<PAGE>
T. Rowe Price
TAX-FREE INCOME FUND
August 31, 1994
Sector Diversification
<TABLE>
<CAPTION>
Percent of
Net Assets
----------
<S> <C>
Hospital Revenue 15%
Nuclear Revenue 13
Dedicated Tax Revenue 9
General Obligation - State 7
Pre-Refunded Bonds 7
Lease Revenue 7
General Obligation - Local 6
Water & Sewer Revenue 6
Housing Finance Revenue 5
<CAPTION>
Percent of
Net Assets
----------
<S> <C>
Electric Revenue 5%
Air & Sea Transportation Revenue 5
Escrowed to Maturity 4
Educational Revenue 4
Ground Transportation Revenue 3
Industrial & Pollution
Control Revenue 2
Solid Waste Revenue 1
Miscellaneous Revenue 1
</TABLE>
Statement of Net Assets / August 31, 1994 (Unaudited)
<TABLE>
<CAPTION>
Amounts in Thousands
---------------------------
Face Amount Value
----------- -------
<S> <C> <C>
ALABAMA -- 1.5%
Alabama, GO, Zero Coupon, 9/1/03........................................... $ 10,000 $ 6,100
Zero Coupon, 3/1/04................................................ 10,000 5,882
Zero Coupon, 9/1/04................................................ 5,500 3,120
Alabama Water Pollution Control Auth., (AMBAC Insured), 5.00%, 8/15/15..... 4,000 3,437
Mobile, Capital Improvement Warrants, GO, (MBIA Insured),
Zero Coupon, 8/15/16............................................... 4,330 1,039
Zero Coupon, 8/15/17............................................... 4,435 990
- ---------------------------------------------------------------------------------------------------------------------------
ARIZONA -- 1.0%
Phoenix, GO, VRDN (Currently 3.15%)........................................ 1,200 1,200
Salt River Agricultural Improvement and Power Dist., Electric System,
5.75%, 1/1/19...................................................... 13,000 12,222
- ---------------------------------------------------------------------------------------------------------------------------
ARKANSAS -- 0.9%
Arkansas Dev. Fin. Auth., Sisters of Mercy, VRDN
(Currently 3.15%).................................................. 5,000 5,000
Little Rock Health Fac. Board, Baptist Medical Center, 6.85%, 11/1/08...... 2,495 2,658
</TABLE>
S TFI 83194
<PAGE>
T. Rowe Price Tax-Free Income Fund
Statement of Net Assets
<TABLE>
<CAPTION>
Amounts in Thousands
---------------------------
Face Amount Value
----------- -------
<S> <C> <C>
ARKANSAS (cont'd)
North Little Rock, Electric System Refunding, (MBIA Insured), 6.50%, 7/1/15 $ 4,000 $ 4,250
- ---------------------------------------------------------------------------------------------------------------------------
CALIFORNIA -- 9.4%
Anaheim PFA, San Juan Unit 4, (FGIC Insured), 5.75%, 10/1/22............... 5,000 4,702
California Public Works Board, Univ. of California, 5.50%, 6/1/14.......... 2,000 1,785
5.50%, 6/1/21...................................................... 8,000 6,972
Central Coast Water Auth., State Water Project Regional Fac.,
(AMBAC Insured), 6.60%, 10/1/22.................................... 2,000 2,056
Concord Redev. Agency, GO, (AMBAC Insured), 5.25%, 7/1/19.................. 4,055 3,519
Glendale Redev. Agency, Central Glendale Redev. Project, (AMBAC Insured),
5.60%, 12/1/16..................................................... 4,030 3,749
Los Angeles County, Marina del Rey, COP, 6.25%, 7/1/03..................... 4,000 4,018
6.50%, 7/1/08...................................................... 3,250 3,275
Los Angeles County Transportation Commission, Sales Tax, 7.40%, 7/1/15..... 5,530 6,058
(MBIA Insured), 6.25%, 7/1/13...................................... 8,965 9,082
Los Angeles Dept. of Water and Power, 7.375%, 2/1/29....................... 6,500 7,185
Los Angeles Harbor Dept., 7.60%, 10/1/18 (Escrowed to Maturity)............ 3,200 3,608
Los Angeles, Wastewater System, 7.15%, 6/1/20 (Pre-refunded 6/1/00+)....... 10,500 11,840
Modesto Irrigation Dist., Geysers Geothermal Power, COP, 7.25%, 10/1/15.... 5,000 5,319
Port of Oakland, (BIGI Insured), 7.30%, 11/1/09............................ 1,650 1,784
7.25%, 11/1/16..................................................... 12,275 13,260
Sacramento County, Main Detention Center, COP (MBIA Insured),
5.75%, 6/1/15..................................................... 3,000 2,860
Sacramento Fin. Auth., (AMBAC Insured), 5.375%, 11/1/14.................... 4,000 3,644
5.40%, 11/1/20..................................................... 7,000 6,221
San Bernardino, Sisters of Charity HealthCare System, 7.00%, 7/1/21........ 3,000 3,165
San Diego Co., GO, TRAN, 4.50%, 9/29/95.................................... 5,000 4,995
San Jose Redev. Agency, Merged Area Redev., (MBIA Insured), 6.00%, 8/1/15.. 4,500 4,447
San Mateo County Transit Dist., (MBIA Insured), 5.25%, 6/1/16.............. 6,000 5,311
5.25%, 6/1/17...................................................... 3,000 2,641
Southern California Public Power Auth., 5.00%, 7/1/15...................... 4,650 3,930
Transmission Project, 6.125%, 7/1/18................................... 2,000 1,969
- ---------------------------------------------------------------------------------------------------------------------------
COLORADO -- 1.6%
Boulder County, Longmont United Hosp., 8.20%, 12/1/20
(Pre-refunded 12/1/00+)............................................ 2,000 2,352
Colorado HFA, Sisters of Charity HealthCare System, 5.25%, 5/15/14......... 3,000 2,653
Douglas County, Highlands Ranch Metropolitan Dist., GO,
8.68%, 10/15/94 (Escrowed to Maturity)............................. 1,465 1,477
8.68%, 10/15/95 (Escrowed to Maturity)............................. 1,625 1,709
Highlands Ranch Water & Sewer Dist., GO,
8.68%, 10/15/94 (Escrowed to Maturity)............................. 2,205 2,223
8.68%, 10/15/95 (Escrowed to Maturity)............................. 2,260 2,377
Jefferson County School Dist., GO, (AMBAC Insured), 6.00%, 12/15/12........ 8,500 8,570
- ---------------------------------------------------------------------------------------------------------------------------
