<PAGE>
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T. Rowe Price
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Semiannual Report
Tax-Efficient Growth Fund
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August 31, 1999
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REPORT HIGHLIGHTS
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TAX-EFFICIENT GROWTH FUND
- -------------------------
* This is our first report to you since the fund's inception on July 30,
1999.
* The fund commenced operations in a weak environment for stocks and
declined modestly.
* Top holdings such as Microsoft, Merck, and Fannie Mae illustrate the
type of high-quality, steady growth stocks the fund invests in.
* The outlook for U.S. stocks and your fund remains favorable given a
backdrop of low inflation, strong earnings growth, and the generally
high quality of corporate management.
* The fund strives for long-term capital appreciation while minimizing
taxable distributions to shareholders.
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UPDATES AVAILABLE
================================================================================
For updates on each fund following the end of every calendar quarter,
please see our Web site at www.troweprice.com.
<PAGE>
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FELLOW SHAREHOLDERS
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PERFORMANCE COMPARISON
----------------------
Since Inception
Periods Ended 8/31/99 7/30/99
--------------------- -------
Tax-Efficient Growth Fund -1.30%
Lipper Growth Funds Average -0.97
S&P 500 Stock Index -0.49
================================================================================
This is our first report to you since launching the Tax-Efficient Growth
Fund on July 30. We're happy to welcome you as shareholders and to report that
the fund has been well received by investors so far. Our regular letters to you
will cover the periods ended August 31 (semiannual) and February 28 (annual),
reflecting the fund's fiscal year. This semiannual report covers just one month,
but in our annual report next year, we'll be able to discuss a somewhat longer
seven-month period.
In these reports, we will discuss the fund's returns and compare them with
our Lipper peer group average and the S&P 500 Stock Index, a widely used
benchmark for the broad market. Although one-month comparisons are not
particularly meaningful, we include them here to establish our format. Stocks
were mostly lower in August, and your fund's results during its first month of
operations reflected this weakness. The fund fell 1.30%, slightly more than the
Lipper Growth Funds Average and the S&P 500, as shown in the table. Going
forward, our longer-term investment horizon -- a feature of our tax-efficient
strategy -- will likely cause returns to deviate in the short run from competing
funds that focus on pretax returns and trade securities more frequently. Over
the long term, our goal is to generate returns that are competitive on a pretax
basis and superior on an after-tax basis.
<PAGE>
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MARKET ENVIRONMENT
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Robust U.S. economic growth continued through the summer, driven by
exuberant consumer spending. Although broad inflation measures did not rise
appreciably, tight labor markets, low unemployment, and higher energy prices
raised fears that inflationary pressures were building. This continued economic
strength helped keep long-term interest rates near 6% -- more than a percentage
point above last fall's lows -- and made the stock market nervous, as did two
Federal Reserve rate hikes and concern about a third. Recovery in overseas
markets and economies and weakness in the U.S. dollar were also causes for
interest rate concern. The Fed raised key short-term rates on June 30 and again
on August 24, for a total of 50 basis points (half of a percentage point) to
5.25%. The stock market entered August on a down note, following through on a
correction from its mid-July peak. But stocks rallied in mid-August on growing
optimism that the Fed's second tightening would be its last for the year.
============================
Greenspan . . . called
the stock market's rise
over the past five years
'extraordinary.'
- ----------------------------
That optimism was quickly called into question, especially after Fed
Chairman Alan Greenspan asserted that central bankers must keep a wary eye on
financial asset prices when setting interest rate policy. Greenspan also called
the stock market's rise over the past five years "extraordinary." These comments
raised the prospect of a third rate hike, which would effectively rescind the
monetary easing of the previous fall, when the Fed had moved swiftly to ease a
global financial crisis. Stocks, bonds, and the dollar were falling again as
August drew to a close.
<PAGE>
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STRATEGY REVIEW
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Your fund invests primarily in larger-company growth stocks that are market
leaders with strong prospects. We use a buy-and-hold investment strategy and
attempt to keep realized capital gains to a minimum. The fund is well
diversified and owns over 100 stocks. Since we plan to own our portfolio
companies for a long time, we focus on reasonably priced companies with strong
and sustainable market positions and avoid slow-growing, modest
return-on-capital, and higher-yielding companies. The fund's yield is less than
that of the S&P 500 and is consistent with that of other large-company growth
portfolios. This helps reduce the tax impact, since dividends are taxed as
ordinary income, typically at a higher rate than long-term capital gains.
