<PAGE>
Fellow Shareholders
By virtually every measure, the economy strengthened during the Funds' fiscal
year ended February 28, 1994. Gross domestic product grew at an annual rate of
nearly 1.5% for the first six months of calendar 1993, then surged at an annual
rate of more than 5% in the second half. Unemployment dropped steadily, capacity
utilization rose, and personal income gains were impressive. Based on stronger
spending by consumers on durable goods and housing, and by businesses on fixed
equipment, economic momentum seemed to carry over into early 1994 even though
the Arctic cold snap east of the Rockies and the earthquake in Los Angeles
tended to depress business activity.
The swing in the economy's thrust was reflected in the credit markets.
Perceived weakness in the economy through the autumn of 1993 and the Federal
Reserve's continued easy monetary policy encouraged a substantial decline in
note and bond yields. Between the end of February 1993 and mid-October, the
yield on the Treasury's benchmark 30-year bond dropped more than one full
percentage point, reaching a low of 5.78%. As it became increasingly apparent
that the economy was entering a phase of stronger growth, interest rates began
to rise--a trend that was accelerated by the Fed's announcement of a tightening
in early February. Despite reaching new lows last autumn, short- and
intermediate-term interest rates on taxable notes and bonds actually closed the
Funds' year-end 30 to 75 basis points higher than 12 months earlier, though
long-term Treasury bond yields closed a bit lower.
The tax-exempt sector experienced the same trend in yields. After declining
to 20-year lows in October, municipal yields closed the Funds' fiscal year
higher in every maturity range, with the most significant moves occurring during
the final quarter. From November 30 to February 28, short- and intermediate-term
rates rose about 30 basis points while long-term yields increased approximately
20 basis points.
The municipal market can be volatile during periods of uncertainty, and the
recent past was no exception. Unlike taxable markets, which include individuals,
foreign and domestic corporations, mutual funds, pension funds, and government
entities, the municipal market is now dominated by individual investors. As a
result, tax-exempt securities can be very sensitive to changes in supply and
demand, often becoming overbought or oversold. In September and October 1993,
for example, long-term yields dipped to low levels and prices rose as investors
rapidly increased their tax-free mutual fund holdings. Since October, the
pendulum has swung in the opposite direction, and cash flows into long-term bond
funds have abated. Municipal investors have drifted to the sidelines with a
wait-and-see attitude, and the reduced liquidity in the marketplace has sent
bond prices lower. As a result, our bond funds reflected share-price declines
for the quarter. Our money funds, of course, are managed to maintain a stable
$1.00 per share value.
[GRAPH APPEARS HERE]
Municipal Interest Rate Levels
A line graph compares the yields of the 30-year Prime General Obligation bond,
the five-year Prime General Obligation bond, and the six-month Moody's
Investment Grade 1 Note.
TAX-EXEMPT MONEY FUND
During the past three months, the short-term, tax-exempt money market managed to
post both its lowest and highest interest rates of the fiscal year. As the
quarter began, yields reached record lows amid concerns about massive
reinvestment of proceeds from maturing bonds and coupon payments made on January
1, 1994. By February, however, the focus turned to the Federal Reserve's efforts
to push short-term rates higher. As a result, yields on six-month and one-year
notes fluctuated 70 to 100 basis points in a very short time.
<PAGE>
Assets in the tax-exempt money fund industry expanded by 11% over the
fiscal year to a record $112.7 billion, indicating a strong desire among
investors for principal stability. Much of this cash flow was invested in the
one- to 30-day maturity area as portfolio managers sought to preserve
flexibility in a rising rate environment. This caused yields of very short
maturities to move lower, while maturities of 90 days or more moved higher in
tandem with the general direction of short-term rates.
We kept the Tax-Exempt Money Fund's weighted average maturity at more than
60 days during December and January, but shortened to 55 days by quarter-end.
For most of the Fund's fiscal year, our maturity target was equal to or longer
than the peer group average.
<TABLE>
<CAPTION>
Portfolio Characteristics
Periods Ended
2/28/93 11/30/93 2/28/94
------- -------- -------
<S> <C> <C> <C>
Weighted Avg. Quality* 2.0 1.9 2.0
Weighted Avg. Maturity (days) 55 61 55
</TABLE>
*On a T. Rowe Price scale of 1 to 10, with Grade 1 representing highest quality.
This more aggressive posture helped put the Fund's performance in the top
quartile of tax-exempt money funds for both the three and 12 months ended
February 28, 1994.
<TABLE>
<CAPTION>
Performance Comparison
Periods Ended 2/28/94
3 Mos. 12 Mos.
------ -------
<S> <C> <C>
Tax-Exempt Money Fund 0.53% 2.05%
Donoghue's Tax-Free
Money Fund Average* 0.45 1.91
</TABLE>
*Stockbroker and General Purpose Funds.
Over the next quarter, we expect gradually rising rates as the Federal
Reserve continues to move away from the stimulative stance it pursued during the
past five years. Accordingly, Fund shareholders should enjoy moderately higher
returns during the ensuing fiscal year. We expect to maintain your Fund's
weighted average maturity more or less in line with its peer group.
TAX-FREE SHORT-INTERMEDIATE FUND
The short-intermediate municipal market enjoyed a favorable balance of supply
and demand during the fiscal year ended February 28, 1994, as record new
issuance and a growing supply of intermediate, pre-refunded bonds met strong
investor demand. As investors sought out less aggressive, fixed-income
investments, the many new intermediate-term mutual funds were strong buyers in
this range.
Based on our early 1993 forecast for slow economic growth and tame
inflation, your Fund maintained a weighted average maturity of nearly 3.5 years
from March through October, a figure higher than its historical average. We
focused on three- to four-year maturities whose yields were at least a full
percentage point above money market instruments. We also emphasized market
sectors yielding more than usual due to excess supply. Heavy issuance in New
York, California, and Maryland, for example, made the bonds of those high-tax
states attractive relative to other states.
<TABLE>
<CAPTION>
Portfolio Characteristics
Periods Ended
2/28/93 11/30/93 2/28/94
------- -------- -------
<S> <C> <C> <C>
Weighted Avg. Quality* 2.3 2.3 2.2
Weighted Avg. Maturity (years) 3.4 3.4 3.1
Weighted Avg. Effective
Duration (years) 2.9 2.9 2.7
</TABLE>
*On a T. Rowe Price scale of 1 to 10, with Grade 1 representing highest quality.
