38,588
Total Consumer Discretionary
CONSUMER STAPLES 6.1%
Beverages 2.1%
Brown-Forman, Class B
2,925
287
Coca-Cola
8,000
315
Constellation Brands, Class A
7,000
896
10,000
1,064
Dr Pepper Snapple
2,600
199
Monster Beverage (2)
5,100
706
PepsiCo
3,300
Diageo, ADR
307
3,774
Food & Staples Retailing 1.0%
CVS Health
PriceSmart (1)
Rite Aid (2)
Whole Foods Market
11,800
1,208
1,600
136
43,700
361
4,400
144
1,849
Food Products 1.6%
Blue Buffalo Pet Products (2)
Flowers Foods
1,500
38
10,550
245
Hain Celestial Group (2)
2,300
140
Hershey Foods
8,700
779
J.M. Smucker
1,000
118
McCormick
Mead Johnson Nutrition, Class A
8,000
634
13,200
1,034
2,988
Household Products 0.4%
Church & Dwight
3,500
23
302
T. Rowe Price Tax-Efficient Equity Fund
Shares
$ Value
Clorox
1,200
133
Colgate-Palmolive
3,800
239
(Cost and value in $000s)
674
Tobacco 1.0%
Philip Morris International
23,700
1,891
1,891
11,176
Total Consumer Staples
ENERGY 2.2%
Energy Equipment & Services 0.4%
Cameron International (2)
2,100
140
Core Laboratories (1)
2,600
301
Oceaneering International
2,600
114
Schlumberger
2,900
224
779
Oil, Gas & Consumable Fuels 1.8%
Cabot Oil & Gas
4,000
95
Cimarex Energy
4,100
453
Columbia Pipeline
4,500
114
Concho Resources (2)
4,900
530
Continental Resources (2)
8,800
282
Diamondback Energy (2)
3,100
212
EQT
2,100
163
Pioneer Natural Resources
3,300
406
Range Resources
3,900
151
Tesoro Petroleum
10,400
957
3,363
4,142
Total Energy
24
T. Rowe Price Tax-Efficient Equity Fund
Shares
$ Value
BankUnited
6,000
214
SVB Financial Group (2)
1,700
212
(Cost and value in $000s)
FINANCIALS 7.1%
Banks 0.2%
426
Capital Markets 2.4%
Artisan Partners Asset Management
2,800
114
BlackRock
6,100
1,845
Charles Schwab
12,500
380
E*TRADE Financial (2)
12,500
329
Financial Engines (1)
2,300
75
Invesco
3,200
109
Lazard, Class A, Partnership
12,900
642
LPL Financial Holdings (1)
3,000
121
Northern Trust
5,100
356
TD Ameritrade Holding
7,600
254
Virtu Financial, Class A (1)
WisdomTree Investments (1)
700
16
8,000
150
4,391
Diversified Financial Services 2.0%
CBOE Holdings
5,600
354
CME Group
7,810
738
Intercontinental Exchange
3,300
754
McGraw Hill Financial
7,800
756
Moody's
7,800
798
MSCI, Class A
3,200
194
3,594
Insurance 0.2%
FNF
8,400
25
306
T. Rowe Price Tax-Efficient Equity Fund
Shares
$ Value
4,800
144
(Cost and value in $000s)
Progressive
450
Real Estate Investment Trusts 2.0%
American Campus Communities, REIT
Crown Castle International, REIT
3,500
120
33,700
2,810
Equinix, REIT
1,022
276
Federal Realty Investment Trust, REIT
1,500
193
Iron Mountain, REIT
5,500
156
WeWork, Class A, Acquisition Date: 12/9/14 - 6/23/15
Cost $55 (2)(3)(4)
2,636
87
3,642
Real Estate Management & Development 0.3%
Jones Lang LaSalle
3,500
521
521
13,024
Total Financials
HEALTH CARE 20.4%
Biotechnology 8.3%
ACADIA Pharmaceuticals (2)
6,900
Agios Pharmaceuticals (1)(2)
800
69
Alexion Pharmaceuticals (2)
9,155
1,576
13,600
810
Alnylam Pharmaceuticals (2)
6,000
618
Baxalta (2)
6,500
229
Biogen (2)
6,500
1,932
10,500
1,357
800
106
Celgene (2)
5,000
590
Clovis Oncology (2)
1,000
78
Dyax (2)
4,700
108
Gilead Sciences
4,000
420
18,700
2,173
Alkermes (2)
BioMarin Pharmaceutical (2)
Bluebird Bio (2)
Incyte (2)
26
253
T. Rowe Price Tax-Efficient Equity Fund
Shares
$ Value
Intercept Pharmaceuticals (1)(2)
600
114
Ironwood Pharmaceuticals (1)(2)
4,400
48
Neurocrine Biosciences (2)
1,600
74
Regeneron Pharmaceuticals (2)
5,700
2,927
10,200
411
900
101
(Cost and value in $000s)
Seattle Genetics (2)
Ultragenyx Pharmaceutical (2)
United Therapeutics (2)
1,100
166
Vertex Pharmaceuticals (2)
7,900
1,007
15,167
Health Care Equipment & Supplies 1.7%
Align Technology (2)
2,500
142
Becton, Dickinson & Company
4,500
635
DENTSPLY International
4,000
210
IDEXX Laboratories (2)
9,600
686
Intuitive Surgical (2)
1,500
766
Sirona Dental Systems (2)
2,300
219
Teleflex (1)
1,800
236
Thoratec (2)
2,600
163
West Pharmaceutical Services (1)
2,100
117
3,174
Health Care Providers & Services 5.4%
AmerisourceBergen
11,400
1,140
Anthem
5,700
804
Cigna
1,300
183
DaVita HealthCare Partners (2)
3,400
257
Envision Healthcare Holdings (2)
4,600
189
Express Scripts Holding (2)
10,500
878
Henry Schein (2)
1,700
233
Humana
5,200
951
10,400
2,055
MEDNAX (2)
3,800
306
Team Health Holdings (2)
2,200
129
McKesson
27
T. Rowe Price Tax-Efficient Equity Fund
Shares
$ Value
20,200
2,337
Universal Health Services
2,100
288
WellCare Health Plans (2)
2,100
190
(Cost and value in $000s)
UnitedHealth Group
9,940
Health Care Technology 0.6%
athenahealth (1)(2)
1,000
133
10,900
673
Medidata Solutions (2)
2,700
130
Veeva Systems, Class A (1)(2)
8,200
212
Cerner (2)
1,148
Life Sciences Tools & Services 0.6%
Agilent Technologies
5,200
Bruker (2)
4,600
84
Mettler-Toledo International (2)
2,400
712
Quintiles Transnational Holdings (2)
2,300
171
189
1,156
Pharmaceuticals 3.8%
AbbVie
9,317
Akorn (2)
Allergan (2)
Bristol-Myers Squibb
581
13,100
521
4,500
1,367
6,000
357
13,700
436
Endo International (2)
4,400
339
Horizon Pharma (1)(2)
4,500
131
Jazz Pharmaceuticals (2)
1,800
304
Pacira Pharmaceuticals (1)(2)
2,200
127
Shire, ADR
4,700
1,090
Valeant Pharmaceuticals International (2)
4,500
1,038
Catalent (2)
28
T. Rowe Price Tax-Efficient Equity Fund
Shares
$ Value
13,700
615
(Cost and value in $000s)
Zoetis
6,906
37,491
Total Health Care
INDUSTRIALS & BUSINESS SERVICES 13.1%
Aerospace & Defense 2.4%
Boeing
18,500
2,417