We expect to keep our cash position low and the fund almost fully invested,
since we believe that successful market timing is nearly impossible. Moreover,
we do not profess to have any skill in forecasting the direction of the market
or any ability to predict interest rates or economic cycles. We believe it is
more productive to take market prices as given and look for opportunities.
[Sector Diversification chart shown here Pie chart with eight wedges, as
follows: Technology, 25%; Financial, 19%; Health Care, 16%; Consumer
Nondurables, 10%; Consumer Discretionary, 7%; Retail, 7%; All Other, 14%;
Reserves, 2%.]
Our longer-term approach differs from the strategies used by most growth
stock investors. The high-turnover and short-term strategies used by some funds
are not optimal for taxable investors. Momentum investors often base
buy-and-sell decisions on whether a company is going to "make the quarter." In
other words, will the company's earnings announcement meet or exceed Wall
Street's expectations? Investors who use these strategies are attempting to
capture certain anomalies that academics have uncovered -- such as that positive
earnings surprises and estimate revisions are often harbingers of more good
news, and that negative surprises and estimate revisions often presage more bad
news. Although momentum strategies have become increasingly popular, they are
not tax-efficient and are best left to investors in tax-free or tax-deferred
accounts.
<PAGE>
A significant advantage of our strategy is its lack of fast-paced trading
activity. Too few investors monitor and understand the costs of trading, which
are often hidden but nonetheless significant even before taking capital gains
taxes into account. When these costs are added up, they have a materially
adverse affect on returns. Another distinction of our strategy is that we put
losses to work for us to offset gains or to build a loss carryforward that can
be used to offset future gains. This "harvesting" of losses is a valuable
activity for taxable investors.
The thoughts on growth stocks expressed by David Durand in the sidebar on
the following page are timeless and reflect the perspective we use in managing
the fund. Great companies are not necessarily great stocks -- attractive growth
prospects must be purchased at reasonable valuations.
To mitigate the risks of growth stock investing and uncover opportunities,
the fund draws on the insights and expertise of a strong team, including two of
our senior value fund managers, Steve Boesel and Bill Stromberg, and two of our
growth managers, Larry Puglia and Mark Weigman. (Bill is also the firm's
Director of Equity Research.) Jill Hauser, Tom Huber, and Rob Sharps are
excellent industry analysts who follow sectors that represent large portions of
the portfolio.
<PAGE>
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VALUING GROWTH STOCKS
---------------------
Growth stocks tend to be more volatile because the
market values the underlying companies on their
anticipated growth. When market expectations are
disappointed, the company's stock price can fall
sharply. In his 1957 Journal of Finance article Harvard
professor David Durand eloquently conveyed both the
risks and the opportunities for growth stock investors:
"At a time like the present, when investors are
avidly seeking opportunities for appreciation, it is
appropriate to consider the difficulties of appraising
growth stocks. There is little doubt that when other
things are equal the forward-looking investor will
prefer stocks with growth potential to those without.
But other things rarely are equal -- particularly in a
sophisticated market that is extremely sensitive to
growth. When the growth potential of a stock becomes
widely recognized, its price is expected to react
favorably and to advance far ahead of stocks lacking
growth appeal, so that its price/earnings ratio and
dividend yield fall out of line according to
conventional standards. Then the choice between growth
and lack of growth is no longer obvious, and the astute
investor must ask whether the marketplace correctly
discounts the growth potential."
Durand put his finger on the point that would
challenge growth investors in the late 1990s -- and he
did it 40 years ago. One cannot simply purchase growth
at any price. Valuation does matter.
================================================================================
<PAGE>
Assessing a company's valuation relative to its prospects is an important
aspect of the investment process. We try to be opportunistic as we determine how
much we want to own of a particular company. A large portion of the fund is
invested in the technology, financial, and health care sectors, in which we are
overweighted compared with the S&P 500. Many of the technology stocks that we
consider good long-term holdings, such as Microsoft, Intel, and Cisco, are
reasonably valued, but we hope to get an opportunity to increase our exposure in
technology. In the financial sector, we have focused on companies that derive a
substantial portion of revenues from fee income or those that have strong and
defendable niches. Several holdings were trading at very attractive valuations
at this writing. Our largest holdings include Fannie Mae, Freddie Mac, and
American Express. Our health care investments are primarily large pharmaceutical
and medical device companies. Pharmaceutical stocks have been weak this year and
have favorable risk/reward characteristics. Merck, Bristol-Myers Squibb, and
Pfizer are our largest health care holdings. We are also overweighted in the
consumer nondurable sector, where we are invested primarily in large
multinationals that should benefit as Asia's economies recover from recession.