As evidence of a stronger economy began to emerge in late 1993, we began
shortening the Fund's average maturity by selling more vol-atile bonds while at
the same time emphasizing higher-quality bonds. When the Fed tightened on
February 4, 1994, the weighted average maturity stood at 3.1 years and average
credit quality was AA. The sharp yield increase in February eliminated the price
gains made earlier in the past year and reduced the Fund's total return at year-
end. Even so, the Fund's performance slightly exceeded its peer group average
for both the quarter and the year.
<TABLE>
<CAPTION>
Performance Comparison
Periods Ended 2/28/94
3 Mos. 12 Mos.
------ -------
<S> <C> <C>
Tax-Free Short-Intermediate
Fund 0.61% 3.49%
Lipper Short Municipal
Debt Fund Average 0.59 3.31
</TABLE>
2
<PAGE>
Entering the Fund's new fiscal year, our focus is on improving yield where
possible and keeping price volatility moderate by maintaining a shorter
duration. At present, we think the two-year-maturity range, where prices already
reflect the impact of further tightening by the Fed, looks attractive. In
addition, new legislation subjecting certain discount bonds to ordinary income
taxes increases the appeal of high-coupon, premium bonds, which dovetails with
our more conservative strategy.
TAX-FREE INSURED INTERMEDIATE BOND FUND
The municipal market's record issuance in 1993 included 37% of insured bonds, a
sector that has grown steadily since 1990. Since over half of the supply was
used for advance refundings of older, higher-coupon bonds with call dates within
10 years, the result was a huge increase in the overall supply of intermediate
maturities, many of which were insured. This large issuance resulted in
attractive prices and yields on insured securities for most of 1993, but the
supply also made the sector more vulnerable to downward price pressure when
interest rates rose in February.
<TABLE>
<CAPTION>
Portfolio Characteristics
Periods Ended
2/28/93 11/30/93 2/28/94
------- -------- -------
<S> <C> <C> <C>
Weighted Avg. Quality* 2.1 2.1 2.1
Weighted Avg. Maturity (years) 8.0 7.9 7.9
Weighted Avg. Effective
Duration (years) 5.3 5.8 5.8
</TABLE>
*On a T. Rowe Price scale of 1 to 10, with Grade 1 representing highest quality.
We postured the portfolio aggressively for the first six months of the
fiscal year, then started reducing our risk profile in September. Based on our
outlook in early 1993 for slow economic growth and low inflation, we had
maintained the Fund's average maturity at around nine years, near the long end
of its five- to 10-year maturity range as outlined in the prospectus. When signs
of the improving economy began to emerge, we reacted by shortening the weighted
average maturity to approximately 7.5 years and by purchasing bonds less
sensitive to price fluctuations, such as those with higher coupons. We also
sought to take advantage of the excessive supply of bonds issued in high-tax
states and in those with heavy demand for municipal bonds. Typically, bonds
issued by states such as New York, Virginia, Maryland, and Florida trade at
higher prices than those issued by other states. As issuance slows in 1994, we
anticipate that increased demand for these bonds will cause their values to
improve relative to the rest of the market.
Our efforts throughout the year paid off with top quartile performance for
the 12-month period ended February 28, even though the Fund slightly
underperformed its peer group average for the quarter.
<TABLE>
<CAPTION>
Performance Comparison
Periods Ended 2/28/94
3 Mos. 12 Mos.
------ -------
<S> <C> <C>
Tax-Free Insured Intermediate
Bond Fund 0.49% 5.49%
Lipper Intermediate Municipal
Debt Fund Average 0.54 4.76
</TABLE>
Keeping with our outlook for gradually rising interest rates, we are
continuing to shorten the portfolio's duration. By purchasing bonds in the six-
to seven-year range, we expect to deliver 80% of the yield of a 30-year bond,
with significantly less price fluctuation.
TAX-FREE INCOME FUND
As highlighted in our general overview, the long end of the bond market had
quite a ride over the last 12 months. Our investment strategy during this
turbulent period was marked by two distinct phases. In the spring and summer, we
were aggressive, extending the Fund's average maturity and duration so that
long-term bonds represented 85% to 90% of assets. As autumn began, however,
interest rates dropped to 20-year lows and the economy was showing signs of
accelerating. We concluded that an aggressive Fund posture was no longer
warranted under such conditions and reduced our risk profile by shortening the
portfolio's duration and weighted average maturity. For example, the Fund's
duration during the summer months was eight years or longer and the weighted
average maturity was in the 19 1/2- to 20-year range. From September through
mid-December, however, duration averaged 7 1/2
3
<PAGE>
years and the weighted average maturity was reduced to 18 1/2 years.
<TABLE>
<CAPTION>
Portfolio Characteristics
Periods Ended
2/28/93 11/30/93 2/28/94
------- -------- -------
<S> <C> <C> <C>
Weighted Avg. Quality* 2.5 2.4 2.4
Weighted Avg. Maturity (years) 20.0 18.5 18.0
Weighted Avg. Effective
Duration (years) 7.3 7.6 7.7
</TABLE>
*On a T. Rowe Price scale of 1 to 10, with Grade 1 representing highest quality.
During the last three months, we continued in a cautious direction as the
strength in the economy became more apparent and after the Federal Reserve
announced in February its first tightening move in five years. We maintained the
high credit quality of the portfolio throughout the fiscal year, believing that
the yield on lower-quality holdings did not adequately compensate for the
additional risks.
The Fund's performance exceeded its peer group average for the three and 12
months ended February 28, 1994. The narrow margin in the final quarter reflected
our more cautious stance; the Fund's investment posture was in line with that of
the average municipal bond fund. In essence, our earlier aggressiveness enabled
the Fund to outperform its peer group as interest rates declined, while our
neutral posture over the last half of the year resulted in average performance
when rates rose.