DigitalGlobe (2)
4,500
104
Precision Castparts
2,900
668
Textron
7,700
299
Transdigm Group (2)
4,100
942
4,430
Air Freight & Logistics 0.7%
C.H. Robinson Worldwide
2,000
135
Expeditors International of Washington
3,700
181
UPS, Class B
10,400
1,015
1,331
Airlines 1.6%
Alaska Air Group
6,000
449
American Airlines
27,300
1,064
Copa Holdings (1)
1,100
56
Southwest Airlines
15,300
562
Spirit Airlines (2)
7,900
405
United Continental (2)
8,000
456
2,992
Building Products 0.5%
Allegion
5,800
346
Armstrong Worldwide Industries (2)
2,000
111
10,800
517
Fortune Brands Home & Security
974
29
T. Rowe Price Tax-Efficient Equity Fund
Shares
$ Value
(Cost and value in $000s)
Commercial Services & Supplies 0.9%
Copart (2)
2,300
80
IHS (2)
5,550
644
KAR Auction Services
4,800
178
Ritchie Bros. Auctioneers
7,400
204
Rollins
9,300
260
600
85
2,650
126
Stericycle (2)
Waste Connections
1,577
Electrical Equipment 0.6%
AMETEK
3,487
Generac Holdings (1)(2)
2,300
71
Hubbell, Class B
2,100
207
600
67
Rockwell Automation
Sensata Technologies Holding (2)
10,200
188
483
1,016
Industrial Conglomerates 0.2%
Roper Technologies
2,300
373
373
Machinery 2.0%
Clarcor
2,300
Colfax (1)(2)
2,500
97
Cummins
3,000
365
Deere
3,300
270
Donaldson
12,600
394
Flowserve
8,000
361
Graco
5,000
345
IDEX
1,925
138
Middleby (2)
1,800
195
Nordson
1,500
100
PACCAR
2,500
147
30
130
T. Rowe Price Tax-Efficient Equity Fund
Shares
$ Value
Rexnord (2)
5,900
118
Snap-On
1,800
288
Valmont Industries (1)
1,200
128
WABCO Holdings (2)
1,600
185
Wabtec
3,400
326
Xylem
4,100
133
(Cost and value in $000s)
3,720
Marine 0.1%
Kirby (2)
1,800
127
127
Professional Services 1.6%
CEB
1,500
108
Equifax
3,800
372
ManpowerGroup
2,800
243
Nielsen Holdings
4,000
181
Robert Half International
9,200
470
Towers Watson
5,200
617
TransUnion (2)
3,800
98
Verisk Analytics, Class A (2)
12,700
928
3,017
Road & Rail 2.0%
Avis Budget Group (2)
3,400
150
Genesee & Wyoming, Class A (2)
6,000
410
Hertz Global Holdings (2)
5,000
92
J.B. Hunt Transport Services
3,100
226
Kansas City Southern
9,300
862
Landstar System
1,900
126
21,400
1,835
Union Pacific
3,701
Trading Companies & Distributors 0.5%
Fastenal (1)
7,700
31
297
T. Rowe Price Tax-Efficient Equity Fund
Shares
$ Value
2,400
536
(Cost and value in $000s)
W. W. Grainger
833
24,091
Total Industrials & Business Services
INFORMATION TECHNOLOGY 23.3%
Communications Equipment 1.1%
F5 Networks (2)
1,600
194
Motorola Solutions
2,500
162
Palo Alto Networks (2)
QUALCOMM
4,400
723
18,400
1,041
2,120
Electronic Equipment, Instruments & Components 0.9%
Amphenol, Class A
16,900
885
Cognex
3,300
117
FEI
1,800
136
IPG Photonics (1)(2)
1,600
135
Keysight Technologies (2)
2,600
83
12,800
242
Trimble Navigation (2)
1,598
Internet Software & Services 7.2%
Akamai Technologies (2)
5,000
357
Alibaba Group Holding, ADR (2)
7,757
513
Atlassian, Class A1, GDR, Acquisition Date: 4/9/14
Cost $25 (2)(3)(4)
1,539
29
Atlassian, Class A2, GDR, Acquisition Date: 4/9/14
Cost $5 (2)(3)(4)
295
6
Atlassian, Class A3, GDR, Acquisition Date: 4/9/14
Cost $7 (2)(3)(4)
428
8
Atlassian, Series 1, GDR, Acquisition Date: 4/9/14
Cost $12 (2)(3)(4)
751
14
Atlassian, Series 2, GDR, Acquisition Date: 4/9/14
Cost $32 (2)(3)(4)
2,010
38
32
T. Rowe Price Tax-Efficient Equity Fund
Shares
$ Value
(Cost and value in $000s)
Atlassian, Series A, GDR, Acquisition Date: 4/9/14
Cost $24 (2)(3)(4)
1,487
28
Baidu, ADR (2)
3,700
545
CoStar Group (2)
3,400
602
Dealertrack Technologies (2)
2,500
157
Dropbox, Class A, Acquisition Date: 11/7/14, Cost $156 (2)(3)(4)
8,192
156
700
13
Dropbox, Class B, Acquisition Date: 5/1/12, Cost $6 (2)(3)(4)
eBay (2)
Facebook (2)
GoDaddy, Class A (2)
6,500
176
42,466
3,798
300
8
Google, Class A (2)
2,000
1,296
Google, Class C
4,813
2,976
LinkedIn (2)
5,400
975
MercadoLibre (1)
4,800
528
Rackspace Hosting (2)
3,000
91
Twitter (2)
14,700
409
VeriSign (1)(2)
5,500
379
Zillow (1)(2)
2,500
63
Zillow, Class C (1)(2)
3,000
74
13,239
IT Services 8.0%
Accenture, Class A
4,400
415
Alliance Data Systems (2)
2,700
694
Black Knight Financial Services, Class A (2)
5,300
172
Cognizant Technology Solutions (2)
6,400
403
CoreLogic (2)
6,300
239
EPAM Systems (2)
2,200
155
18,800
1,298
Fiserv (2)
9,500
810
Gartner (2)
4,900
419
Genpact (2)
4,000
92
Global Payments
2,500
279
41,000
3,787
Fidelity National Information
MasterCard, Class A
33
T. Rowe Price Tax-Efficient Equity Fund
Shares
$ Value
3,000
134
(Cost and value in $000s)
Paychex
PayPal Holdings (2)
Sabre
Vantiv, Class A (2)
Visa, Class A
WEX (2)
6,500
228
23,300
634
8,900
392
62,000
4,421
2,200
208
14,780
Semiconductor & Semiconductor Equipment 1.4%
ARM Holdings, ADR
15,700
662
Linear Technology
6,700
270
Microchip Technology (1)
4,900
208
Skyworks Solutions
10,000
874
Xilinx
11,900
498
2,512
Software 4.3%
Ansys (2)
1,800
159
Autodesk (2)
2,300
108
Check Point Software Technologies (2)
1,600
125
500
79
FactSet Research Systems
FireEye (1)(2)
1,400
53
Fortinet (2)
4,000
169
Guidewire Software (2)
4,000
224
Intuit
7,900
677
Markit (2)
6,200
177
Mobileye (1)(2)
4,400
249
NetSuite (1)(2)
7,400
657
Qlik Technologies (2)
4,000
151
Red Hat (2)
14,300
1,033
salesforce.com (2)
17,200
1,193
ServiceNow (2)
16,900
1,199
Solera Holdings
2,200
106
Splunk (2)
8,300
514
34
T. Rowe Price Tax-Efficient Equity Fund
Shares
$ Value
SS&C Technologies Holdings
3,100
210
Tableau Software (2)
1,900
179
Workday (2)
9,629
677
(Cost and value in $000s)
7,939