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PORTFOLIO CHARACTERISTICS
-------------------------
Tax-Efficient
As of 8/31/99 Growth Fund S&P 500
- -------------------------------------------------------------
Earnings Growth Rate
Estimated Next 5 Years * 15.20% 13.40%
- -------------------------------------------------------------
Profitability -- Return on
Equity Latest 12 Months 26.06 25.16
- -------------------------------------------------------------
Dividend Yield on Stocks 0.89 1.27
- -------------------------------------------------------------
P/E Ratio (Based on Next 12
Months' Estimated Earnings) 28.46X 29.18X
- -------------------------------------------------------------
Market Capitalization (millions) $52,496 $65,661
- -------------------------------------------------------------
* Earnings forecasts are based on I/B/E/S International estimates and are in
no way indicative of future investment returns.
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<PAGE>
The fundamental characteristics of the portfolio, listed in the nearby
table, are consistent with those of large-company growth funds as reported by
Lipper Inc. Noteworthy distinctions from other large-company growth funds
include our emphasis on high return-on-capital businesses. The portfolio has an
investment-weighted median return on equity of 26% compared with 21% for other
growth funds.* We have also invested in larger companies than our competitors,
with an investment-weighted median capitalization of $52 billion compared with
$35 billion for other large-cap growth funds. The portfolio's beta is lower than
that of other growth funds but higher than that of the S&P 500. Beta is a
measure of price volatility.
- --------------------------------------------------------------------------------
* Comparisons are made to the Lipper Growth Fund Index
using calculations by T. Rowe Price based on the most current
available data from Lipper Inc.
- --------------------------------------------------------------------------------
================================================================================
OUTLOOK
================================================================================
The most serious challenge to continued robust gains in the near term might
be that stocks have performed so well. Nonetheless, we believe the long-term
outlook for U.S. stocks and your fund remains favorable, based on benign
inflation, strong earnings growth, and the quality of managements and business
plans of top U.S. corporations.
<PAGE>
Investors continue to worry about future Fed rate hikes and the weakness of
the U.S. dollar. But these crosscurrents give us opportunities to buy, at
reasonable prices, high-quality companies with leading market positions. The
recent weakness in financial services and health care companies provides a case
in point. While the market may not always go up, we believe our strategy will
provide attractive investment results in the long run.
Over time, we believe more taxable investors will come to understand the
importance of focusing on after-tax instead of pretax returns. We appreciate the
trust you have placed in us and will work to maintain your confidence in this
fund and in T. Rowe Price.
Respectfully submitted,
/s/
Donald J. Peters
Chairman of the Investment Advisory Committee
September 17, 1999
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<PAGE>
T. ROWE PRICE TAX-EFFICIENT GROWTH FUND
- ---------------------------------------
PORTFOLIO HIGHLIGHTS
--------------------
TWENTY-FIVE LARGEST HOLDINGS
----------------------------
Percent of
Net Assets
8/31/99
-------
Microsoft 3.5%
Intel 2.6
GE 2.5
Cisco Systems 2.0
Merck 2.0
Fannie Mae 1.9
Freddie Mac 1.9
Wal-Mart 1.8
Lucent Technologies 1.7
Johnson & Johnson 1.5
Bristol-Myers Squibb 1.5
American Express 1.5
Pfizer 1.4
Coca-Cola 1.3
Citigroup 1.3
Eli Lilly 1.3
Mellon Bank 1.3
American International Group 1.3
Marsh & McLennan 1.2
State Street 1.2
MCI WorldCom 1.2
Schering-Plough 1.2
McGraw-Hill 1.2
Procter & Gamble 1.2
Hewlett-Packard 1.2
-------
Total 40.7%
Note: Table excludes reserves.