<TABLE>
<CAPTION>
Performance Comparison
Periods Ended 2/28/94
3 Mos. 12 Mos.
------ -------
<S> <C> <C>
Tax-Free Income Fund 0.47% 5.50%
Lipper General Municipal
Debt Fund Average 0.45 5.24
</TABLE>
TAX-FREE HIGH YIELD FUND
On balance, the Fund's fiscal year was a good one for the high-yield sector of
the municipal bond market though it was subject to the same price volatility
that characterized the entire market for much of the year. Our investment
strategy, while influenced by the same factors that affected our management of
other long-term funds, did not display as significant a shift in investment
posture as those funds, reflecting the strong income orientation of the Tax-Free
High Yield Fund. We did extend the Fund's weighted average maturity to
approximately 21 years and effective duration to 7.4 years based on our outlook
for declining interest rates during the first half of the year. Long-term bonds
during this period represented 88% to 90% of net assets. Beginning in the fall,
we shifted the portfolio to a more neutral stance versus its peer group and
generally held that position into February. Recently, average maturity and
effective duration were extended as we were able to add positions at what we
felt were very attractive levels.
Demand was consistently strong last year for the medium- and lower-quality
bonds that your Fund usually holds. Yield spreads between low- and high-quality
bonds, narrow for the most of the year, widened somewhat during the last quarter
as interest rates rose and issuance increased. During this time, we increased
the Fund's exposure to lower-quality bonds. By year-end, 26% of Fund assets were
invested in below-investment-grade credits (i.e., bonds rated below the BBB
category), up from 22% at the start of the year.
<TABLE>
<CAPTION>
Portfolio Characteristics
Periods Ended
2/28/93 11/30/93 2/28/94
------- -------- -------
<S> <C> <C> <C>
Weighted Avg. Quality* 3.7 3.7 3.8
Weighted Avg. Maturity (years) 21.9 20.9 21.3
Weighted Avg. Effective
Duration (years) 6.7 7.2 7.4
</TABLE>
*On a T. Rowe Price scale of 1 to 10, with Grade 1 representing highest quality.
Your Fund extended its record of favorable performance, finishing in the
top quartile for the 12 months ended February 28, 1994, and exceeding the peer
group average for the last quarter. Over an even longer time horizon, the Fund's
performance has exceeded its peer group average for each of the past six years.
<TABLE>
<CAPTION>
Performance Comparison
Periods Ended 2/28/94
3 Mos. 12 Mos.
------ -------
<S> <C> <C>
Tax-Free High Yield Fund 1.04% 7.49%
Lipper High Yield Municipal
Debt Fund Average 0.84 6.15
</TABLE>
4
<PAGE>
CAPITAL GAIN DISTRIBUTIONS
While the Funds' primary objective is to earn a high level of tax-exempt income
consistent with each portfolio's composition and risk profile, capital gains
will arise in the course of managing the portfolios. A dividend consisting of a
fund's undistributed net gains as of October 31 must be declared by the end of
each calendar year, and a second distribution is required if the fund has
undistributed net gains as of the close of its fiscal year. Accordingly, three
of the municipal bond funds declared capital gain distributions (shown below),
payable March 31 to shareholders of record March 28. Your check or statement
reflecting these distributions was mailed separately. These distributions are
taxable to you for 1994 and will be reported on Form 1099-DIV mailed in January
1995.
<TABLE>
<CAPTION>
Short-Term Long-Term Total
---------- --------- -----
<S> <C> <C> <C>
Tax-Free Insured
Intermediate Bond $0.02 $0.01 $0.03
Tax-Free Income $0.01 $0.03 $0.04
Tax-Free High Yield -- $0.04 $0.04
</TABLE>
OUTLOOK
As the Funds enter a new fiscal year, the bond markets are cautious about a
robust economy as well as a vigilant Federal Reserve Board. Fed Chairman Alan
Greenspan clearly intends to contain inflation by raising short-term interest
rates as the economy approaches full labor and capital utilization over the next
year or two. The Fed's most recent hike was greeted more constructively by long-
term investors; in sharp contrast to the reaction in February, bond yields fell
on March 22, the day the Fed announced that the federal funds rate would be
increased another one-quarter of one percent. Inflation currently does not look
threatening and, if the Fed's strategy works, bond investors may be reassured by
the inflation-fighting stance. Still, commodity prices are moving up, labor
markets could start tightening later this year or early next, and the global
economy continues to strengthen, so the bond market's nervousness is
understandable. On balance, we expect modestly increasing yields though the
course may be choppy in 1994 as inflation expectations wax and wane.
Despite these strong economic fundamentals, the municipal market retains
certain advantages. First, as a result of the sharp sell-off experienced in
recent weeks, yields on securities in many maturities are at attractive levels
relative to comparable taxable issues, appealing to taxpayers in all but the
lowest tax brackets. Second, the projected 30% to 40% decline in new issuance in
1994 should bring supply and demand into better balance and support municipal
prices. Third, tax-advantaged investments and the value they offer should come
into the limelight as high income taxpayers prepare to file their first returns
at the new, higher tax rates.
We encourage all shareholders to make sure their current investments are
consistent with their personal financial objectives. If, as a result of your
review, you want additional information on the funds, our investor service
representatives will be happy to assist you. We look forward to the challenges
and opportunities that await us in the new fiscal year and appreciate your
continued confidence in us.
Respectfully submitted,
/s/ William T. Reynolds
William T. Reynolds
Assistant Director,
Fixed-Income Division
March 25, 1994
Duration as a Guide to Interest Rate Risk
Starting with this report, we've added a new measure to the statistical tables
that more accurately defines a fund's interest rate sensitivity. Unlike
maturity, which merely indicates when the bond repays principal, "duration"
incorporates the cash flows of all interest and principal payments over the life
of the bond to reflect the recovery of your original investment. Future payments
are discounted to reflect their present value. These payments are then
multiplied by the number of years over which they will be received to produce a
value that is expressed in years, i.e., the duration. Effective duration is an
even better measure of a bond's sensitivity to interest rate changes because it
takes into account call features and sinking fund payments which may shorten a
bond's life.
You can multiply the duration by the potential change in interest rates to
estimate the change in principal value. For example, a bond or bond fund with a
duration of five years would rise or fall roughly 5% in price if rates fell or
rose by one percentage point.