CONNECTICUT -- 1.1%
Connecticut HEFA, Yale-New Haven Hosp., (MBIA Insured), 7.10%, 7/1/25...... 5,825 6,275
Connecticut State, Special Tax, GO, 7.125%, 6/1/10......................... 7,350 8,281
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Amounts in Thousands
---------------------------
Face Amount Value
----------- -------
<S> <C> <C>
DELAWARE -- 1.3%
Delaware HFA, Beebe Medical Center, 6.75%, 6/1/14.......................... $ 3,500 $ 3,466
The Medical Center of Delaware, (MBIA Insured), 9.25%, 10/1/15......... 13,000 13,937
- ---------------------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA -- 0.5%
Washington D.C. Metropolitan Transit Auth., (FGIC Insured), 5.25%, 7/1/14.. 7,500 6,653
- ---------------------------------------------------------------------------------------------------------------------------
FLORIDA -- 3.9%
Broward County Resource Recovery, Broward Waste Energy
L.P. North, 7.95%, 12/1/08......................................... 11,750 12,886
L.P. South, 7.95%, 12/1/08............................................. 3,225 3,537
Dade County School Dist., Dade County School Board Foundation, Inc., COP,
(MBIA Insured), 5.75%, 5/1/12...................................... 8,000 7,724
Florida, Board of Ed. (Public Ed. Capital Outlay), GO,
7.25%, 6/1/23 (Pre-refunded 6/1/00+)............................... 35 39
7.25%, 6/1/23...................................................... 5,640 6,212
Florida Dept. of Transportation, (FGIC Insured), 5.00%, 7/1/16............. 5,000 4,266
Jacksonville Electric Auth., St. John River, 5.50%, 10/1/13................ 5,400 5,037
Jacksonville Transportation Auth., GO, 7.375%, 7/1/20
(Pre-refunded 7/1/00+)............................................. 8,750 9,935
Orlando-Orange County Expressway Auth., (AMBAC Insured), 5.25%, 7/1/12..... 4,000 3,637
GEORGIA -- 7.3%
Effingham County School Dist., GO, (MBIA Insured), 6.25%, 2/1/09........... 1,545 1,620
Fulton-Dekalb Hosp. Auth., Grady Memorial Hosp., GO, (AMBAC Insured),
6.80%, 1/1/07 (Escrowed to Maturity)............................... 5,530 6,063
6.80%, 1/1/08 (Escrowed to Maturity)............................... 5,905 6,447
6.85%, 1/1/09 (Escrowed to Maturity)............................... 6,310 6,884
6.85%, 1/1/10 (Escrowed to Maturity)............................... 6,745 7,349
(MBIA Insured), 5.50%, 1/1/12.......................................... 2,000 1,870
5.50%, 1/1/20...................................................... 5,000 4,491
Georgia, GO, 6.25%, 3/1/11................................................. 3,500 3,696
Georgia Hosp. Fin. Auth., Pooled Hospital Loan, VRDN (Currently 3.25%)..... 500 500
Gwinnett County, Water & Sewage Auth., Zero Coupon, 8/1/09................. 2,750 1,159
Gwinnett County School Dist., GO, 6.40%, 2/1/09............................ 3,415 3,587
6.40%, 2/1/10...................................................... 3,655 3,812
6.40%, 2/1/11...................................................... 3,905 4,079
6.40%, 2/1/12...................................................... 1,255 1,313
Henry County School Dist., GO, 6.45%, 8/1/11............................... 2,000 2,080
Metropolitan Atlanta Rapid Transit Auth., Sales Tax, 6.55%, 7/1/20......... 5,500 5,584
Municipal Electric Auth. of Georgia, 8.125%, 1/1/17 (Pre-refunded 1/1/98+). 5,680 6,342
(AMBAC Insured), 6.40%, 1/1/07......................................... 7,500 8,008
6.00%, 1/1/22...................................................... 500 488
7.25%, 1/1/24...................................................... 6,500 7,554
(FGIC Insured), 5.50%, 1/1/12.......................................... 1,800 1,698
6.125%, 1/1/14..................................................... 5,500 5,490
5.70%, 1/1/19...................................................... 5,100 4,800
Paulding County, Water and Sewer, (MBIA Insured), 6.00%, 12/1/13........... 5,000 4,994
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
T. Rowe Price Tax-Free Income Fund
Statement of Net Assets
<TABLE>
<CAPTION>
Amounts in Thousands
---------------------------
Face Amount Value
----------- -------
<S> <C> <C>
IDAHO -- 0.1%
Idaho Housing Agency, 7.70%, 7/1/17........................................ $ 945 $ 986
- ---------------------------------------------------------------------------------------------------------------------------
ILLINOIS -- 3.0%
Chicago - O'Hare Int'l. Airport, 10.625%, 1/1/15........................... 22,750 23,871
Illinois, Sales Tax, 6.875%, 6/15/15 (Pre-refunded 6/15/97+)............... 1,500 1,615
Illinois HFA, Hinsdale Health System, 9.00%, 11/15/15...................... 4,930 5,600
Holy Cross Hosp., 6.70%, 3/1/14........................................ 1,000 987
Regional Transportation Auth., Cook, Dupage, Kane, Lake,
McHenry, and Will Counties, (AMBAC Insured), 7.20%, 11/1/20........ 8,000 9,040
- ---------------------------------------------------------------------------------------------------------------------------
INDIANA -- 0.2%
Hosp. Auth. of St. Joseph County, St. Joseph's Medical Center,
(MBIA Insured), 6.70%, 12/1/02..................................... 1,985 2,170
- ---------------------------------------------------------------------------------------------------------------------------
KANSAS -- 0.7%
Johnson County, Internal Improvement, GO, 6.125%, 9/1/12................... 4,500 4,564
Kansas, Dept. of Transportation, 5.375%, 3/1/13............................ 5,500 5,136
- ---------------------------------------------------------------------------------------------------------------------------
KENTUCKY -- 1.8%
Carroll County PCR, 7.45%, 9/15/16......................................... 15,000 16,346
Kentucky Turnpike Auth., Economic Dev., 7.25%, 5/15/10
(Pre-refunded 5/15/00+)............................................ 1,000 1,122
(AMBAC Insured), 5.50%, 7/1/11......................................... 7,000 6,610