================================================================================
<PAGE>
T. ROWE PRICE TAX-EFFICIENT GROWTH FUND
- --------------------------------------- Unaudited
For a share outstanding throughout each period
FINANCIAL HIGHLIGHTS
--------------------
7/30/99
Through
8/31/99
-------
NET ASSET VALUE
Beginning of period $ 10.00
Investment activities
Net investment income - *
Net realized and
unrealized gain (loss) (0.13)
Total from
investment activities (0.13)
NET ASSET VALUE
End of period $ 9.87
Ratios/Supplemental Data
Total return** (1.30)%*
Ratio of total expenses to
average net assets 1.10%*+
<PAGE>
Ratio of net investment
income to average
net assets 0.20%*+
Portfolio turnover rate 12.0%+
Net assets, end of period
(in thousands) $ 55,559
** Total return reflects the rate that an investor would have earned on an
investment in the fund during each period, assuming reinvestment of all
distributions and payment of no redemption or account fees.
* Excludes expenses in excess of a 1.10% voluntary expense limitation in
effect through 2/28/01.
+ Annualized
The accompanying notes are an integral part of these financial
statements.
================================================================================
<PAGE>
T. ROWE PRICE TAX-EFFICIENT GROWTH FUND
- ---------------------------------------
Unaudited August 31, 1999
STATEMENT OF NET ASSETS
-----------------------
Par Value
In thousands
COMMON STOCKS 98.4%
FINANCIAL 18.4%
Bank and Trust 8.1%
Bank of America 9,300 $ 563
- -------------------------------------------------------------------------
Bank of New York 10,800 386
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Citigroup 16,400 729
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Mellon Bank 21,200 708
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Northern Trust 7,200 609
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State Street 11,400 683
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U.S. Trust 4,600 382
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Wells Fargo 10,700 426
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4,486
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Financial Services 7.1%
American Express 5,900 811
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Fannie Mae 17,100 1,062
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Freddie Mac 20,600 1,061
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<PAGE>
Marsh & McLennan 9,400 685
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Mutual Risk Management 12,100 333
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3,952
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Life & Health Insurance 0.4%
American General 3,400 241
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241
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Property & Casualty Insurance 1.7%
AMBAC 4,800 254
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American International Group 7,500 695
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949
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Securities & Asset Management 1.1%
Charles Schwab 7,100 280
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Franklin Resources 9,100 327
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607
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Total Financial 10,235
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CONSUMER NONDURABLES 10.3%
Home Products 3.8%
Avon 7,100 312
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Colgate-Palmolive 6,100 326
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Ecolab 7,300 274
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<PAGE>
Gillette 11,400 532
- -------------------------------------------------------------------------
Procter & Gamble 6,500 $ 645
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2,089
- -------------------------------------------------------------------------
Beverages 2.4%
Coca-Cola 12,300 736
- -------------------------------------------------------------------------
PepsiCo 18,300 624
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1,360
- -------------------------------------------------------------------------
Food 2.9%
General Mills 3,800 318
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Heinz 5,700 266
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Sysco 10,100 330
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Unilever N V 5,800 399
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Wrigley 3,700 290
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1,603
- -------------------------------------------------------------------------
Textiles and Apparel 0.5%
NIKE (Class B) 6,500 300
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300
- -------------------------------------------------------------------------
Liquor 0.7%
Anheuser-Busch 5,100 393
- -------------------------------------------------------------------------
393
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Total Consumer Nondurables 5,745
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<PAGE>
TECHNOLOGY 25.5%
Electronics Equipment 0.5%
Molex (Class A) 8,900 250
- -------------------------------------------------------------------------
250
- -------------------------------------------------------------------------
Communications Equipment 3.3%
LM Ericsson (Class B) ADR 8,400 273
- -------------------------------------------------------------------------
Lucent Technologies 15,000 961
- -------------------------------------------------------------------------
Motorola 3,500 323
- -------------------------------------------------------------------------
Tellabs * 4,400 262
- -------------------------------------------------------------------------
1,819
- -------------------------------------------------------------------------
Semiconductors 6.0%
Altera * 10,000 421
- -------------------------------------------------------------------------
Intel 17,800 1,464
- -------------------------------------------------------------------------
Linear Technology 5,300 333
- -------------------------------------------------------------------------
Maxim Integrated Products * 5,000 336
- -------------------------------------------------------------------------
Texas Instruments 5,300 435
- -------------------------------------------------------------------------
Xilinx * 5,100 357
- -------------------------------------------------------------------------
3,346
- -------------------------------------------------------------------------
Miscellaneous Computer Hardware 3.0%
EMC * 4,900$ 294