5
<PAGE>
<TABLE>
<CAPTION>
Financial Summary
Net Asset Value Dividend Per Share+ Dividend Yield*
Per Share 3 Months Ended 3 Months Ended
--------------------- --------------------- ---------------------
11/30/93 02/28/94 11/30/93 02/28/94 11/30/93 02/28/94
<S> <C> <C> <C> <C> <C> <C>
Tax-Exempt Money $ 1.00 $ 1.00 $0.005 $0.005 2.15% 2.15%
Tax-Free Short-Intermediate 5.34 5.32 0.055 0.053 4.12 4.02
Tax-Free Insured Intermediate Bond 10.68 10.58 0.115 0.115 4.29 4.33
Tax-Free Income 9.92 9.66 0.134 0.131 5.35 5.42
Tax-Free High Yield 12.49 12.26 0.184 0.182 5.87 5.95
</TABLE>
* Dividends earned and reinvested for the periods indicated are annualized and
divided by the average daily net asset values per share for the same period.
+ Taxability of dividends. 100% of the dividends paid for the 12 months ended
2/28/94 were exempt from federal income tax.
<TABLE>
<CAPTION>
Average Annual Compound Total Return
Periods Ended 12/31/93
----------------------------------------------------
1 Year 5 Years 10 Years Since Inception
<S> <C> <C> <C> <C> <C>
Tax-Exempt Money 2.01% 3.94% 4.45% 4.93% (4/81)
Tax-Free Short-Intermediate 6.32 6.63 6.55 6.49 (12/83)
Tax-Free Insured Intermediate Bond 12.66 - - 13.04 (11/92)
Tax-Free Income 12.77 9.85 9.51 7.66 (10/76)
Tax-Free High Yield 12.97 10.36 - 11.00 (3/85)
</TABLE>
[GRAPH APPEARS HERE]
Tax-Free Insured Intermediate Fund Performance Comparison
A line graph compares the 2/28/94 value of a hypothetical $10,000 investment
made in the Tax-Free Insured Intermediate Fund at its inception (11/30/92) and a
similar investment made concurrently in the Lehman 7-Year G.O. Bond Index. At
2/28/94, the Fund investment would have been worth $11,267 and the Lehman Index
investment would have been worth $10,995.
<TABLE>
<CAPTION>
Fiscal-Year Performance
Periods Ended 2/28/94
-------------------------------
1 Year 5 Years 10 Years
<S> <C> <C> <C>
Short-Intermediate 3.49% 6.46% 6.39%
Insured Intermediate
Bond* 5.49 - -
Income 5.50 9.38 9.14
High Yield** 7.49 9.87 -
</TABLE>
* Since inception 11/92: 10.05%
** Since inception 3/85: 10.71%
Income return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
6
<PAGE>
[GRAPH APPEARS HERE]
Tax-Free Short-Intermediate Fund Performance Comparison
A line graph compares the 2/28/94 value of a hypothetical $10,000 investment
made in the Tax-Free Short-Intermediate Fund at its inception (12/23/83) and a
similar investment made concurrently in the Lehman 3 Year Bond Index. At
2/28/94, the Fund investment would have been worth $17,243 and the Lehman Index
investment would have been worth $18,473.
[GRAPH APPEARS HERE]
Tax-Free Income Fund Performance Comparison
A line graph compares the 2/28/94 value of a hypothetical $10,000 investment
made ten years earlier in both the Tax-Free Income Fund and the Lehman Municipal
Bond Index. At 2/28/94, the Fund investment would have been worth $23,986, the
Lehman Index investment would have been worth $27,680.
[GRAPH APPEARS HERE]
Tax-Free High-Yield Fund Performance Comparison
A line graph compares the 2/28/94 value of a hypothetical $10,000 investment
made in the Tax-Free High-Yield Fund at its inception (3/1/85) and a similar
investment made concurrently in the Lehman Revenue Bond Index. At 2/28/94, the
Fund investment would have been worth $24,982 and the Lehman Index investment
would have been worth $26,711.
7
<PAGE>
ANNUAL REPORT
FOR YIELD, PRICE, LAST TRANSACTION, T. Rowe Price
AND CURRENT BALANCE, 24 HOURS, -------------
7 DAYS A WEEK, CALL: TAX-FREE FUNDS
1-800-638-2587 toll free
625-7676 Baltimore area
FEBRUARY 28, 1994
FOR ASSISTANCE WITH YOUR EXISTING
FUND ACCOUNT, CALL:
Shareholder Service Center
1-800-225-5132 toll free
625-6500 Baltimore area
T. ROWE PRICE
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for distri-
bution only to shareholders and to
others who have received a copy of
the prospectus of the T. Rowe Price
Tax-Free Funds.
T. Rowe Price
Invest With Confidence(R)
TFF
<PAGE>
T. Rowe Price
TAX-FREE INCOME FUND
February 28, 1994
Investment Record
The table below shows the investment record of one share of the T. Rowe Price
Tax-Free Income Fund, purchased at the original offering price of $10.00. Over
this time, interest rates have been volatile. The results shown should not be
considered a representation of the dividend income or capital gain or loss which
may be realized from an investment made in the Fund today.
<TABLE>
<CAPTION>
=================================================================================================================
Fiscal Capital With With Dividends
Year Net Asset Income Gain Dividends and Capital Gains Total
Ended Value Dividends Distributions/2/ Reinvested Reinvested Return
----- --------- --------- ---------------- ---------- ----------------- ------
<S> <C> <C> <C> <C> <C> <C>
2/31/76/1/ $10.20 $ 0.09 $10.29 $10.29 2.87%
1977 10.28 0.54 10.93 10.93 6.20
1978 9.54 0.53 $ 0.01 10.69 10.69 -2.11
1979 9.20 0.53 10.90 10.90 1.96
1980 8.06 0.67 10.33 10.34 -5.20
1981 7.26 0.73 10.24 10.24 -0.91
1982 8.58 0.80 13.39 13.39 30.77
2/28/83/3/ 8.85 0.13 14.01 14.02 4.65
1984 8.48 0.72 14.58 14.58 4.04
1985 8.41 0.65 15.63 15.64 7.24
1986 9.73 0.71 19.60 19.61 25.37
1987 10.27 0.68 22.16 22.17 13.07
1988 8.81 0.59 0.54 20.33 21.47 -3.17
1989 8.57 0.59 21.17 22.35 4.11
1990 8.66 0.59 22.89 24.17 8.15
1991 8.79 0.57 24.82 26.20 8.40
1992 9.09 0.57 27.34 28.86 10.17
1993 9.84 0.56 31.41 33.16 14.88
1994 9.66 0.54 0.18 32.55 34.98 5.50
- -----------------------------------------------------------------------------------------------------------------
TOTAL $10.79 $ 0.73
=================================================================================================================
</TABLE>
/1/ From inception 10/26/76 to 12/31/76.