- ---------------------------------------------------------------------------------------------------------------------------
LOUISIANA -- 1.1%
East Baton Rouge Mortgage Fin. Auth., 7.375%, 3/1/10 (Escrowed to Maturity) 2,800 2,912
Louisiana Offshore Terminal Auth., LOOP, 7.60%, 9/1/10..................... 10,440 11,374
- ---------------------------------------------------------------------------------------------------------------------------
MAINE -- 0.3%
Maine Turnpike Auth., (MBIA Insured), 6.00%, 7/1/18........................ 4,000 3,920
- ---------------------------------------------------------------------------------------------------------------------------
MARYLAND -- 5.8%
Baltimore City, Capital Acquisition Program IDA, VRDN (Currently 3.15%).... 600 600
Baltimore City, Convention Center, (FGIC Insured), 6.00%, 9/1/17........... 5,500 5,416
Baltimore County, Pickersgill Retirement Community, 7.70%, 1/1/21.......... 2,000 2,121
Calvert County PCR, Baltimore Gas and Electric, 5.55%, 7/15/14............. 5,000 4,599
Gaithersburg, First Mortgage Economic Dev. (Asbury Methodist Home),
7.85%, 1/1/20 (Pre-refunded 1/1/00+)............................... 3,000 3,442
Housing Opportunities Commission of Montgomery County, 7.50%, 7/1/17....... 1,115 1,152
Maryland Community Dev. Administration, Single Family Program,
7.25%, 4/1/19...................................................... 2,500 2,583
6.45%, 4/1/14...................................................... 2,000 2,001
7.60%, 4/1/17 *.................................................... 8,000 8,326
Maryland HHEFA, Good Samaritan Hosp., 5.75%, 7/1/19........................ 3,000 2,759
Howard County General Hosp. Auth., 5.50%, 7/1/13................... 3,750 3,269
Johns Hopkins Hosp., Zero Coupon, 7/1/19........................... 9,000 1,883
Johns Hopkins Univ., 7.50%, 7/1/20................................. 9,475 10,368
Kennedy Kreiger Institute, 6.75%, 7/1/22........................... 1,500 1,470
Peninsula Regional Medical Center, 5.00%, 7/1/23................... 2,750 2,215
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Amounts in Thousands
---------------------------
Face Amount Value
----------- -------
<S> <C> <C>
MARYLAND (cont'd)
Maryland HHEFA (cont'd)
Suburban Hosp., 5.125%, 7/1/21......................................... $ 3,000 $ 2,479
Univ. of Maryland Medical System, 9.50%, 1/1/14 (Pre-refunded 7/22/96+) 5,500 6,107
(FGIC Insured), 5.00%, 7/1/20...................................... 8,005 6,667
7.00%, 7/1/22...................................................... 1,500 1,688
Maryland Water Quality Fin. Administration, Revolving Loan Fund,
7.25%, 9/1/12...................................................... 1,950 2,146
Prince Georges County, Dimensions Health Corp., 5.30%, 7/1/24.............. 9,000 7,431
- ---------------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS -- 2.0%
Massachusetts Bay Transportation Auth., General Transportation System,
6.25%, 3/1/12...................................................... 2,340 2,377
7.00%, 3/1/14...................................................... 3,150 3,517
GO, 7.00%, 3/1/21...................................................... 6,200 6,946
Massachusetts HEFA, Harvard Univ., 6.25%, 4/1/20........................... 5,000 5,175
Massachusetts General Hosp., (AMBAC Insured), 6.00%, 7/1/15............ 4,500 4,426
Massachusetts Municipal Wholesale Electric Power Supply System,
6.125%, 7/1/19..................................................... 5,000 4,788
- ---------------------------------------------------------------------------------------------------------------------------
MICHIGAN -- 0.8%
Michigan Building Auth., 5.30%, 10/1/12.................................... 5,000 4,570
Michigan HDA, 6.45%, 12/1/14............................................... 2,120 2,121
7.55%, 12/1/15..................................................... 1,750 1,836
Michigan Hosp. Fin. Auth., Bay Medical Center, 8.25%, 7/1/12............... 1,000 1,080
Warren County, PCR, Michigan Power and Light, 7.00%, 4/1/22................ 1,500 1,524
- ---------------------------------------------------------------------------------------------------------------------------
MINNESOTA -- 3.3%
Minnesota, GO, 5.30%, 8/1/10............................................... 8,530 7,981
5.30%, 8/1/11...................................................... 9,555 8,888
Northern Minnesota Municipal Power Agency, 7.35%, 1/1/02................... 5,000 5,492
Ramsey County, Capital Improvement, GO, 5.75%, 12/1/07..................... 1,915 1,958
5.85%, 12/1/08..................................................... 2,000 2,027
Rochester Health Care Fac., Mayo Foundation/Mayo Medical Center,
5.80%, 11/15/07.................................................... 1,500 1,511
5.875%, 11/15/08................................................... 2,880 2,906
5.90%, 11/15/09.................................................... 2,000 2,005
5.90%, 11/15/10.................................................... 4,000 3,991
6.25%, 11/15/21.................................................... 3,000 3,018
Univ. of Minnesota, Residual Interest Bond / Inverse Floater, 8/15/03
(Currently 6.021%)................................................. 5,800 5,148
- ---------------------------------------------------------------------------------------------------------------------------
MISSISSIPPI -- 0.6%
Adams County, Jefferson Davis Memorial Hosp., 7.90%, 10/1/08............... 3,050 3,266
Claiborne County, PCR, Systems Energy Resources, 9.875%, 12/1/14........... 3,400 3,934
Mississippi Home Corp., Single Family Mortgage, (FGIC Insured),
9.25%, 3/1/12...................................................... 1,095 1,187
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
T. Rowe Price Tax-Free Income Fund
Statement of Net Assets
<TABLE>
<CAPTION>
Amounts in Thousands
---------------------------