- -------------------------------------------------------------------------
<PAGE>
Pitney Bowes 10,000 590
- -------------------------------------------------------------------------
Symbol Technologies 9,100 317
- -------------------------------------------------------------------------
Xerox 10,300 492
- -------------------------------------------------------------------------
1,693
- -------------------------------------------------------------------------
Computer Software 6.0%
BMC Software * 7,000 377
- -------------------------------------------------------------------------
Computer Associates 11,100 627
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Microsoft * 21,100 1,952
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Oracle * 9,800 357
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3,313
- -------------------------------------------------------------------------
Information Services 1.1%
Automatic Data Processing 15,200 598
- -------------------------------------------------------------------------
598
- -------------------------------------------------------------------------
Computer Communications Equipment 2.0%
Cisco Systems * 16,500 1,118
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1,118
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Computer Makers 3.0%
Dell Computer * 12,300 601
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Hewlett-Packard 6,100 643
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Sun Microsystems * 5,100 405
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1,649
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<PAGE>
Semiconductor Capital Equipment 0.6%
Applied Materials * 5,000 355
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355
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Total Technology 14,141
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BASIC MATERIALS 3.0%
Chemicals 2.0%
Illinois Tool Works 4,100 320
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PPG Industries 4,300 258
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Rohm & Haas 6,300 235
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Valspar 8,700 316
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1,129
- -------------------------------------------------------------------------
Forest and Paper Products 1.0%
Kimberly-Clark 9,400 535
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535
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Total Basic Materials 1,664
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BUSINESS SERVICES 5.2%
Miscellaneous Business Services 2.6%
Equifax 14,400 $ 439
- -------------------------------------------------------------------------
IMS Health 13,500 373
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Paychex 10,500 309
- -------------------------------------------------------------------------
<PAGE>
Quintiles Transnational * 8,200 293
- -------------------------------------------------------------------------
1,414
- -------------------------------------------------------------------------
Industrial Services 1.5%
Cintas 5,400 277
- -------------------------------------------------------------------------
Devry * 12,900 270
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Robert Half International * 11,200 294
- -------------------------------------------------------------------------
841
- -------------------------------------------------------------------------
Advertising 1.1%
Interpublic Group 8,400 333
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Omnicom 3,800 286
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619
- -------------------------------------------------------------------------
Total Business Services 2,874
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HEALTH CARE 16.4%
Drugs 12.2%
American Home Products 14,200 589
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Amgen * 3,400 283
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AstraZeneca Group ADR 7,200 284
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Bristol-Myers Squibb 11,600 816
- -------------------------------------------------------------------------
Cardinal Health 6,600 421
- -------------------------------------------------------------------------
Eli Lilly 9,500 709
<PAGE>
- -------------------------------------------------------------------------
Glaxo Wellcome ADR 5,100 270
- -------------------------------------------------------------------------
Merck 16,600 1,115
- -------------------------------------------------------------------------
Pfizer 20,800 785
- -------------------------------------------------------------------------
Schering-Plough 12,800 673
- -------------------------------------------------------------------------
SmithKline Beecham ADR 4,300 274
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Warner-Lambert 8,200 543
- -------------------------------------------------------------------------
6,762
- -------------------------------------------------------------------------
Medical Products 4.2%
Abbott Laboratories 12,700 551
- -------------------------------------------------------------------------
Boston Scientific * 8,100 275
- -------------------------------------------------------------------------
Guidant 4,400 258
- -------------------------------------------------------------------------
Johnson & Johnson 8,200 838
- -------------------------------------------------------------------------
Medtronic 5,400$ 423
- -------------------------------------------------------------------------
2,345
- -------------------------------------------------------------------------
Total Health Care 9,107
- -------------------------------------------------------------------------
<PAGE>
RETAIL 6.8%
Department Stores 1.7%
Wal-Mart 22,000 975
- -------------------------------------------------------------------------
975
- -------------------------------------------------------------------------
Specialty Retail 4.1%
Bed Bath & Beyond * 9,600 264
- -------------------------------------------------------------------------
CVS 6,500 271
- -------------------------------------------------------------------------
Dollar General 11,800 307
- -------------------------------------------------------------------------
Home Depot 8,100 495
- -------------------------------------------------------------------------
Tiffany & Company 7,100 375
- -------------------------------------------------------------------------
Walgreen 10,900 253
- -------------------------------------------------------------------------
Williams-Sonoma * 7,500 292