/2/ Includes short-term capital gain of $0.08 on 12/10/93.
/3/ Fiscal year end changed from December 31 to February 28; figures are for two
months from 12/31/82-2/28/83.
<PAGE>
T. Rowe Price Tax-Free Income Fund
Sector Diversification / February 28, 1994
<TABLE>
<CAPTION>
Percent of
Net Assets
----------
<S> <C>
Hospital Revenue 14%
Nuclear Revenue 11
Dedicated Tax Revenue 8
Pre-Refunded Bonds 8
General Obligation - Local 7
Lease Revenue 7
Electric Revenue 7
Water & Sewer Revenue 7
General Obligation - State 6
Escrowed to Maturity 5
Air & Sea Transportation Revenue 4%
Educational Revenue 3
Ground Transportation Revenue 3
Housing Finance Revenue 3
Pooled Loan Revenue 1
Solid Waste Revenue 1
Industrial & Pollution
Control Revenue 1
Miscellaneous Revenue 1
Other Assets Less Liabilities 3
</TABLE>
T. Rowe Price Tax-Free Income Fund
Statement of Net Assets / February 28, 1994
<TABLE>
<CAPTION>
Amounts in Thousands
-----------------------------
Face Amount Value
----------- ----------
<S> <C> <C>
ALABAMA -- 1.4%
Alabama, GO, Zero Coupon, 9/1/03..................................................... $ 10,000 $ 6,176
Zero Coupon, 3/1/04................................................................. 10,000 5,955
Zero Coupon, 9/1/04................................................................. 5,500 3,167
Alabama Water Pollution Control Auth., (AMBAC Insured), 5.00%, 8/15/15............... 4,000 3,660
Mobile, Capital Improvement Warrants, GO, (MBIA Insured),
Zero Coupon, 8/15/16................................................................ 4,330 1,042
Zero Coupon, 8/15/17................................................................ 4,435 994
- ------------------------------------------------------------------------------------------------------------------------------------
ARIZONA -- 0.3%
Maricopa County, Kyrene Elementary School Dist., GO, (FGIC Insured),
Zero Coupon, 1/1/09................................................................. 2,000 860
Zero Coupon, 1/1/10................................................................. 2,000 807
Paradise Valley Unified School Dist., GO, (AMBAC Insured),
VRDN (Currently 2.60%).............................................................. 2,880 2,880
- ------------------------------------------------------------------------------------------------------------------------------------
ARKANSAS -- 0.6%
Independence County PCR, Arkansas Power & Light, 6.25%, 1/1/21....................... 2,000 2,036
Little Rock Health Fac. Board, Baptist Medical Center, 6.85%, 11/1/08................ 2,495 2,797
North Little Rock, Electric System Refunding, (MBIA Insured), 6.50%, 7/1/15.......... 4,000 4,482
- ------------------------------------------------------------------------------------------------------------------------------------
CALIFORNIA -- 9.1%
California Public Works Board, Univ. of California, 5.50%, 6/1/14.................... 2,000 1,950
5.50%, 6/1/21....................................................................... 3,000 2,826
Central Coast Water Auth., State Water Project Regional Fac., (AMBAC
Insured), 6.60%, 10/1/22............................................................ 4,000 4,371
Concord Redev. Agency, GO, (AMBAC Insured), 5.25%, 7/1/19............................ 4,055 3,796
Garden Grove Public Fin. Auth., Water Services Capital Improvement,
(FGIC Insured), 5.25%, 12/1/15...................................................... 1,640 1,550
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Amounts in Thousands
-----------------------------
Face Amount Value
----------- ----------
<S> <C> <C>
CALIFORNIA (cont'd)
Glendale Redev. Agency, Central Glendale Redev. Project, (AMBAC Insured),
5.60%, 12/1/16...................................................................... $ 4,030 $ 3,973
Los Angeles County, Marina del Rey, COP, 6.25%, 7/1/03............................... 4,000 4,113
6.50%, 7/1/08....................................................................... 3,250 3,374
Los Angeles County Transportation Commission, Sales Tax, 7.40%, 7/1/15............... 5,530 6,235
(MBIA Insured), 6.00%, 7/1/23....................................................... 3,500 3,578
(MBIA Insured), 6.25%, 7/1/13....................................................... 8,965 9,446
Los Angeles Dept. of Water and Power, 5.375%, 9/1/23................................. 5,000 4,715
7.375%, 2/1/29...................................................................... 6,500 7,407
Los Angeles Harbor Dept., 7.60%, 10/1/18 (Escrowed to Maturity)...................... 3,200 3,678
Los Angeles Wastewater System, 7.15%, 6/1/20 (Pre-refunded 6/1/00+).................. 10,500 12,061
Modesto Irrigation Dist, 1986 Geysers Geothermal Power, COP, 7.25%, 10/1/15.......... 5,000 5,477
Oakland, COP, VRDN (Currently 2.75%)................................................. 1,600 1,600
Port of Oakland, (BIGI Insured), 7.30%, 11/1/09...................................... 1,650 1,816
7.25%, 11/1/16...................................................................... 12,275 13,494
Sacramento Fin. Auth., (AMBAC Insured), 5.375%, 11/1/14.............................. 4,000 3,948
5.40%, 11/1/20...................................................................... 7,000 6,797
San Bernardino, Sisters of Charity HealthCare System, 7.00%, 7/1/21.................. 3,000 3,344
San Jose Redev. Agency, Merged Area Redev., (MBIA Insured), 6.00%, 8/1/15............ 4,500 4,781
San Mateo County Transit Dist., (MBIA Insured), 5.25%, 6/1/16........................ 6,000 5,778
5.25%, 6/1/17....................................................................... 3,000 2,868
Southern California Public Power Auth., Power Project, 5.00%, 7/1/15................. 4,650 4,299
San Juan Power Project, (MBIA Insured), 5.00%, 1/1/20............................... 5,000 4,529
- ------------------------------------------------------------------------------------------------------------------------------------
COLORADO -- 1.8%
Boulder County, Longmont United Hosp., 8.20%, 12/1/20 (Pre-refunded
12/1/00+)........................................................................... 2,000 2,421
Colorado HFA, Sisters of Charity HealthCare System, 5.25%, 5/15/14................... 3,000 2,865
Douglas County, Highlands Ranch Metropolitan Dist., GO,
8.68%, 10/15/94 (Escrowed to Maturity)............................................ 1,465 1,519
8.68%, 10/15/95 (Escrowed to Maturity)............................................ 1,625 1,715