Face Amount Value
----------- -------
<S> <C> <C>
MISSOURI -- 1.0%
Joplin IDA, Tri-State Osteopathic Hosp. Assoc., 8.25%, 12/15/14............ $ 3,000 $ 3,254
Missouri HEFA, Bethesda Health Group, 7.50%, 8/15/12....................... 1,250 1,265
Sisters of Mercy Health System, VRDN (Currently 3.15%)................. 5,000 5,000
SSM Health Care, (MBIA Insured), 6.25%, 6/1/07......................... 2,690 2,815
St. Anthony's Medical Center, VRDN (Currently 3.20%)................... 900 900
- ---------------------------------------------------------------------------------------------------------------------------
NEBRASKA -- 0.5%
Omaha Public Power, Electric System, 6.20%, 2/1/17......................... 7,000 7,063
- ---------------------------------------------------------------------------------------------------------------------------
NEVADA -- 1.1%
Clark County School Dist., Limited Tax School Improvement, GO,
(MBIA Insured), 7.00%, 6/1/11...................................... 3,500 3,850
Nevada, Municipal Bond Bank, GO, 7.25%, 11/1/10 (Escrowed to Maturity)..... 3,050 3,478
Nevada Housing Division, 12.50%, 10/1/96................................... 60 63
7.85%, 10/1/15..................................................... 1,145 1,180
Washoe County School Dist., GO, (MBIA Insured), 5.75%, 6/1/14.............. 7,000 6,666
- ---------------------------------------------------------------------------------------------------------------------------
NEW JERSEY -- 1.2%
New Jersey Housing & Mortgage Fin. Agency, 6.60%, 11/1/14.................. 2,250 2,273
New Jersey Turnpike Auth., 6.50%, 1/1/16................................... 9,600 10,077
Salem County Pollution Control Fin. Auth., (MBIA Insured), 6.25%, 6/1/31... 4,550 4,549
- ---------------------------------------------------------------------------------------------------------------------------
NEW MEXICO -- 0.3%
Gallup, PCR, Plains Electric Generation and Transmission Coop.,
(MBIA Insured), 6.65%, 8/15/17..................................... 4,000 4,180
- ---------------------------------------------------------------------------------------------------------------------------
NEW YORK -- 8.7%
Dormitory Auth. of the State of New York, City Univ., 5.75%, 7/1/13........ 5,000 4,720
6.00%, 7/1/14...................................................... 6,000 5,824
5.00%, 7/1/20...................................................... 10,000 8,134
Cornell Univ., VRDN (Currently 3.05%).................................. 2,300 2,300
Dept. of Health of the State of New York, 5.50%, 7/1/20................ 4,000 3,516
5.50%, 7/1/23.................................................... 4,250 3,729
State Univ. Ed. Fac., 5.75%, 5/15/24................................... 5,000 4,601
Vassar College, 7.25%, 7/1/15.......................................... 2,000 2,205
Municipal Assistance Corp. for the City of New York, 7.375%, 7/1/08........ 2,500 2,672
New York City, GO, 5.80%, 8/1/03........................................... 5,665 5,669
7.50%, 2/1/08...................................................... 2,500 2,726
8.00%, 8/1/16 (Pre-refunded 8/1/01+)............................... 4,725 5,601
8.00%, 8/1/16...................................................... 4,275 4,994
VRDN (Currently 3.20%)............................................. 3,900 3,900
New York City Municipal Water Fin. Auth., (FGIC Insured), VRDN
(Currently 3.15%).................................................. 1,500 1,500
(MBIA Insured), 5.50%, 6/15/15......................................... 6,960 6,425
New York State, GO, 5.625%, 3/1/13......................................... 5,000 4,749
New York State Housing Fin. Agency, Univ. Construction,
7.80%, 5/1/01 (Escrowed to Maturity)............................... 2,000 2,314
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Amounts in Thousands
---------------------------
Face Amount Value
----------- -------
<S> <C> <C>
NEW YORK (cont'd)
New York State Local Gov't. Assistance Corp., Public Benefit Corp.,
7.20%, 4/1/04...................................................... $ 5,000 $ 5,569
6.00%, 4/1/12...................................................... 3,000 2,968
5.375%, 4/1/14..................................................... 8,000 7,198
6.00%, 4/1/14...................................................... 4,750 4,669
5.50%, 4/1/21...................................................... 7,580 6,757
New York State Medical Care Fac. Fin. Auth, Mental Health Services,
5.375%, 2/15/14.................................................... 3,500 3,083
Presbyterian Hospital, 5.50%, 8/15/24.................................. 5,000 4,452
St. Luke's-Roosevelt Hosp. 5.60%, 8/15/13 ............................. 2,185 2,047
New York State Power Auth., 7.375%, 1/1/18 (Pre-refunded 1/1/96+).......... 1,600 1,698
New York State Urban Dev. Corp., Correctional Capital Fac., 5.375%, 1/1/23. 2,000 1,708
Triborough Bridge and Tunnel Auth., (AMBAC Insured), 6.00%, 1/1/15......... 2,500 2,479
- ---------------------------------------------------------------------------------------------------------------------------
NORTH CAROLINA -- 2.7%
Charlotte-Mecklenberg Hosp. Auth., North Carolina HealthCare System,
6.25%, 1/1/20...................................................... 5,000 5,013
North Carolina Eastern Municipal Power Agency, 7.50%, 1/1/10
(Escrowed to Maturity)............................................. 4,650 5,342
7.50%, 1/1/10...................................................... 4,330 4,808
6.50%, 1/1/18 (Esrowed to Maturity)................................ 2,655 2,864
6.50%, 1/1/18...................................................... 3,935 3,944
6.00%, 1/1/26...................................................... 3,500 3,227
North Carolina Housing Fin. Agency, 7.40%, 3/1/28.......................... 2,250 2,310
North Carolina Medical Care Commission, Stanley Memorial Hosp., ...........