Technology Hardware, Storage & Peripherals 0.4%
SanDisk
8,500
464
Western Digital
3,000
246
710
42,898
Total Information Technology
MATERIALS 3.6%
Chemicals 2.7%
Airgas
2,500
241
Ashland
2,200
231
Celanese, Series A
4,900
297
CF Industries
4,500
258
Cytec Industries
1,200
89
10,400
1,016
200
77
PolyOne
3,500
114
PPG Industries
3,800
362
Praxair
2,600
275
RPM
7,100
311
Sherwin-Williams
4,900
1,253
Valspar
4,400
323
Monsanto
NewMarket
4,847
Construction Materials 0.6%
Eagle Materials
1,200
98
Vulcan Materials
11,100
1,039
1,137
35
T. Rowe Price Tax-Efficient Equity Fund
Shares
$ Value
6,200
409
(Cost and value in $000s)
Containers & Packaging 0.2%
Ball
409
Metals & Mining 0.1%
Carpenter Technology
1,700
66
Compass Minerals
1,500
122
Stillwater Mining (1)(2)
1,500
14
202
6,595
Total Materials
TELECOMMUNICATION SERVICES 1.8%
Wireless Telecommunication Services 1.8%
SBA Communications (2)
T-Mobile US (2)
26,700
3,156
5,000
198
3,354
Total Telecommunication Services
UTILITIES 0.2%
Gas Utilities 0.1%
Atmos Energy
3,600
197
197
Multi-Utilities 0.1%
NiSource
8,500
143
143
340
Total Utilities
Total Common Stocks (Cost $110,379)
36
181,699
T. Rowe Price Tax-Efficient Equity Fund
Shares
$ Value
1,656
236
(Cost and value in $000s)
PREFERRED STOCKS 0.1%
CONSUMER DISCRETIONARY 0.1%
Internet & Catalog Retail 0.1%
Flipkart, Series G, Acquisition Date: 12/17/14
Cost $198 (2)(3)(4)
236
Total Preferred Stocks (Cost $198)
CONVERTIBLE PREFERRED STOCKS 0.8%
CONSUMER DISCRETIONARY 0.4%
Internet & Catalog Retail 0.4%
Airbnb, Series D, Acquisition Date: 4/16/14, Cost $225 (2)(3)(4)
5,529
515
Airbnb, Series E, Acquisition Date: 7/14/15, Cost $112 (2)(3)(4)
1,207
112
627
Total Consumer Discretionary
FINANCIALS 0.2%
Real Estate Investment Trusts 0.2%
Wework, Series D-1, Acquisition Date: 12/9/14
Cost $51 (2)(3)(4)
3,081
101
Wework, Series D-2, Acquisition Date: 12/9/14
Cost $40 (2)(3)(4)
2,420
80
Wework, Series E, Acquisition Date: 6/23/15, Cost $261 (2)(3)(4)
7,935
261
442
Total Financials
INFORMATION TECHNOLOGY 0.2%
Internet Software & Services 0.1%
Dropbox, Series A, Acquisition Date: 5/1/12, Cost $8 (2)(3)(4)
869
17
Dropbox, Series A-1, Acquisition Date: 5/1/12, Cost $39 (2)(3)(4)
4,268
82
Dropbox, Series C, Acquisition Date: 1/30/14
Cost $137 (2)(3)(4)
7,195
137
236
37
T. Rowe Price Tax-Efficient Equity Fund
Shares
$ Value
Tanium, Series G, Acquisition Date: 8/26/15, Cost $141 (2)(3)(4)
9,477
141
(Cost and value in $000s)
Software 0.1%
141
377
Total Information Technology
1,446
Total Convertible Preferred Stocks (Cost $1,014)
SHORT-TERM INVESTMENTS 0.5%
Money Market Funds 0.5%
T Rowe Price Reserve Investment Fund, 0.10% (5)(6)
836,471
836
836
Total Short-Term Investments (Cost $836)
SECURITIES LENDING COLLATERAL 2.8%
Investments in a Pooled Account through Securities Lending
Program with State Street Bank and Trust Company 2.8%
Short-Term Funds 2.8%
T. Rowe Price Short-Term Reserve Fund, 0.06% (5)(6)
518,817
5,188
Total Investments through Securities Lending Program with
State Street Bank and Trust Company
5,188
Total Securities Lending Collateral (Cost $5,188)
5,188
38
T. Rowe Price Tax-Efficient Equity Fund
$ Value
(Cost and value in $000s)
Total Investments in Securities
102.9% of Net Assets (Cost $117,615)
‡
(1)
(2)
(3)
(4)
(5)
(6)
ADR
GDR
REIT
$
189,405
Shares are denominated in U.S. dollars unless otherwise noted.
All or a portion of this security is on loan at August 31, 2015 -- total value of such
securities at period-end amounts to $5,009. See Note 3.
Non-income producing
Security cannot be offered for public resale without first being registered under the
Securities Act of 1933 and related rules ("restricted security"). Acquisition date
represents the day on which an enforceable right to acquire such security is
obtained and is presented along with related cost in the security description. The
fund has registration rights for certain restricted securities. Any costs related to
such registration are borne by the issuer. The aggregate value of restricted
securities (excluding 144A holdings) at period-end amounts to $2,061 and
represents 1.1% of net assets.
Level 3 in fair value hierarchy. See Note 2.
Seven-day yield
Affiliated Companies
American Depository Receipts
Global Depository Receipts
A domestic Real Estate Investment Trust whose distributions pass-through with
original tax character to the shareholder
39
T. Rowe Price Tax-Efficient Equity Fund
Affiliated Companies
($000s)
The fund may invest in certain securities that are considered affiliated companies. As defined by the
1940 Act, an affiliated company is one in which the fund owns 5% or more of the outstanding voting
securities, or a company which is under common ownership or control. Based on the fund’s relative
ownership, the following securities were considered affiliated companies for all or some portion of
the six months ended August 31, 2015. Purchase and sales cost and investment income reflect all
activity for the period then ended.
Purchase
Cost
Affiliate
T. Rowe Price Reserve
Investment Fund, 0.10%
T. Rowe Price Short-Term
Reserve Fund, 0.06%
Sales
Cost
Investment
Income
Value
8/31/15
Value
2/28/15
¤
¤$
— $
¤
¤
—^
5,188
7,448
— $
6,024 $
7,906
Totals
$
836 $
458
¤ Purchase and sale information not shown for cash management funds.
^ Excludes earnings on securities lending collateral, which are subject to rebates and fees as
described in Note 3.