- -------------------------------------------------------------------------
2,257
- -------------------------------------------------------------------------
Grocery Stores 1.0%
Albertson's 5,700 274
- -------------------------------------------------------------------------
Safeway * 5,800 270
- -------------------------------------------------------------------------
544
- -------------------------------------------------------------------------
Total Retail 3,776
- -------------------------------------------------------------------------
<PAGE>
CONSUMER DISCRETIONARY 7.0%
Restaurants 1.0%
McDonald's 6,600 273
- -------------------------------------------------------------------------
Starbucks * 12,400 284
- -------------------------------------------------------------------------
557
- -------------------------------------------------------------------------
Leisure 1.0%
Mattel 24,500 522
- -------------------------------------------------------------------------
522
- -------------------------------------------------------------------------
Entertainment 0.4%
Carnival (Class A) 5,400 241
- -------------------------------------------------------------------------
241
- -------------------------------------------------------------------------
Publishing 1.2%
McGraw-Hill 12,500 646
- -------------------------------------------------------------------------
646
- -------------------------------------------------------------------------
Media 3.4%
AMFM * 5,800 $ 286
- -------------------------------------------------------------------------
CBS * 8,200 386
- -------------------------------------------------------------------------
Clear Channel Communications * 4,700 329
- -------------------------------------------------------------------------
Disney 20,300 563
- -------------------------------------------------------------------------
Time Warner 5,800 344
- -------------------------------------------------------------------------
1,908
- -------------------------------------------------------------------------
Total Consumer Discretionary 3,874
- -------------------------------------------------------------------------
<PAGE>
INDUSTRIAL 3.8%
Aerospace and Defense 0.7%
Boeing 8,200 371
- -------------------------------------------------------------------------
371
- -------------------------------------------------------------------------
Heavy Electrical Equipment 3.1%
Emerson Electric 5,600 351
- -------------------------------------------------------------------------
GE 12,500 1,404
- -------------------------------------------------------------------------
1,755
- -------------------------------------------------------------------------
Total Industrial 2,126
- -------------------------------------------------------------------------
TELECOMMUNICATIONS 2.0%
Telephone Services 1.2%
MCI WorldCom * 9,000 682
- -------------------------------------------------------------------------
682
- -------------------------------------------------------------------------
Wireless Telecommunications 0.8%
Vodafone ADR 2,100 421
- -------------------------------------------------------------------------
421
- -------------------------------------------------------------------------
Total Telecommunications 1,103
- -------------------------------------------------------------------------
Total Common Stocks (Cost $55,131) 54,645
<PAGE>
=====SHORT-TERM=INVESTMENTS==1.4%========================================
Money Market Fund 1.4%
Reserve Investment Fund, 5.29% # 806,258 806
Total Short-Term Investments (Cost $806) 806
=Total=Investments=in=Securities=========================================
99.8% of Net Assets (Cost $55,937) $ 55,451
Other Assets Less Liabilities 108
NET ASSETS $ 55,559
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ 9
Accumulated net realized gain/loss -
net of distributions (155)
Net unrealized gain (loss) (486)
Paid-in-capital applicable to 5,626,827
shares of $0.0001 par value capital
stock outstanding; 1,000,000,000 shares authorized 56,191
NET ASSETS $ 55,559
NET ASSET VALUE PER SHARE $ 9.87
* Non-income producing
# Seven-day yield
ADR American Depository Receipt
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
T. ROWE PRICE TAX-EFFICIENT GROWTH FUND
- --------------------------------------- Unaudited
STATEMENT OF OPERATIONS
-----------------------
In thousands
7/30/99
Through
8/31/99
-------
Investment Income
Income
Dividend $ 37
Interest 21
Total income 58
Expenses
Organization 34
Custody and accounting 9
Shareholder servicing 4
Registration 2
Legal and audit 2
Directors 1
Reimbursed by manager (3)
Total expenses 49
Net investment income 9
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities (155)
Change in net unrealized gain or loss on securities (486)
Net realized and unrealized gain (loss) (641)
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ (632)
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
T. ROWE PRICE TAX-EFFICIENT GROWTH FUND
- --------------------------------------- Unaudited
STATEMENT OF CHANGES IN NET ASSETS
----------------------------------
In thousands
7/30/99
Through
8/31/99
-------
Increase (Decrease) in Net Assets
Operations
Net investment income $ 9
Net realized gain (loss) (155)
Change in net unrealized gain or loss (486)
Increase (decrease) in net assets from operations (632)
Capital share transactions*
Shares sold 4,793
Shares redeemed (96)
Redemption fees received 1
Increase (decrease) in net assets from capital
share transactions 4,698
Net Assets
Increase (decrease) during period 4,066
Beginning of period 51,493
End of period $ 55,559
*Share information
Shares sold 487
Shares redeemed (9)
Increase (decrease) in shares outstanding 478
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
T. ROWE PRICE TAX-EFFICIENT GROWTH FUND
- ---------------------------------------
Unaudited August 31, 1999
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
================================================================================
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
================================================================================
T. Rowe Price Tax-Efficient Funds, Inc. (the corporation) is registered
under the Investment Company Act of 1940. The Tax-Efficient Growth Fund (the
fund), a diversified, open-end management investment company, is one of the
portfolios established by the corporation and commenced operations on July 30,
1999. Its goals are to minimize taxable distributions while providing long-term
capital appreciation, through investments primarily in mid-to large-cap growth
stocks with strong and sustainable market positions.