7.80%, 10/1/19..................................................... 3,000 3,208
North Carolina Municipal Power Agency, Catawba Electric, (MBIA Insured),
5.75%, 1/1/20...................................................... 6,000 5,635
- ---------------------------------------------------------------------------------------------------------------------------
OHIO -- 2.1%
Cleveland, Waterworks, (MBIA Insured), 5.50%, 1/1/13....................... 4,000 3,771
Columbus, Sewerage System, 6.25%, 6/1/08................................... 2,250 2,350
Waterworks Enlargement, GO, 6.00%, 5/1/13.............................. 2,000 2,000
Cuyahoga County, Univ. Hosp. of Cleveland, VRDN (Currently 3.25%).......... 2,100 2,100
Franklin County, GO, 6.80%, 12/1/09 (Pre-refunded 12/1/00+)................ 2,860 3,178
6.80%, 12/1/10 (Pre-refunded 12/1/00+)............................. 3,240 3,601
County Courthouse (Limited Tax), GO, 6.375%, 12/1/17
(Pre-refunded 12/1/01+)............................................ 2,000 2,187
Hamilton County, The Metropolitan Sewer Dist. of Greater Cincinnati,
(FGIC Insured), 5.00%, 12/1/14..................................... 8,000 6,959
Montgomery County Hosp. Fac., Kettering Medical Center,
(MBIA Insured), 7.375%, 4/1/02..................................... 2,500 2,747
- ---------------------------------------------------------------------------------------------------------------------------
OKLAHOMA -- 0.4%
Oklahoma Municipal Power Auth., Power Supply System,
(MBIA Insured), 5.875%, 1/1/12..................................... 1,500 1,500
Tulsa County Home Fin. Auth., Single Family Mortgage, (FGIC Insured),
6.90%, 8/1/10 (Escrowed to Maturity)............................... 4,250 4,548
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
T. Rowe Price Tax-Free Income Fund
Statement of Net Assets
<TABLE>
<CAPTION>
Amounts in Thousands
---------------------------
Face Amount Value
----------- -------
<S> <C> <C>
OREGON -- 1.0%
Oregon, Veterans' Welfare, GO, VRDN (Currently 3.05%)...................... $ 9,700 $ 9,700
Portland, Sewer System Revenue, 6.25%, 6/1/15.............................. 4,250 4,268
- ---------------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA -- 2.4%
Allegheny County Hosp. Dev. Auth., Montefiore Hosp. Assoc. of
Western Pennsylvania, 9.75%, 7/1/05 (Pre-refunded 7/1/96+)......... 12,000 13,338
Pennsylvania, GO, (MBIA Insured), 5.60%, 6/15/14........................... 11,000 10,360
Pennsylvania Public School Building Auth., Commonwealth of Pennsylvania,
9.625%, 11/1/03 (Pre-refunded 11/1/95+)............................ 910 967
Pennsylvania IDA, Economic Dev., (AMBAC Insured), 5.50%, 1/1/14............ 8,250 7,587
- ---------------------------------------------------------------------------------------------------------------------------
PUERTO RICO -- 3.7%
Puerto Rico Aqueduct and Sewer Auth., 7.90%, 7/1/07........................ 2,000 2,220
7.875%, 7/1/17..................................................... 11,500 12,757
Puerto Rico Highway and Transportation Auth., VRDN (Currently 3.65%)....... 3,050 3,047
Puerto Rico Housing Bank and Fin. Agency, Loan Insurance Claims,
4.125%, 12/1/96.................................................... 10,660 10,519
Puerto Rico Ind., Med., Higher Ed. & Environmental Pollution Control
Fac. Fin. Auth., Catholic Univ. of Puerto Rico, 9.25%, 12/1/97..... 6,330 7,314
Puerto Rico Infrastructure Fin. Auth., 7.75%, 7/1/08....................... 1,740 1,923
7.50%, 7/1/09...................................................... 9,955 10,929
Puerto Rico Public Fin. Corp., GO, Floating Rate, 7/1/95
(Currently 6.35%)(Escrowed to Maturity) ........................... 1,685 1,717
- ---------------------------------------------------------------------------------------------------------------------------
RHODE ISLAND -- 1.4%
Rhode Island Health & Ed. Building Corp., Bryant College, (MBIA Insured),
6.125%, 6/1/19..................................................... 5,000 4,890
Rhode Island Hosp., (FGIC Insured), Residual Interest Bond / Inverse
Floater, 8/15/21, (Currently 10.334%).............................. 1,000 1,071
Rhode Island Housing & Mortgage Fin. Corp., Homeownership Opportunity,
6.70%, 10/1/14..................................................... 5,000 5,068
7.85%, 10/1/16..................................................... 8,000 8,404
- ---------------------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA -- 2.7%
Charleston, Waterworks & Sewer System, 10.375%, 1/1/15
(Pre-refunded 1/1/95+)............................................. 10,000 10,519
Darlington County, PCR, Carolina Power & Light, (MBIA Insured),
6.60%, 11/1/10..................................................... 4,000 4,235
Greenville Hosp. System, Board of Trustees, Hosp. Fac., 5.50%, 5/1/16...... 5,250 4,694
Piedmont Municipal Power Agency, (FGIC Insured), 6.50%, 1/1/14............. 3,500 3,678
(MBIA Insured), 6.30%, 1/1/14.......................................... 2,390 2,404
5.375%, 1/1/25..................................................... 3,900 3,433
South Carolina Public Service Auth., Santee Cooper,
7.00%, 7/1/12 (Pre-refunded 7/1/01+)............................... 1,650 1,849
6.625%, 7/1/31 (Pre-refunded 7/1/02+).............................. 5,000 5,520
- ---------------------------------------------------------------------------------------------------------------------------
SOUTH DAKOTA -- 0.9%
South Dakota Building Auth., 7.50%, 12/1/16................................ 10,000 10,761
South Dakota Housing Dev. Auth., Homeownership Mortgage, 6.65%, 5/1/14..... 2,000 2,022
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Amounts in Thousands
---------------------------
Face Amount Value
----------- -------
<S> <C> <C>
TENNESSEE -- 1.8%
Chattanooga Ind. Dev. Board, Dupont, 6.35%, 7/1/22......................... $ 2,000 $ 2,015
Chattanooga-Hamilton County Hosp. Auth., Erlanger Medical Center,
VRDN (Currently 3.15%)............................................. 3,700 3,700
Health & Ed. Board of the Metropolitan Gov't of Nashville and
Davidson County, Vanderbilt Univ., 5.125%, 7/1/13.................. 4,000 3,562
Health, Ed. & Housing Fac. Board of the City of Chattanooga, Memorial Hosp.,
(MBIA Insured), 6.625%, 9/1/07..................................... 2,950 3,195