Amounts reflected on the accompanying financial statements include the following amounts related
to affiliated companies:
Investment in securities, at cost
$
Dividend income
Interest income
6,024
—
—
Investment income
$
—
Realized gain (loss) on securities
$
—
Capital gain distributions from
mutual funds
$
—
The accompanying notes are an integral part of these financial statements.
40
T. Rowe Price Tax-Efficient Equity Fund
Unaudited
August 31, 2015
S tatement of A ssets and L iabilities
($000s, except shares and per share amounts)
Assets
Investments in securities, at value (cost $117,615)
$
189,405
Receivable for shares sold
268
Dividends receivable
177
Receivable for investment securities sold
175
Other assets
29
Total assets
190,054
Liabilities
Obligation to return securities lending collateral
5,188
Payable for investment securities purchased
677
Investment management fees payable
102
Due to affiliates
9
Other liabilities
23
Total liabilities
5,999
NET ASSETS
$
184,055
Net Assets Consist of:
Undistributed net investment income
$
Accumulated undistributed net realized gain
33
1,632
Net unrealized gain
71,790
Paid-in capital applicable to 8,315,702 shares of $0.0001 par value
capital stock outstanding; 1,000,000,000 shares of the Corporation
authorized
110,600
NET ASSETS
$
184,055
NET ASSET VALUE PER SHARE
$
22.13
The accompanying notes are an integral part of these financial statements.
41
T. Rowe Price Tax-Efficient Equity Fund
Unaudited
S tatement of O perations
($000s)
6 Months
Ended
8/31/15
Investment Income (Loss)
Income
Dividend
Securities lending
$
Total income
794
10
804
Expenses
Investment management
Shareholder servicing
Prospectus and shareholder reports
Custody and accounting
Registration
Legal and audit
Directors
Miscellaneous
580
59
14
70
24
15
1
7
Total expenses
770
Net investment income
34
Realized and Unrealized Gain / Loss
Net realized gain on securities
Change in net unrealized gain / loss on securities
668
(5,381)
Net realized and unrealized gain / loss
(4,713)
DECREASE IN NET ASSETS FROM OPERATIONS
The accompanying notes are an integral part of these financial statements.
42
$
(4,679)
T. Rowe Price Tax-Efficient Equity Fund
Unaudited
S tatement of C hanges in N et A ssets
($000s)
6 Months
Ended
8/31/15
Year
Ended
2/28/15
Increase (Decrease) in Net Assets
Operations
Net investment income
Net realized gain
Change in net unrealized gain / loss
Increase (decrease) in net assets from
operations
$
34
668
(5,381)
$
(4,679)
Distributions to shareholders
Net investment income
Net realized gain
Decrease in net assets from distributions
Capital share transactions*
Shares sold
Distributions reinvested
Shares redeemed
Redemption fees received
Increase in net assets from capital share
transactions
113
5,941
13,322
19,376
–
–
–
(73)
(6,534)
(6,607)
18,599
–
(3,317)
8
12,855
6,074
(8,097)
22
15,290
10,854
10,611
173,444
23,623
149,821
Net Assets
Increase during period
Beginning of period
End of period
$
Undistributed (overdistributed) net investment
income
*Share information
Shares sold
Distributions reinvested
Shares redeemed
Increase in shares outstanding
The accompanying notes are an integral part of these financial statements.
43
184,055
33
809
–
(145)
664
$
173,444
(1)
617
290
(389)
518
T. Rowe Price Tax-Efficient Equity Fund
Unaudited
August 31, 2015
N otes to F inancial S tatements
T. Rowe Price Tax-Efficient Funds, Inc. (the corporation), is registered under
the Investment Company Act of 1940 (the 1940 Act). The Tax-Efficient
Equity Fund (the fund) is a diversified, open-end management investment
company established by the corporation. The fund commenced operations on
December 29, 2000. The fund seeks to maximize after-tax growth of capital
through investments primarily in common stocks.
Note 1 - Significant Accounting Policies
Basis of Preparation The fund is an investment company and follows accounting
and reporting guidance in the Financial Accounting Standards Board (FASB)
Accounting Standards Codification Topic 946 (ASC 946). The accompanying
financial statements were prepared in accordance with accounting principles
generally accepted in the United States of America (GAAP), including but not
limited to ASC 946. GAAP requires the use of estimates made by management.
Management believes that estimates and valuations are appropriate; however,
actual results may differ from those estimates, and the valuations reflected in
the accompanying financial statements may differ from the value ultimately
realized upon sale or maturity.
Investment Transactions, Investment Income, and Distributions Income and
expenses are recorded on the accrual basis. Dividends received from mutual
fund investments are reflected as dividend income; capital gain distributions
are reflected as realized gain/loss. Earnings on investments recognized as
partnerships for federal income tax purposes reflect the tax character of such
earnings. Dividend income and capital gain distributions are recorded on the
ex-dividend date. Income tax-related interest and penalties, if incurred, would
be recorded as income tax expense. 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.
Distributions from REITs are initially recorded as dividend income and, to the
extent such represent a return of capital or capital gain for tax purposes, are
reclassified when such information becomes available. Income distributions
are declared and paid annually. Capital gain distributions, if any, are generally
declared and paid by the fund annually.
Redemption Fees A 1% fee is assessed on redemptions of fund shares held
for less than 365 days to deter short-term trading and to protect the interests
of long-term shareholders. Redemption fees are withheld from proceeds that
44
T. Rowe Price Tax-Efficient Equity Fund
shareholders receive from the sale or exchange of fund shares. The fees are
paid to the fund and are recorded as an increase to paid-in capital. The fees
may cause the redemption price per share to differ from the net asset value
per share.
New Accounting Guidance In May 2015, FASB issued ASU No. 2015-07, Fair
Value Measurement (Topic 820), Disclosures for Investments in Certain Entities
That Calculate Net Asset Value per Share (or Its Equivalent). The ASU removes
the requirement to categorize within the fair value hierarchy all investments
for which fair value is measured using the net asset value per share practical
expedient and amends certain disclosure requirements for such investments.
The ASU is effective for interim and annual reporting periods beginning after
December 15, 2015. Adoption will have no effect on the fund’s net assets or
results of operations.
Note 2 - VALUATION
The fund’s financial instruments are valued and its net asset value (NAV)
per share is computed at the close of the New York Stock Exchange (NYSE),
normally 4 p.m. ET, each day the NYSE is open for business.
Fair Value The fund’s financial instruments are reported at fair value, which
GAAP defines as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the
measurement date. The T. Rowe Price Valuation Committee (the Valuation
Committee) has been established by the fund’s Board of Directors (the Board)
to ensure that financial instruments are appropriately priced at fair value in
accordance with GAAP and the 1940 Act. Subject to oversight by the Board,
the Valuation Committee develops and oversees pricing-related policies
and procedures and approves all fair value determinations. Specifically, the
Valuation Committee establishes procedures to value securities; determines
pricing techniques, sources, and persons eligible to effect fair value pricing
actions; oversees the selection, services, and performance of pricing vendors;
oversees valuation-related business continuity practices; and provides guidance
on internal controls and valuation-related matters. The Valuation Committee
reports to the Board and has representation from legal, portfolio management
and trading, operations, risk management, and the fund’s treasurer.