Highlands Ranch Water & Sewer Dist., GO
8.68%, 10/15/94 (Escrowed to Maturity)............................................ 2,205 2,287
8.68%, 10/15/95 (Escrowed to Maturity)............................................ 2,260 2,385
Jefferson County School Dist., GO, (AMBAC Insured), 6.00%, 12/15/12.................. 10,000 10,600
Mesa County, Sisters of Charity of Leavenworth Health Services Corp.,
5.00%, 12/1/14...................................................................... 2,500 2,329
- ------------------------------------------------------------------------------------------------------------------------------------
CONNECTICUT -- 1.2%
Connecticut Dev. Auth., Connecticut Light & Power, VRDN (Currently 2.35%)............ 2,600 2,600
Connecticut HEFA, Yale-New Haven Hosp., (MBIA Insured), 7.10%, 7/1/25................ 5,825 6,564
Connecticut State Special Tax, GO, 7.125%, 6/1/10.................................... 7,350 8,692
- ------------------------------------------------------------------------------------------------------------------------------------
DELAWARE -- 1.4%
Delaware HFA, Pooled Loan, (MBIA Insured), VRDN (Currently 2.40%).................... 6,600 6,600
The Medical Center of Delaware, (MBIA Insured), 9.25%, 10/1/15...................... 13,000 14,373
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA -- 0.5%
Washington Metropolitan Area Transit Auth., (FGIC Insured), 5.25%, 7/1/14............ 7,500 7,157
- ------------------------------------------------------------------------------------------------------------------------------------
</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>
FLORIDA -- 5.0%
Broward County Resource Recovery, Broward Waste Energy (L.P. North),
7.95%, 12/1/08.................................................................... $ 11,750 $ 13,360
S E S Broward (L.P. South), 7.95%, 12/1/08.......................................... 3,225 3,667
First Florida Gov't. Fin. Commission, (MBIA Insured), VRDN (Currently 2.35%)......... 3,127 3,127
Florida Dept. of Transportation, (FGIC Insured), 5.00%, 7/1/16....................... 11,000 10,124
5.00%, 7/1/19....................................................................... 7,000 6,390
Florida Municipal Power Agency, (AMBAC Insured), VRDN (Currently 2.60%).............. 1,000 1,000
Florida State, Board of Ed. (Public Ed. Capital Outlay), GO,
7.25%, 6/1/23 (Pre-refunded 6/1/00+)................................................ 5,905 6,825
7.25%, 6/1/23....................................................................... 5,675 6,470
Jacksonville Transportation Auth., GO, 7.375%, 7/1/20 (Pre-refunded 7/1/00+)......... 8,750 10,213
Jacksonville Electric Auth., VRDN (Currently 2.60%).................................. 2,000 2,000
St. John River, 5.50%, 10/1/13...................................................... 5,400 5,342
Orlando-Orange County Expressway Auth., (AMBAC Insured), 5.25%, 7/1/12............... 4,000 3,872
- ------------------------------------------------------------------------------------------------------------------------------------
GEORGIA -- 6.4%
Fulton-Dekalb Hosp. Auth., Grady Memorial Hosp., GO, (AMBAC Insured),
6.80%, 1/1/07 (Escrowed to Maturity)................................................ 5,530 6,374
6.80%, 1/1/08 (Escrowed to Maturity)................................................ 5,905 6,791
6.85%, 1/1/09 (Escrowed to Maturity)................................................ 6,310 7,299
6.85%, 1/1/10 (Escrowed to Maturity)................................................ 6,745 7,848
(MBIA Insured), 5.50%, 1/1/12....................................................... 2,000 1,969
5.50%, 1/1/20....................................................................... 6,000 5,822
Georgia State, GO, 6.25%, 3/1/11..................................................... 3,500 3,857
Gwinnett County School Dist., GO, 6.40%, 2/1/09...................................... 3,415 3,791
6.40%, 2/1/10....................................................................... 3,655 4,058
6.40%, 2/1/11....................................................................... 3,905 4,358
6.40%, 2/1/12....................................................................... 1,255 1,398
Henry County School Dist., GO, 6.45%, 8/1/11......................................... 2,000 2,187
Metropolitan Atlanta Rapid Transit Auth., Sales Tax, 6.55%, 7/1/20................... 5,500 5,875
Municipal Electric Auth. of Georgia, 6.40%, 1/1/07................................... 7,500 8,173
6.25%, 1/1/12....................................................................... 2,000 2,032
8.125%, 1/1/17 (Pre-refunded 1/1/98+)............................................... 5,680 6,440
7.40%, 1/1/25 (Pre-refunded 1/1/99+)................................................ 3,450 3,935
(FGIC Insured), 6.125%, 1/1/14...................................................... 5,500 5,745
Paulding County, Water and Sewer, (MBIA Insured), 6.00%, 12/1/13..................... 5,000 5,323
- ------------------------------------------------------------------------------------------------------------------------------------
GUAM -- 0.3%
Guam Power Auth., 5.40%, 10/1/01..................................................... 2,040 2,133
5.60%, 10/1/03...................................................................... 1,500 1,578
6.30%, 10/1/12...................................................................... 1,000 1,040
- ------------------------------------------------------------------------------------------------------------------------------------
HAWAII -- 0.5%
Honolulu, GO, 5.00%, 10/1/13......................................................... 6,000 5,663
Maui County, GO, (FGIC Insured), 5.00%, 9/1/09....................................... 1,850 1,782
- ------------------------------------------------------------------------------------------------------------------------------------
IDAHO -- 0.1%
Idaho Housing Agency, 7.70%, 7/1/17.................................................. 1,000 1,086
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Amounts in Thousands
-----------------------------
Face Amount Value
----------- ----------
<S> <C> <C>
ILLINOIS -- 3.1%
Chicago, GO, (FGIC Insured), 5.25%, 1/1/18........................................... $ 3,000 $ 2,795
Chicago - O'Hare Int'l. Airport, 10.625%, 1/1/15..................................... 22,750 24,594