6.625%, 9/1/08..................................................... 3,150 3,394
Memphis, GO, VRDN (Currently 3.20%)........................................ 900 900
Electric System, 6.75%, 1/1/11 (Pre-refunded 1/1/00+).................. 2,500 2,743
Metropolitan Nashville Airport Auth., (FGIC Insured),
VRDN (Currently 3.10%)............................................. 1,000 1,000
The Health, Ed. and Housing Facility Board of the County of Shelby,
Le Bonhuer Children's Medical Center, (MBIA Insured), 5.50%, 8/15/12... 4,500 4,240
- ---------------------------------------------------------------------------------------------------------------------------
TEXAS -- 7.5%
Brazos River Auth., Houston Lighting & Power, 8.25%, 5/1/15................ 18,000 19,815
Dallas-Fort Worth Regional Airport, 10.00%, 11/1/12........................ 20,000 20,713
Denison Hosp. Auth., Texoma Medical Center, 7.00%, 8/15/14................. 4,245 4,272
Harris County, GO, (MBIA Insured), Zero Coupon, 8/15/04.................... 6,000 3,466
Harris County Health Fac. Dev. Corp., Memorial Hosp., 7.125%, 6/1/15....... 2,500 2,712
Sisters of Charity of the Incarnate Word, 7.10%, 7/1/21................ 4,000 4,216
St. Luke's Episcopal Hosp., VRDN (Currently 3.15%)..................... 5,000 5,000
Texas Medical Center, (MBIA Insured), 7.375%, 5/15/20.................. 7,645 8,247
Harris County Hosp. Dist., (AMBAC Insured), 7.40%, 2/15/10................. 1,500 1,711
Matagorda County Navigation Dist. Number One, PCR, Central Power & Light,
7.50%, 12/15/14.................................................... 1,500 1,629
Houston Lighting & Power, (FGIC Insured), 7.20%, 12/1/18............... 3,600 3,949
Tarrant County Health Fac. Dev. Corp., Harris Methodist Health System,
6.00%, 9/1/24...................................................... 3,000 2,856
Texas Public Fin. Auth., GO, 7.00%, 10/1/08 (Pre-refunded 1/1/99+)......... 3,000 3,285
Texas Veterans, GO, 8.25%, 12/1/10......................................... 3,900 4,194
7.40%, 12/1/20..................................................... 14,205 15,548
- ---------------------------------------------------------------------------------------------------------------------------
UTAH -- 0.9%
Intermountain Power Agency, 7.20%, 7/1/19.................................. 6,200 6,621
7.50%, 7/1/21...................................................... 4,750 5,182
- ---------------------------------------------------------------------------------------------------------------------------
VERMONT -- 0.8%
Vermont Ed. and Health Buildings Fin. Agency, Medical Center Hosp.
of Vermont, (FGIC Insured), 7.35%, 9/1/13............................. 4,650 4,659
7.45%, 9/1/23...................................................... 2,000 1,998
Middlebury College, 6.00%, 11/1/22..................................... 4,585 4,469
- ---------------------------------------------------------------------------------------------------------------------------
VIRGINIA -- 6.2%
Augusta County IDA, Augusta Hosp. Corp., (AMBAC Insured), 5.50%, 9/1/15.... 2,500 2,296
Chesapeake Bay Bridge and Tunnel Dist., (MBIA Insured), 6.375%, 7/1/22..... 2,500 2,522
Fairfax County IDA, Fairfax Hosp. System, VRDN (Currently 3.00%)........... 700 700
</TABLE>
9
<PAGE>
T. Rowe Price Tax-Free Income Fund
Statement of Net Assets
<TABLE>
<CAPTION>
Amounts in Thousands
---------------------------
Face Amount Value
----------- -------
<S> <C> <C>
VIRGINIA (cont'd)
Fairfax County Water Auth., 6.00%, 4/1/22.................................. $ 17,500 $ 17,061
5.75%, 4/1/29...................................................... 6,350 5,885
Henrico County IDA, Bon Secours Health System, St. John's Hosp.,
7.50%, 9/1/15...................................................... 1,950 2,145
St. Mary's Hosp., 7.50%, 9/1/07........................................ 1,805 1,975
Richmond Metropolitan Auth., Expressway Revenue, 6.375%, 7/15/16........... 7,000 7,135
(FGIC Insured), 5.75%, 7/15/22..................................... 3,000 2,822
Virginia Housing Dev. Auth., Commonwealth Mortgage, 6.90%, 7/1/13.......... 11,100 11,328
6.25%, 7/1/11**.................................................... 5,000 5,013
6.75%, 7/1/14**.................................................... 7,435 7,430
6.80%, 7/1/17**.................................................... 8,900 8,893
Virginia Transportation Board, Northern Virginia Transportation Dist.,
5.25%, 5/15/19..................................................... 3,000 2,638
U.S. Route 58 Corridor Dev. Program, 6.00%, 5/15/19.................... 2,925 2,848
Winchester IDA, Winchester Medical Center, Inc., (AMBAC Insured),
Embedded Interest Rate Swap, 5.51%, 1/1/05............................. 1,500 1,369
5.61%, 1/1/06...................................................... 1,500 1,365
5.71%, 1/1/07...................................................... 1,600 1,451
- ---------------------------------------------------------------------------------------------------------------------------
WASHINGTON -- 3.5%
Port of Seattle, 7.40%, 12/1/09............................................ 1,000 1,143
Tacoma Electric System, (FGIC Insured), 6.25%, 1/1/15...................... 7,550 7,567
Washington HFA, Sisters of Providence, VRDN (Currently 3.35%).............. 1,700 1,700
Washington Public Power Supply System, 7.25%, 7/1/09....................... 3,000 3,361
5.375%, 7/1/15..................................................... 10,500 9,172
7.25%, 7/1/15 (Pre-refunded 1/1/00+)............................... 2,200 2,465
7.50%, 7/1/15 (Pre-refunded 7/1/99+)............................... 4,310 4,857
7.50%, 7/1/15...................................................... 2,800 3,022
(FGIC Insured), Zero Coupon, 7/1/09.................................... 3,000 1,204
(MBIA Insured), 5.60%, 7/1/15.......................................... 7,500 6,862
6.25%, 7/1/17...................................................... 6,000 5,935
- ---------------------------------------------------------------------------------------------------------------------------
WEST VIRGINIA -- 1.0%
Kanawha County Building Commission, Charleston Area Medical Center,
7.50%, 11/1/08..................................................... 2,250 2,443