45
T. Rowe Price Tax-Efficient Equity Fund
Various valuation techniques and inputs are used to determine the fair value of
financial instruments. GAAP establishes the following fair value hierarchy that
categorizes the inputs used to measure fair value:
Level 1 – quoted prices (unadjusted) in active markets for identical financial
instruments that the fund can access at the reporting date
Level 2 – inputs other than Level 1 quoted prices that are observable, either
directly or indirectly (including, but not limited to, quoted prices
for similar financial instruments in active markets, quoted prices for
identical or similar financial instruments in inactive markets, interest
rates and yield curves, implied volatilities, and credit spreads)
Level 3 – unobservable inputs
Observable inputs are developed using market data, such as publicly available
information about actual events or transactions, and reflect the assumptions that
market participants would use to price the financial instrument. Unobservable
inputs are those for which market data are not available and are developed using
the best information available about the assumptions that market participants
would use to price the financial instrument. GAAP requires valuation techniques
to maximize the use of relevant observable inputs and minimize the use of
unobservable inputs. When multiple inputs are used to derive fair value, the
financial instrument is assigned to the level within the fair value hierarchy based
on the lowest-level input that is significant to the fair value of the financial
instrument. Input levels are not necessarily an indication of the risk or liquidity
associated with financial instruments at that level but rather the degree of
judgment used in determining those values.
Valuation Techniques Equity securities listed or regularly traded on a securities
exchange or in the over-the-counter (OTC) market are valued at the last
quoted sale price or, for certain markets, the official closing price at the time
the valuations are made. OTC Bulletin Board securities are valued at the mean
of the closing bid and asked prices. 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 closing bid and asked prices. Actively traded
domestic equity securities generally are categorized in Level 1 of the fair value
hierarchy. OTC Bulletin Board securities, certain preferred securities, and equity
securities traded in inactive markets generally are categorized in Level 2 of the
fair value hierarchy.
46
T. Rowe Price Tax-Efficient Equity Fund
Investments in mutual funds are valued at the mutual fund’s closing NAV per
share on the day of valuation and are categorized in Level 1 of the fair value
hierarchy. Assets and liabilities other than financial instruments, including
short-term receivables and payables, are carried at cost, or estimated realizable
value, if less, which approximates fair value.
Thinly traded financial instruments 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 Valuation Committee. The
objective of any fair value pricing determination is to arrive at a price that could
reasonably be expected from a current sale. Financial instruments fair valued by
the Valuation Committee are primarily private placements, restricted securities,
warrants, rights, and other securities that are not publicly traded.
Subject to oversight by the Board, the Valuation Committee regularly
makes good faith judgments to establish and adjust the fair valuations of
certain securities as events occur and circumstances warrant. For instance,
in determining the fair value of an equity investment with limited market
activity, such as a private placement or a thinly traded public company stock,
the Valuation Committee considers a variety of factors, which may include,
but are not limited to, the issuer’s business prospects, its financial standing
and performance, recent investment transactions in the issuer, new rounds of
financing, negotiated transactions of significant size between other investors in
the company, relevant market valuations of peer companies, strategic events
affecting the company, market liquidity for the issuer, and general economic
conditions and events. In consultation with the investment and pricing teams,
the Valuation Committee will determine an appropriate valuation technique
based on available information, which may include both observable and
unobservable inputs. The Valuation Committee typically will afford greatest
weight to actual prices in arm’s length transactions, to the extent they represent
orderly transactions between market participants; transaction information
can be reliably obtained; and prices are deemed representative of fair value.
However, the Valuation Committee may also consider other valuation methods
such as market-based valuation multiples; a discount or premium from
market value of a similar, freely traded security of the same issuer; or some
combination. Fair value determinations are reviewed on a regular basis and
updated as information becomes available, including actual purchase and
sale transactions of the issue. Because any fair value determination involves
a significant amount of judgment, there is a degree of subjectivity inherent
in such pricing decisions, and fair value prices determined by the Valuation
47
T. Rowe Price Tax-Efficient Equity Fund
Committee could differ from those of other market participants. Depending
on the relative significance of unobservable inputs, including the valuation
technique(s) used, fair valued securities may be categorized in Level 2 or 3 of
the fair value hierarchy.
Valuation Inputs The following table summarizes the fund’s financial instruments,
based on the inputs used to determine their fair values on August 31, 2015:
Level 1
($000s)
Level 2
$
Total Value
Significant
Significant
Observable Unobservable
Inputs
Inputs
Quoted
Prices
Investments in Securities,
except:
Level 3
6,024 $
— $
— $
6,024
Common Stocks
181,320
—
379
181,699
Preferred Stocks
—
—
236
236
Convertible Preferred Stocks
—
—
1,446
1,446
— $
2,061 $
Total
$
187,344 $
189,405
There were no material transfers between Levels 1 and 2 during the six months
ended August 31, 2015.
Following is a reconciliation of the fund’s Level 3 holdings for the six months
ended August 31, 2015. Gain (loss) reflects both realized and change in
unrealized gain/loss on Level 3 holdings during the period, if any, and is
included on the accompanying Statement of Operations. The change in
unrealized gain/loss on Level 3 instruments held at August 31, 2015, totaled
$448,000 for the six months ended August 31, 2015.
Beginning
Balance
3/1/15
($000s)
Gain (Loss)
During
Period
Ending
Balance
8/31/15
Total
Purchases
Investments in Securities
Common Stocks
$
302
$
31
$
46
$
379
Preferred Stocks
198
38
—
236
Convertible Preferred Stocks
551
379
516
1,446
Total Level 3
48
$
1,051
$
448
$
562
$
2,061
T. Rowe Price Tax-Efficient Equity Fund
Note 3 - OTHER Investment Transactions
Consistent with its investment objective, the fund engages in the following
practices to manage exposure to certain risks and/or to 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.
Restricted Securities The fund may invest in securities that are subject to
legal or contractual restrictions on resale. Prompt sale of such securities at
an acceptable price may be difficult and may involve substantial delays and
additional costs.
Securities Lending The fund may lend its securities to approved brokers to earn
additional income. Its securities lending activities are administered by a lending
agent in accordance with a securities lending agreement. Security loans generally
do not have stated maturity dates and the fund may recall a security at any time.
The fund receives collateral in the form of cash or U.S. government securities,
valued at 102% to 105% of the value of the securities on loan. Collateral is
maintained over the life of the loan in an amount not less than the value of
loaned securities; any additional collateral required due to changes in security
values is delivered to the fund the next business day. Cash collateral is invested
by the lending agent(s) in accordance with investment guidelines approved
by fund management. Additionally, the lending agent indemnifies the fund
against losses resulting from borrower default. Although risk is mitigated by the
collateral and indemnification, 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, collateral investments decline in value and the lending agent
fails to perform. Securities lending revenue consists of earnings on invested
collateral and borrowing fees, net of any rebates to the borrower, compensation
to the lending agent, and other administrative costs. In accordance with GAAP,
investments made with cash collateral are reflected in the accompanying
financial statements, but collateral received in the form of securities is not. At
August 31, 2015, the value of loaned securities was $5,009,000; the value of
cash collateral and related investments was $5,188,000.
Other Purchases and sales of portfolio securities other than short-term securities
aggregated $24,739,000 and $9,144,000, respectively, for the six months ended
August 31, 2015.
49
T. Rowe Price Tax-Efficient Equity Fund
Note 4 - 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. Distributions determined in accordance with federal income
tax regulations may differ 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 but are
not adjusted for temporary differences. The amount and character of tax-basis
distributions and composition of net assets are finalized at fiscal year-end;
accordingly, tax-basis balances have not been determined as of the date of
this report.