Illinois HFA, Hinsdale Health System, 9.00%, 11/15/15................................ 4,930 5,848
Illinois State, Sales Tax, 6.875%, 6/15/15 (Pre-refunded 6/15/97+)................... 1,500 1,655
Regional Transportation Auth., Cook, Dupage, Kane, Lake, McHenry, and
Will Counties, (AMBAC Insured), 7.20%, 11/1/20...................................... 8,000 9,697
- ------------------------------------------------------------------------------------------------------------------------------------
INDIANA -- 0.2%
Hosp. Auth. of St. Joseph County, St. Joseph's Medical Center,
(MBIA Insured), 6.70%, 12/1/02...................................................... 1,985 2,228
- ------------------------------------------------------------------------------------------------------------------------------------
KANSAS -- 1.0%
Johnson County, Internal Improvement, GO, 6.125%, 9/1/12............................. 4,500 4,720
Kansas, Dept. of Transportation, 5.375%, 3/1/13...................................... 10,000 9,785
- ------------------------------------------------------------------------------------------------------------------------------------
KENTUCKY -- 1.8%
Carroll County PCR, 7.45%, 9/15/16................................................... 15,000 17,362
Kentucky Turnpike Auth., Economic Dev., 7.25%, 5/15/10
(Pre-refunded 5/15/00+)............................................................. 1,000 1,151
Revitalization Projects, (AMBAC Insured), RIB, 7/1/11 (Currently 5.50%)............. 7,000 6,984
- ------------------------------------------------------------------------------------------------------------------------------------
LOUISIANA -- 1.0%
East Baton Rouge Mortgage Fin. Auth., 7.375%, 3/1/10
(Escrowed to Maturity).............................................................. 2,800 2,828
Louisiana Offshore Terminal Auth., LOOP, 7.60%, 9/1/10............................... 10,440 11,736
- ------------------------------------------------------------------------------------------------------------------------------------
MARYLAND -- 7.0%
Baltimore County, Pickersgill Retirement Community, 7.70%, 1/1/21.................... 2,000 2,145
Stella Maris, 7.50%, 3/1/21......................................................... 1,000 1,101
Calvert County PCR, Baltimore Gas and Electric Company, 5.55%, 7/15/14............... 5,000 4,922
Gaithersburg, First Mortgage Economic Dev. (Asbury Methodist Home),
7.85%, 1/1/20 (Pre-refunded 1/1/00+)............................................... 3,000 3,535
Housing Opportunities Commission of Montgomery County, 7.50%, 7/1/17................. 1,305 1,398
Maryland Community Dev. Administration, 7.60%, 4/1/17 *.............................. 8,000 8,650
7.25%, 4/1/19....................................................................... 2,500 2,686
Maryland HHEFA, Anne Arundel Medical Center, (AMBAC Insured),
5.00%, 7/1/23..................................................................... 12,735 11,555
Baltimore County General Hosp., Northwest Hosp. Center, (AMBAC
Insured), 5.25%, 7/1/13........................................................... 3,000 2,887
Francis Scott Key Medical Center, (FGIC Insured), 5.00%, 7/1/18..................... 10,000 9,195
5.00%, 7/1/23..................................................................... 3,900 3,539
Good Samaritan Hosp., 5.75%, 7/1/19................................................. 3,000 2,968
Howard County General Hosp. Auth., 5.50%, 7/1/13.................................... 3,750 3,549
Johns Hopkins Hosp., Zero Coupon, 7/1/19............................................ 9,000 2,052
Johns Hopkins Univ., 7.50%, 7/1/20.................................................. 9,475 10,708
Kennedy Institute, 6.75%, 7/1/22.................................................... 1,500 1,595
Peninsula Regional Medical Center, 5.00%, 7/1/23.................................... 7,700 6,889
Pooled Loan Program, VRDN (Currently 2.50%)......................................... 5,000 5,000
</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>
MARYLAND (cont'd)
Maryland HHEFA (cont'd)
Suburban Hosp., 5.125%, 7/1/21...................................................... $ 4,000 $ 3,615
Univ. of Maryland Medical System, (FGIC Insured), 5.00%, 7/1/20..................... 8,005 7,337
7.00%, 7/1/22..................................................................... 1,500 1,836
Maryland Water Quality Fin. Administration, Revolving Loan Fund,
7.25%, 9/1/12....................................................................... 1,950 2,208
Prince George's County, Collington Episcopal Life Care Community, Inc.,
5.625%, 4/1/09...................................................................... 2,000 1,902
- ------------------------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS -- 2.3%
Commonwealth of Massachusetts, GO, 5.00%, 1/1/13..................................... 5,000 4,620
Massachusetts Bay Transportation Auth., General Transportation System,
7.00%, 3/1/10 (Pre-refunded 3/1/00+)................................................ 5,000 5,624
GO, 7.00%, 3/1/21................................................................... 6,200 7,266
Massachusetts HEFA, Harvard Univ., 6.25%, 4/1/20..................................... 5,000 5,606
Massachusetts General Hosp., (AMBAC Insured), 6.00%, 7/1/15.......................... 4,500 4,619
Massachusetts Municipal Wholesale Electric Power Supply System,
6.125%, 7/1/19...................................................................... 5,000 5,090
- ------------------------------------------------------------------------------------------------------------------------------------
MICHIGAN -- 1.2%
Michigan Building Auth., 5.30%, 10/1/12.............................................. 5,000 4,833
(AMBAC Insured), 5.25%, 10/1/11..................................................... 5,000 4,871
Michigan State HDA, 7.55%, 12/1/15................................................... 1,750 1,890
Michigan State Hosp. Fin. Auth., Bay Medical Center, 8.25%, 7/1/12................... 1,000 1,126
Univ. of Michigan Hosp., 5.75%, 12/1/12............................................. 4,000 4,022
- ------------------------------------------------------------------------------------------------------------------------------------
MINNESOTA -- 2.9%
Minnesota, GO, 5.30%, 8/1/10......................................................... 8,530 8,401
5.30%, 8/1/11....................................................................... 9,555 9,374