The accompanying financial statements are prepared in accordance with
generally accepted accounting principles for the investment company industry;
these principles may require the use of estimates by fund management.
Valuation Equity securities listed or regularly traded on a securities
exchange are valued at the last quoted sales price on the day the valuations are
made. A security which is listed or traded on more than one exchange is valued
at the quotation on the exchange determined to be the primary market for such
security. Listed securities not traded on a particular day and securities
regularly traded in the over-the-counter market are valued at the mean of the
latest bid and asked prices. Other equity securities are valued at a price
within the limits of the latest bid and asked prices deemed by the Board of
Directors, or by persons delegated by the Board, best to reflect fair value.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation.
<PAGE>
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair value
as determined in good faith by or under the supervision of the officers of the
fund, as authorized by the Board of Directors.
Other Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses are
reported on the identified cost basis. Dividend income and distributions to
shareholders are recorded by the fund on the ex-dividend date. Income and
capital gain distributions are determined in accordance with federal income tax
regulations and may differ from those determined in accordance with generally
accepted accounting principles. Credits earned on daily, uninvested cash
balances at the custodian are used to reduce the fund's custody charges.
================================================================================
NOTE 2 - INVESTMENT TRANSACTIONS
================================================================================
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $55,795,000 and $510,000, respectively, for the six
months ended August 31, 1999.
================================================================================
NOTE 3 - FEDERAL INCOME TAXES
================================================================================
No provision for federal income taxes is required since the fund intends to
qualify as a regulated investment company and distribute all of its taxable
income.
At August 31, 1999, the cost of investments for federal income tax purposes
was substantially the same as for financial reporting and totaled $55,937,000.
Net unrealized loss aggregated $486,000 at period-end, of which $1,519,000
related to appreciated investments and $2,005,000 to depreciated investments.
<PAGE>
================================================================================
NOTE 4 - RELATED PARTY TRANSACTIONS
================================================================================
The investment management agreement between the fund and T. Rowe Price
Associates, Inc. (the manager) provides for an annual investment management fee.
The fee is computed daily and paid monthly, and consist of an individual fund
fee equal to 0.30% of average daily net assets and a group fee. The group fee is
based on the combined assets of certain mutual funds sponsored by the manager or
Rowe Price-Fleming International, Inc. (the group). The group fee rate ranges
from 0.48% for the first $1 billion of assets to 0.30% for assets in excess of
$80 billion. At August 31, 1999, and for the period then ended, the effective
annual group fee rate was 0.32%. The fund pays a pro-rata share of the group fee
based on the ratio of its net assets to those of the group.
Under the terms of the investment management agreement, the manager is
required to bear any expenses through February 28, 2001, which would cause the
fund's ratio of total expenses to average net assets to exceed 1.10%.
Thereafter, through February 28, 2003, the fund is required to reimburse the
manager for these expenses, provided that average net assets have grown or
expenses have declined sufficiently to allow reimbursement without causing the
fund's ratio of expenses to average net assets to exceed 1.10%. Pursuant to this
agreement, $27,000 of management fees were not accrued by the fund for the
period ended August 31, 1999, and $3,000 of other expenses were borne by the
manager.
In addition, the fund has entered into agreements with the manager and two
wholly owned subsidiaries of the manager, pursuant to which the fund receives
certain other services. The manager computes the daily share price and maintains
the financial records of the fund. T. Rowe Price Services, Inc. is the fund's
transfer and dividend disbursing agent and provides shareholder and
administrative services to the fund. T. Rowe Price Retirement Plan Services,
Inc. provides subaccounting and recordkeeping services for certain retirement
accounts invested in the fund. The fund incurred expenses pursuant to these
related party agreements totaling approximately $9,000 for the six months ended
August 31, 1999, of which $9,000 was payable at period-end.