At August 31, 2015, the cost of investments for federal income tax purposes
was $117,648,000. Net unrealized gain aggregated $71,757,000 at period-end,
of which $73,462,000 related to appreciated investments and $1,705,000
related to depreciated investments.
Note 5 - related Party Transactions
The fund is managed by T. Rowe Price Associates, Inc. (Price Associates), a
wholly owned subsidiary of T. Rowe Price Group, Inc. (Price Group). The
investment management agreement between the fund and Price Associates
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 a group fee. The group fee rate 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 0.275% for assets in
excess of $400 billion. The fund’s group fee is determined by applying the
group fee rate to the fund’s average daily net assets. At August 31, 2015, the
effective annual group fee rate was 0.29%.
In addition, the fund has entered into service agreements with Price Associates
and two wholly owned subsidiaries of Price Associates (collectively, Price). Price
Associates provides certain accounting and administrative services to the fund.
T. Rowe Price Services, Inc., provides shareholder and administrative services
in its capacity as the fund’s transfer and dividend-disbursing agent. T. Rowe
Price Retirement Plan Services, Inc., provides subaccounting and recordkeeping
50
T. Rowe Price Tax-Efficient Equity Fund
services for certain retirement accounts invested in the fund. For the six months
ended August 31, 2015, expenses incurred pursuant to these service agreements
were $43,000 for Price Associates; $40,000 for T. Rowe Price Services, Inc.;
and less than $1,000 for T. Rowe Price Retirement Plan Services, Inc. The total
amount payable at period-end pursuant to these service agreements is reflected
as Due to Affiliates in the accompanying financial statements.
The fund may invest in the T. Rowe Price Reserve Investment Fund, the
T. Rowe Price Government Reserve Investment Fund, or the T. Rowe Price
Short-Term Reserve Fund (collectively, the Price Reserve Investment Funds),
open-end management investment companies managed by Price Associates
and considered affiliates of the fund. The Price Reserve Investment Funds are
offered as short-term investment options to mutual funds, trusts, and other
accounts managed by Price Associates or its affiliates and are not available for
direct purchase by members of the public. The Price Reserve Investment Funds
pay no investment management fees.
51
T. Rowe Price Tax-Efficient Equity Fund
I nformation on P roxy V oting P olicies, P rocedures, and R ecords
A description of the policies and procedures used by T. Rowe Price funds and portfolios to determine how to vote proxies relating to portfolio securities is available in each fund’s Statement of Additional Information. You may request this document by calling
1-800-225-5132 or by accessing the SEC’s website, sec.gov.
The description of our proxy voting policies and procedures is also available on our website,
troweprice.com. To access it, click on the words “Social Responsibility” at the top of our
corporate homepage. Next, click on the words “Conducting Business Responsibly” on the
left side of the page that appears. Finally, click on the words “Proxy Voting Policies” on the
left side of the page that appears.
Each fund’s most recent annual proxy voting record is available on our website and
through the SEC’s website. To access it through our website, follow the above directions
to reach the “Conducting Business Responsibly” page. Click on the words “Proxy Voting
Records” on the left side of that page, and then click on the “View Proxy Voting Records”
link at the bottom of the page that appears.
H ow to O btain Q uarterly P ortfolio H oldings
The fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available electronically on the SEC’s website (sec.gov); hard copies may be
reviewed and copied at the SEC’s Public Reference Room, 100 F St. N.E., Washington, DC
20549. For more information on the Public Reference Room, call 1-800-SEC-0330.
52
T. Rowe Price Tax-Efficient Equity Fund
A pproval of I nvestment M anagement A greement
On March 13, 2015, the fund’s Board of Directors (Board), including a majority of the
fund’s independent directors, approved the continuation of the investment management
agreement (Advisory Contract) between the fund and its investment advisor, T. Rowe
Price Associates, Inc. (Advisor). In connection with its deliberations, the Board requested,
and the Advisor provided, such information as the Board (with advice from independent
legal counsel) deemed reasonably necessary. The Board considered a variety of factors in
connection with its review of the Advisory Contract, also taking into account information
provided by the Advisor during the course of the year, as discussed below:
Services Provided by the Advisor
The Board considered the nature, quality, and extent of the services provided to the fund
by the Advisor. These services included, but were not limited to, directing the fund’s
investments in accordance with its investment program and the overall management of
the fund’s portfolio, as well as a variety of related activities such as financial, investment
operations, and administrative services; compliance; maintaining the fund’s records and
registrations; and shareholder communications. The Board also reviewed the background
and experience of the Advisor’s senior management team and investment personnel
involved in the management of the fund, as well as the Advisor’s compliance record. The
Board concluded that it was satisfied with the nature, quality, and extent of the services
provided by the Advisor.
Investment Performance of the Fund
The Board reviewed the fund’s three-month, one-year, and year-by-year returns, as well
as the fund’s average annualized total returns over the 3-, 5-, and 10-year periods,
and compared these returns with a wide variety of previously agreed-upon comparable
performance measures and market data, including those supplied by Lipper and
Morningstar, which are independent providers of mutual fund data.
On the basis of this evaluation and the Board’s ongoing review of investment results, and
factoring in the relative market conditions during certain of the performance periods, the
Board concluded that the fund’s performance was satisfactory.
Costs, Benefits, Profits, and Economies of Scale
The Board reviewed detailed information regarding the revenues received by the Advisor
under the Advisory Contract and other benefits that the Advisor (and its affiliates) may
have realized from its relationship with the fund, including any research received under
“soft dollar” agreements and commission-sharing arrangements with broker-dealers. The
Board considered that the Advisor may receive some benefit from soft-dollar arrangements
pursuant to which research is received from broker-dealers that execute the applicable
fund’s portfolio transactions. The Board received information on the estimated costs
incurred and profits realized by the Advisor from managing T. Rowe Price mutual funds. The
Board also reviewed estimates of the profits realized from managing the fund in particular,
and the Board concluded that the Advisor’s profits were reasonable in light of the services
provided to the fund.
53
T. Rowe Price Tax-Efficient Equity Fund
A pproval of I nvestment M anagement A greement ( continued )
The Board also considered whether the fund benefits under the fee levels set forth in the
Advisory Contract from any economies of scale realized by the Advisor. Under the Advisory
Contract, the fund pays a fee to the Advisor for investment management services composed
of two components—a group fee rate based on the combined average net assets of most
of the T. Rowe Price mutual funds (including the fund) that declines at certain asset levels
and an individual fund fee rate based on the fund’s average daily net assets—and the fund
pays its own expenses of operations. At the March 13, 2015, meeting, the Board approved
an additional 0.005% breakpoint to the group fee schedule, effective May 1, 2015. With
the new breakpoint, the group fee rate will decline to 0.270% when the combined average
net assets of the applicable T. Rowe Price funds exceed $500 billion. The Board concluded
that the advisory fee structure for the fund continued to provide for a reasonable sharing of
benefits from any economies of scale with the fund’s investors.
Fees
The Board was provided with information regarding industry trends in management
fees and expenses, and the Board reviewed the fund’s management fee rate, operating
expenses, and total expense ratio in comparison with fees and expenses of other
comparable funds based on information and data supplied by Lipper. The information
provided to the Board indicated that the fund’s management fee rate and total expense
ratio were above the median for certain groups of comparable funds and at or below the
median for comparable funds.