West Virginia State Parkway, Economic Dev. & Tourism Auth., (FGIC Insured),
Residual Interest Bond / Inverse Floater, 5/16/19 (Currently 8.032%) 3,600 3,177
West Virginia State Univ. Board of Trustees, (AMBAC Insured), 6.00%, 4/1/12 8,000 7,931
- ----------------------------------------------------------------------------------------------------------------------------
WISCONSIN -- 0.1%
Wisconsin Public Power Agency, (AMBAC Insured), 7.00%, 7/1/02.............. 1,500 1,648
============================================================================================================================
TOTAL INVESTMENTS IN SECURITIES - 100.1% (COST - $1,324,104)............... 1,361,054
============================================================================================================================
Other Assets Less Liabilities - 0.1%....................................... (1,575)
----------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Amounts in Thousands
---------------------------
Value
-------
<S> <C> <C>
NET ASSETS CONSISTING OF:
Accumulated net investment income - net of distributions................... $ 632
Accumulated realized gains/losses - net of distributions................... (13,076)
Net unrealized appreciation of investments................................. 36,802
Paid-in-capital applicable to 147,501,950 shares of $1.00 par value
capital stock outstanding; 500,000,000 shares authorized........... 1,335,121
---------
NET ASSETS - 100.0%........................................................ $1,359,479
==========
NET ASSET VALUE PER SHARE.................................................. $9.22
=====
</TABLE>
* - Interest subject to alternative minimum tax
** - When-issued security
+ - Used in determining portfolio maturity
AMBAC - AMBAC Indemnity Corp.
BIGI - Bond Investors Guaranty Insurance
COP - Certificates of Participation
FGIC - Financial Guaranty Insurance Company
GO - General Obligation
HEFA - Health & Educational Facility Authority
HDA - Housing Development Authority
HFA - Health Facility Authority
HHEFA - Health & Higher Educational Facility Authority
IDA - Industrial Development Authority
MBIA - Municipal Bond Investors Assurance Corp.
PCR - Pollution Control Revenue
PFA - Public Facility Authority
TRAN - Tax Revenue Anticipation Note
VRDN - Variable Rate Demand Note
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
T. Rowe Price Tax-Free Income Fund
Statement of Operations / Six Months Ended August 31, 1994 (Unaudited)
<TABLE>
<CAPTION>
Amounts in Thousands
--------------------
<S> <C> <C>
INVESTMENT INCOME
Interest income............................................................... $ 42,886
Expenses
Investment management fees.................................................. $ 3,408
Shareholder servicing fees & expenses....................................... 426
Custodian and accounting fees & expenses.................................... 125
Prospectus & shareholder reports............................................ 29
Registration fees & expenses................................................ 27
Legal & auditing fees....................................................... 22
Directors' fees & expenses.................................................. 13
Proxy & annual meeting...................................................... 10
Miscellaneous............................................................... 14
---------
Total expenses.............................................................. 4,074
----------
Net investment income......................................................... 38,812
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss)
Securities.................................................................. (12,804)
Options..................................................................... 168
Futures..................................................................... 1,701
---------
Net realized loss........................................................... (10,935)
Change in net unrealized appreciation or depreciation......................... (50,088)
---------
Net loss on investments....................................................... (61,023)
--------
DECREASE IN NET ASSETS FROM OPERATIONS........................................ $(22,211)
========
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
T. Rowe Price Tax-Free Income Fund
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Amounts in Thousands
---------------------------------
Six Months Ended Year Ended
Aug. 31, 1994 Feb. 28, 1994
---------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income................................... $ 38,812 $ 79,920
Net realized gain (loss) on investments................. (10,935) 45,315
Change in net unrealized appreciation or
depreciation of investments........................... (50,088) (44,503)
---------- ---------
Increase (decrease)in net assets from operations........ (22,211) 80,732
---------- ---------
Distributions to shareholders
Net investment income................................... (38,812) (79,920)
Net realized gain on investments........................ (5,930) (27,101)
---------- ---------
Decrease in net assets from distributions to shareholders (44,742) (107,021)
---------- ---------
Capital share transactions
Sold 10,664 and 26,880 shares........................... 98,277 265,837
Distributions reinvested of 3,401 and 7,772 shares...... 31,298 76,861
Redeemed 16,879 and 30,902 shares....................... (155,724) (305,474)
---------- ---------
Increase (decrease)in net assets from capital share transactions (26,149) 37,224
---------- ---------
Total increase (decrease)................................. (93,102) 10,935
NET ASSETS
Beginning of period..................................... 1,452,581 1,441,646
---------- ---------
End of period........................................... $1,359,479 $1,452,581
========== =========
=============================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
T. Rowe Price Tax-Free Income Fund
Notes to Financial Statements / August 31, 1994 (Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Tax-Free Income Fund (the Fund) is registered under the
Investment Company Act of 1940 as a diversified, open-end management
investment company.