<PAGE>
The fund may invest in the Reserve Investment Fund and Government Reserve
Investment Fund (collectively, the Reserve Funds), open-end management
investment companies managed by T. Rowe Price Associates, Inc. The Reserve Funds
are offered as cash management options only to mutual funds and other accounts
managed by T. Rowe Price and its affiliates and are not available to the public.
The Reserve Funds pay no investment management fees. Distributions from the
Reserve Funds to the fund for the six months ended August 31, 1999, totaled
$5,000 and are reflected as interest income in the accompanying Statement of
Operations.
================================================================================
T. ROWE PRICE SHAREHOLDER SERVICES
- ----------------------------------
INVESTMENT SERVICES AND INFORMATION
-----------------------------------
KNOWLEDGEABLE SERVICE REPRESENTATIVES
BY PHONE 1-800-225-5132 Available Monday through
Friday from 8 a.m. to 10 p.m. ET and weekends from 8:30
a.m. to 5 p.m. ET.
IN PERSON Available in T. Rowe Price Investor
Centers.
ACCOUNT SERVICES
----------------
CHECKING Available on most fixed income funds
($500 minimum).
AUTOMATIC INVESTING From your bank account or
paycheck.
AUTOMATIC WITHDRAWAL Scheduled, automatic
redemptions.
DISTRIBUTION OPTIONS Reinvest all, some, or none
of your distributions.
AUTOMATED 24-HOUR SERVICES Including
Tele*AccessRegistration Mark and the T. Rowe Price Web
site on the Internet. Address: www.troweprice.com
BROKERAGE SERVICES*
-------------------
INDIVIDUAL INVESTMENTS Stocks, bonds, options,
precious metals, and other securities at a savings over
full-service commission rates.**
<PAGE>
INVESTMENT INFORMATION
----------------------
COMBINED STATEMENT Overview of all your accounts
with T. Rowe Price.
SHAREHOLDER REPORTS Fund managers' reviews of
their strategies and results.
T. ROWE PRICE REPORT Quarterly investment
newsletter discussing markets and financial strategies.
PERFORMANCE UPDATE Quarterly review of all T. Rowe
Price fund results.
INSIGHTS Educational reports on investment
strategies and financial markets.
INVESTMENT GUIDES Asset Mix Worksheet, College
Planning Kit, Diversifying Overseas: A Guide to
International Investing, Personal Strategy Planner,
Retirees Financial Guide, and Retirement Planning Kit.
* T. Rowe Price Brokerage is a division of
T. Rowe Price Investment Services, Inc.,
Member NASD/SIPC.
** Based on a January 1999 survey for
representative-assisted stock trades.
Services vary by firm, and commissions
may vary depending on size of order.
======================================================================
FOR FUND AND ACCOUNT INFORMATION
OR TO CONDUCT TRANSACTIONS,
24 HOURS, 7 DAYS A WEEK
By touch-tone telephone
TELE*ACCESS 1-800-638-2587
By Account Access on the Internet
WWW.TROWEPRICE.COM/ACCESS
FOR ASSISTANCE
WITH YOUR EXISTING
FUND ACCOUNT, CALL:
Shareholder Service Center
1-800-225-5132
TO OPEN A BROKERAGE ACCOUNT
OR OBTAININFORMATION, CALL:
1-800-638-5660
<PAGE>
INTERNET ADDRESS:
www.troweprice.com
PLAN ACCOUNT LINES FOR RETIREMENT
PLAN PARTICIPANTS:
The appropriate 800 number appears
on your retirement account statement.
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus appropriate
to the fund or funds covered in this
report.
WALK-IN INVESTOR CENTERS:
For directions, call 1-800-225-5132
or visit our Web site
BALTIMORE AREA
Downtown
101 East Lombard Street
Owings Mills
Three Financial Center
4515 Painters Mill Road
BOSTON AREA
386 Washington Street
Wellesley
COLORADO SPRINGS
4410 ArrowsWest Drive
Los Angeles Area
WARNER CENTER
21800 Oxnard Street, Suite 270
Woodland Hills
TAMPA
4200 West Cypress Street
10th Floor
WASHINGTON, D.C.
900 17th Street N.W.
Farragut Square
T. Rowe Price Investment Services, Inc., Distributor. F128-051 8/31/99