The Board also reviewed the fee schedules for institutional accounts and private accounts
with similar mandates that are advised or subadvised by the Advisor and its affiliates.
Management provided the Board with information about the Advisor’s responsibilities
and services provided to institutional account clients, including information about how
the requirements and economics of the institutional business are fundamentally different
from those of the mutual fund business. The Board considered information showing that
the mutual fund business is generally more complex from a business and compliance
perspective than the institutional business and that the Advisor generally performs
significant additional services and assumes greater risk in managing the fund and other
T. Rowe Price mutual funds than it does for institutional account clients.
On the basis of the information provided and the factors considered, the Board concluded
that the fees paid by the fund under the Advisory Contract are reasonable.
Approval of the Advisory Contract
As noted, the Board approved the continuation of the Advisory Contract. No single factor
was considered in isolation or to be determinative to the decision. Rather, the Board
concluded, in light of a weighting and balancing of all factors considered, that it was in the
best interests of the fund and its shareholders for the Board to approve the continuation
of the Advisory Contract (including the fees to be charged for services thereunder). The
independent directors were advised throughout the process by independent legal counsel.
54
T. Rowe Price Investment Services and Information
This page contains supplementary information that is not part of the shareholder report.
Investment Services and Information
KNOWLEDGEABLE CUSTOMER SERVICE
On the Web at troweprice.com.
By Phone at 1-800-225-5132. Available Monday through Friday from 8 a.m. until
10 p.m. ET and Saturday from 8:30 a.m. until 5 p.m. ET.
In Person at a T. Rowe Price Investor Center. Please visit the website at
troweprice.com/investorcenter or call 1-800-225-5132 to locate a center near you.
ACCOUNT SERVICES
Account Access. Through the T. Rowe Price website at troweprice.com and via
phone through Tele*Access®.
Automatic Investing. From your bank account or paycheck.
Automatic Withdrawal. Scheduled, periodic redemptions.
IRA Rebalancing. Automatically rebalance to ensure that your accounts reflect
your desired asset allocations.
BROKERAGE SERVICES ‡
Trade stocks, mutual funds, ETFs, bonds, options, CDs, precious metals,
and more at competitive commissions.
INVESTMENT INFORMATION
Consolidated Statement. Overview of all of your T. Rowe Price mutual fund and
Brokerage accounts.
Shareholder Reports. Manager reviews of their strategies and results.
T. Rowe Price Report. Quarterly investment newsletter.
T. Rowe Price Investor. Quarterly publication of insightful financial articles.
Investment Guides. International Investing Guide and Guide to Bond Funds.
FINANCIAL INTERMEDIARIES AND ADVISORS
By Phone at 1-877-804-2315. Contact us Monday through Friday from 8:30 a.m.
until 6 p.m. ET.
By Mail: T. Rowe Price, Financial Institution Services, P.O. Box 89000, Baltimore,
MD 21289-4232.
CUSTOMERS WHO TRADE THROUGH A FINANCIAL INTERMEDIARY
Please contact your intermediary or financial professional for assistance.
‡
Options trading involves additional risk and is not suitable for all investors. Brokerage services offered by T. Rowe Price Investment Services, Inc., member FINRA/SIPC.
55
T. Rowe Price Web Services
This page contains supplementary information that is not part of the shareholder report.
troweprice.com
LOG IN AND MANAGE YOUR INVESTMENTS ONLINE troweprice.com/access
Manage your account by checking balances with up-to-date statements, tracking
and analyzing your portfolio, and/or granting View Access to others as you see fit.
Perform transactions at your convenience. Buy, sell, or exchange shares quickly
and securely. You can also set up automatic investing and add a bank account to
move money easily.
Update your preferences by confirming your contact information and verifying
your beneficiaries so that your assets can be distributed as you wish.
ONLINE SERVICING
troweprice.com/paperless
Enroll to receive your transaction confirmations, investor statements, prospectuses, and shareholder reports online instead of by U.S. mail.1­ You will receive
an e-mail with a link to our website informing you that your document is available
to view online, print, or download.
Join our E-mail Program to receive market and fund information by e-mail.
Receive timely market reports, performance of T. Rowe Price mutual funds, investment and market insights from T. Rowe Price managers, and more.
INVESTMENT GUIDANCE AND TOOLS
troweprice.com/planningtools
FuturePath®
helps you define your path to retirement, connecting where you are
today to where you want to be tomorrow.
Personal Rate of Return aids in tracking the historical performance of your
mutual funds over time.
Portfolio Growth Tracker allows you to track the historical growth of your
mutual fund investments over time. The analysis consists of three components:
Activity Summary, Asset Allocation, and Net Investment versus Market Value.
Retirement Income Calculator can help you see if your retirement goals are
on track.
Social Security Benefits Evaluator can help you decide how and when to claim
Social Security benefits.
FINANCIAL INTERMEDIARIES AND ADVISORS
troweprice.com/financialintermediaries
This secure site is designed for professional financial intermediaries and advisors.
Financial professionals may access daily prices and historical performance of
mutual funds; view market research, manager commentary, and sales ideas; and
access literature and forms. For U.S. technical assistance, call 1-888-358-8490
or e-mail us at onlinehelp@troweprice.com. For non-U.S. technical assistance,
call +1 (410) 345 4400 or contact us via e-mail.
By signing up for paperless services, you may qualify for the account service fee waiver. Visit us
at troweprice.com/feesandminimums to find out more.
1
56
T. Rowe Price Planning Tools and Services
This page contains supplementary information that is not part of the shareholder report.
T. Rowe Price Retirement Services
T. Rowe Price offers unique retirement services that can help you meet a broad
variety of planning challenges. Our retirement tools are suitable for individuals,
the self-employed, small businesses, cor­porations, and nonprofit organizations.
For more information, call 1-800-IRA-5000 or visit our website at
troweprice.com/retirement.
INVESTMENT ACCOUNTS
Rollover IRAs. If you’ve changed jobs, experienced a job loss, or retired and are
considering moving your assets into an IRA, call toll-free 1-800-IRA-5000. Our
rollover ­specialists can explain your options, answer your questions, and help determine which option is right for you.
Roth IRAs. A Roth IRA offers tax-free withdrawals and a flexible distribution schedule.
Open your account at troweprice.com/ira or call 1-800-IRA-5000.
Traditional IRAs. Traditional IRA contributions may be tax-deductible, with
no taxes due until withdrawal. Open your account at troweprice.com/ira or call
1-800-IRA-5000.
Small Business Retirement Plans. If you’re self-employed or run a small business
or professional practice, T. Rowe Price can help you establish a cost-effective retirement plan that’s easy to set up and maintain. Call 1-800-638-3804, and our small
business specialists can answer your questions, set up a plan, or open an account.
INVESTMENT ADVICE
T. Rowe Price Advisory Planning Services offers a wide range of services that
­provide expert advice based on your individual needs and financial goals, including
consultations with an advisory counselor. Please contact one of our specialists at
1-888-744-0270 to determine the most appropriate service to fit your needs.*
*Services offered by T. Rowe Price Advisory Services, Inc., a federally registered investment
adviser. There may be costs associated with these services.