A) Security Valuation - Debt securities are generally traded in the
over-the-counter market. Investments in securities with remaining maturities
of one year or more are stated at fair value as furnished by dealers who make
markets in such securities or by an independent pricing service, which
considers yield or price of bonds of comparable quality, coupon, maturity,
and type, as well as prices quoted by dealers who make markets in such
securities. Securities with remaining maturities less than one year are
stated at fair value which is determined by using a matrix system that
establishes a value for each security based on money market yields.
Financial futures contracts and options on futures contracts are valued at
closing settlement prices.
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.
B) Premiums and Discounts - Premiums on municipal securities are amortized
for both financial and tax reporting purposes. Discounts, other than
original issue, are not amortized for financial reporting purposes.
C) 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 an identified cost basis. 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 which may differ from generally accepted accounting principles.
Payments ("variation margin") made or received by the Fund, dependent on the
daily fluctuations in the value of the futures contracts, are recorded as
unrealized gains or losses until the contracts are closed.
NOTE 2 - INVESTMENT TRANSACTIONS
As a part of its investment program, the Fund engages in the following
activities, the nature and risk of which are set forth more fully in the
Fund's Prospectus and Statement of Additional Information.
A) Futures - A futures contract provides for the future sale by one party and
purchase by another party of a specified amount of a specific financial
instrument at a specified price, date, time and place designated at the time
the contract is made. Risks arise from the possible illiquidity of the
futures market and from movements in security values. At August 31, 1994,
the Fund had a short position in 150 U. S. Treasury Bond futures contracts
which expire in September, 1994, and which have a contract value of
$15,558,000. Net unrealized depreciation of $148,000 on these contracts at
August 31, 1994, is included in the accompanying financial statements.
Municipal securities having a market value of $2,282,000 were pledged as
initial margin on these contracts.
B) Other - Purchases and sales of portfolio securities, other than short-term
securities, aggregated $370,476,000 and $334,929,000 respectively, for the
six months ended August 31, 1994.
14
<PAGE>
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the Fund intends to
continue to qualify as a regulated investment company and distribute all of
its income.
At August 31, 1994, the aggregate cost of investments for federal
income tax and financial reporting purposes was $1,324,104,000 and net
unrealized appreciation aggregated $36,951,000, of which $56,408,000 related
to appreciated investments and $19,457,000 to depreciated investments.
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, computed daily and paid monthly, consisting of an Individual Fund Fee
equal to 0.15% 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 0.31% for assets in
excess of $34 billion. The effective annual Group Fee rate at August 31,
1994, and for the six months then ended was 0.34%. The Fund pays a pro rata
portion of the Group Fee based on the ratio of the Fund's net assets to those
of the Group.
T. Rowe Price Services, Inc. (TRPS) is a wholly owned subsidiary of
the Manager. TRPS provides transfer and dividend disbursing agent functions
and shareholder services for all accounts. The Manager, under a separate
agreement, calculates the daily share price and maintains the financial
records of the Fund. For the six months ended August 31, 1994, the Fund
incurred fees totalling approximately $359,000 for these services provided by
related parties. At August 31, 1994, investment management and service fees
payable were $661,000.
15
<PAGE>
T. Rowe Price Tax-Free Income Fund
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
For a share outstanding throughout each period
--------------------------------------------------------------------
Six Months Year Ended
Ended --------------------------------------------------------
Aug. 31, Feb. 28, Feb. 28, Feb. 29, Feb. 28, Feb. 28,
1994 1994 1993 1992 1991 1990
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.66 $ 9.84 $ 9.09 $ 8.79 $ 8.66 $ 8.57
------ ------ ------ ------ ------ ------
Investment Activities
Net investment income..................... 0.26 0.54 0.56 0.57 0.57 0.59
Net realized and unrealized gain (loss)... (0.40) -- 0.75 0.30 0.13 0.09
------ ------ ------ ------ ------ ------
Total from Investment Activities.............. (0.14) 0.54 1.31 0.87 0.70 0.68
------ ------ ------ ------ ------ ------
Distributions
Net investment income..................... (0.26) (0.54) (0.56) (0.57) (0.57) (0.59)
Net realized gain......................... (0.04) (0.18) -- -- -- --
------ ------ ------ ------ ------ ------
Total Distributions........................... (0.30) (0.72) (0.56) (0.57) (0.57) (0.59)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD................ $ 9.22 $ 9.66 $ 9.84 $ 9.09 $ 8.79 $ 8.66
====== ====== ====== ====== ====== ======
========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Total Return.................................. (1.39)% 5.50% 14.88% 10.17% 8.40% 8.15%
Ratio of Expenses to Average Net Assets....... 0.59%+ 0.59% 0.61% 0.62% 0.63% 0.64%
Ratio of Net Investment Income
to Average Net Assets..................... 5.63%+ 5.40% 5.98% 6.34% 6.59% 6.80%
Portfolio Turnover Rate....................... 51.8%+ 71.2% 76.7% 57.9% 79.7% 140.5%
Net Assets, End of Period (in thousands) $1,359,479 $1,452,581 $1,441,646 $1,245,297 $1,128,635 $1,123,143
=====================================================================================================================
</TABLE>
+ Annualized.
16