57
T. Rowe Price College Planning
This page contains supplementary information that is not part of the shareholder report.
College Planning
One of the most important things to do when it comes to saving for college is to
just get started. Every dollar saved today is one less dollar you may have to borrow
later. Our college planning information and college savings products can help you
meet your educational investment goals. For more information, visit our website at
troweprice.com/college, where you will find the College Savings Planner, an
interactive tool that can help you determine how much you should save, estimate
future tuition costs, and review college savings options. In a few easy steps, the
calculator provides you with information and a plan of action. To speak with a
college planning specialist, please call 1-800-638-5660.
College Savings Plans (529 Plans). To help families prepare for college education
costs, T. Rowe Price manages three 529 plans that are open to all U.S. residents.
Any earnings on contributions are tax-deferred, and distributions are exempt from
federal income taxes when used for qualified educational expenses. Also, these
plans offer high contribution limits and affordable systematic investing.
T. Rowe Price manages the T. Rowe Price College Savings Plan, a national 529
plan offered by the Education Trust of Alaska; the Maryland College Investment Plan;
and the University of Alaska College Savings Plan. The Maryland College Investment
Plan offers certain potential benefits for Maryland residents, and the University of
Alaska College Savings Plan offers potential benefits for Alaska residents.
Earnings on a distribution not used for qualified expenses may be subject to income taxes
and a 10% federal penalty. Please note that the availability of tax or other benefits may
be conditioned on meeting certain requirements, such as residency, purpose for or ­timing
of distributions, or other factors, as applicable.
Please visit our website or call 1-800-638-5660 to obtain the applicable plan disclosure
document, which includes investment objectives, risks, fees, expenses, and other information
that you should read and consider carefully before investing. Please consider, before investing, whether your or your beneficiary’s home state offers any state tax or other benefits
that are only available for investments in that state’s plan. T. Rowe Price Investment
Services, Inc., Distributor/Underwriter.
58
T. Rowe Price Advisory Planning Services
This page contains supplementary information that is not part of the shareholder report.
Advisory Planning Services
If you are looking for professional investment advisory services with a p
­ ersonal
touch, T. Rowe Price can help you make informed investing d
­ ecisions and take
control of your financial future.
You will work one-on-one with an experienced advisory counselor who, after
discussing your situation with you and analyzing the financial infor­mation
you provide, will recommend a strategy that meets your i­ndividual goals and
preferences.*
*Services offered by T. Rowe Price Advisory Services, Inc., a federally registered investment
adviser. There may be costs associated with these services.
59
T. Rowe Price Brokerage Services
This page contains supplementary information that is not part of the shareholder report.
Brokerage Services
T. Rowe Price Brokerage is a division of T. Rowe Price Investment Services, Inc.,
member FINRA/SIPC.
A convenient place to trade stocks, mutual funds, ETFs, bonds, options, CDs,
precious metals, and more.1 T. Rowe Price Brokerage makes it easy to increase
your investment choices beyond T. Rowe Price funds. Whether you are an active
or casual trader, you can rely on our Brokerage services to provide the flexibility to
enable you to trade the way you prefer: go online, use our automated Tele-Trader
phone system, or speak with our registered phone representatives.
Low, competitive commissions. Our commitment to providing value at low cost
extends to both commissions and account fees. We offer commissions as low as
$9.95 for online stock and ETF trades.2
Enjoy the high standard of service we’re known for. Since 1937, T. Rowe Price
has built a reputation for putting clients first. Our commitment to our clients
continues to be our priority, and you will see that principle reflected in T. Rowe
Price’s approach to serving its clients.
Services you expect from T. Rowe Price Brokerage:
• Independent research and news available 24 hours a day3
• Consolidated online account access that includes your T. Rowe Price mutual
fund and Brokerage holdings and lets you place trades, create personal watch
lists, and get real-time quotes over the Internet
• Secure line of credit 4
• Free dividend reinvestment
• Free cost basis for Brokerage nonretirement and retirement accounts
Options trading involves additional risk and is not suitable for all investors.
$9.95 flat rate for online stock and ETF trades for customers who make more than 30 trades in the previous 12-month period or who qualify for Preferred, Personal, or Enhanced Personal
Services. If you don’t qualify for the $9.95 rate, you can still save with our ­com­petitive commission of $19.95 for online stock trades.
3
The information provided through this service is prepared by independent investment research
companies that are not affiliated with T. Rowe Price. While the information provided is deemed
reliable, neither T. Rowe Price Brokerage nor the information providers guarantee the accuracy
or completeness of the information or make any warranties with regard to the results obtained
from its use.
4
Applies to customers who have been approved for a margin account. Margin trading involves
greater risks and is not suitable for all investors.
1
2
60
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T. Rowe Price Mutual Funds
This page contains supplementary information that is not part of the shareholder report.
STOCK FUNDS
BOND FUNDS
Money MArket FUNDS (cont.)
Domestic
Blue Chip Growth
Capital Appreciation‡
Capital Opportunity
Diversified Mid-Cap Growth
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
Tax-Efficient Equity
Total Equity Market Index
U.S. Large-Cap Core
Value
Domestic Taxable
Corporate Income
Credit Opportunities
Floating Rate
GNMA
High Yield‡
Inflation Protected Bond
Limited Duration Inflation
Focused Bond
New Income
Short-Term Bond
Ultra Short-Term Bond
U.S. Bond Enhanced Index
U.S. Treasury Intermediate
U.S. Treasury Long-Term
Domestic Tax-Free
California Tax-Free Bond
Georgia Tax-Free Bond
Intermediate Tax-Free High Yield
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 Short-Intermediate
Virginia Tax-Free Bond
Tax-Free
California Tax-Free Money
Maryland Tax-Free Money
New York Tax-Free Money
Summit Municipal Money Market
Tax-Exempt Money
ASSET ALLOCATION FUNDS
Balanced
Global Allocation
Personal Strategy Balanced
Personal Strategy Growth
Personal Strategy Income
Real Assets
Spectrum Growth
Spectrum Income
Spectrum International
Target Date Fundsˆ
MONEY MARKET FUNDS
Taxable
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
INTERNATIONAL/GLOBAL
FUNDS
Stock
Africa & Middle East
Asia Opportunities
Emerging Europe
Emerging Markets Stock
Emerging Markets Value Stock
European Stock
Global Growth Stock
Global Industrials
Global Real Estate
Global Stock
Global Technology
International Concentrated Equity
International Discovery
International Equity Index
International Growth & Income
International Stock
Japan
Latin America
New Asia
Overseas Stock
Bond
Emerging Markets Bond
Emerging Markets Corporate Bond
Emerging Markets Local
Currency Bond
Global High Income Bond
Global Multi-Sector Bond
Global Unconstrained Bond
International Bond
Call 1-800-225-5132 to request a prospectus or summary prospectus; each includes investment
objectives, risks, fees, expenses, and other information that you should read and consider carefully
before investing.
Investments in the money market 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.
Closed to new investors except for a direct rollover from a retirement plan into a T. Rowe Price IRA
invested in this fund.
ˆThe Target Date Funds are inclusive of the Retirement Funds, the Target Retirement Funds, and the
Retirement Balanced Fund.
‡
2015-US-14054
T. Rowe Price Investment Services, Inc. 100 East Pratt Street
Baltimore, MD 21202
F136-051 10/15