Northern Municipal Power Agency, 7.35%, 1/1/02....................................... 5,000 5,636
Ramsey County, Capital Improvement, GO, 5.75%, 12/1/07............................... 1,915 1,996
GO, 5.85%, 12/1/08.................................................................. 2,000 2,092
Rochester Health Care Fac., Mayo Foundation/Mayo Medical Center,
5.80%, 11/15/07..................................................................... 1,500 1,561
5.875%, 11/15/08.................................................................... 2,880 3,025
5.90%, 11/15/09..................................................................... 2,000 2,110
5.90%, 11/15/10..................................................................... 4,000 4,229
VRDN (Currently 2.60%).............................................................. 500 500
6.25%, 11/15/21..................................................................... 3,000 3,163
- ------------------------------------------------------------------------------------------------------------------------------------
MISSISSIPPI -- 0.3%
Adams County, Jefferson Davis Memorial Hosp., 7.90%, 10/1/08......................... 3,050 3,454
Mississippi Home Corp., (FGIC Insured), 9.25%, 3/1/12................................ 1,335 1,447
- ------------------------------------------------------------------------------------------------------------------------------------
MISSOURI -- 0.6%
Joplin IDA, Tri-State Osteopathic Hosp. Assoc., 8.25%, 12/15/14...................... 3,000 3,411
Kansas City School Dist, Elementary School Building, (FGIC Insured),
5.00%, 2/1/14....................................................................... 2,500 2,327
Missouri HEFA, SSM Health Care, (MBIA Insured), 6.25%, 6/1/07........................ 2,690 2,905
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Amounts in Thousands
-----------------------------
Face Amount Value
----------- ----------
<S> <C> <C>
NEBRASKA -- 0.8%
Nebraska Public Power Dist., Power Supply System, 5.25%, 1/1/13...................... $ 9,700 $ 9,318
Omaha Public Power, Electric System, 6.20%, 2/1/17................................... 2,500 2,684
- ------------------------------------------------------------------------------------------------------------------------------------
NEVADA -- 0.6%
Clark County School Dist., Limited Tax School Improvement, GO,
(MBIA Insured), 7.00%, 6/1/11....................................................... 3,500 4,123
Nevada Housing Division, 11.00%, 4/1/94.............................................. 70 70
12.50%, 10/1/96..................................................................... 120 129
7.85%, 10/1/15...................................................................... 1,145 1,207
Nevada State, Municipal Bond Bank, GO, 7.25%, 11/1/10
(Escrowed to Maturity).............................................................. 3,050 3,658
- ------------------------------------------------------------------------------------------------------------------------------------
NEW JERSEY -- 0.4%
New Jersey Economic Dev. Auth., Economic Recovery Fund, Zero Coupon,
3/15/11............................................................................. 3,000 1,113
New Jersey Health Care Fac. Fin. Auth., Chilton Memorial Hosp., 5.00%, 7/1/13........ 2,000 1,850
New Jersey Housing Fin. Agency, 6.60%, 11/1/14....................................... 2,250 2,375
- ------------------------------------------------------------------------------------------------------------------------------------
NEW MEXICO -- 0.3%
Gallup PCR, Plains Electric Generation and Transmission Coop.,
(MBIA Insured), 6.65%, 8/15/17...................................................... 4,000 4,381
- ------------------------------------------------------------------------------------------------------------------------------------
NEW YORK -- 8.9%
Dormitory Auth. of the State of New York, City Univ., 5.75%, 7/1/13.................. 3,750 3,745
5.00%, 7/1/20..................................................................... 12,825 11,275
Dept. of Health of the State of New York, 5.50%, 7/1/20............................. 4,000 3,772
State Univ., 5.875%, 5/15/17........................................................ 5,000 5,053
5.40%, 5/15/23.................................................................... 7,750 7,152
Vassar College, 7.25%, 7/1/15....................................................... 2,000 2,285
Municipal Assistance Corp. for the City of New York, 7.375%, 7/1/08.................. 2,500 2,734
New York City, GO, 7.50%, 2/1/08..................................................... 2,500 2,845
5.75%, 8/15/11...................................................................... 2,500 2,421
5.75%, 8/15/14...................................................................... 1,975 1,902
8.00%, 8/1/16 (Pre-refunded 8/1/01+)................................................ 4,725 5,761
8.00%, 8/1/16....................................................................... 4,275 5,039
GO, RAN, 3.25%, 4/15/94............................................................. 7,000 7,005
3.50%, 6/30/94...................................................................... 10,000 10,022
New York City Municipal Water Fin. Auth., Water and Sewer System,
5.50%, 6/15/19...................................................................... 2,950 2,841
(AMBAC Insured), 5.875%, 6/15/12.................................................... 3,725 3,871
(MBIA Insured), 5.375%, 6/15/19..................................................... 10,350 9,968
New York State Housing Fin. Agency, Univ. Construction,
7.80%, 5/1/01 (Escrowed to Maturity)................................................ 2,000 2,401
New York State Local Gov't. Assistance Corp., 7.20%, 4/1/04.......................... 5,000 5,701
6.00%, 4/1/12....................................................................... 3,000 3,170
5.375%, 4/1/14...................................................................... 10,000 9,602
5.50%, 4/1/23....................................................................... 6,250 5,954
</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>
NEW YORK (cont'd)
New York State Medical Care Fac. Fin., 5.25%, 8/15/23................................ $ 3,000 $ 2,706
New York State Power Auth., 7.375%, 1/1/18 (Pre-refunded 1/1/96+).................... 1,600 1,734
New York State Urban Dev. Corp., 5.50%, 1/1/14....................................... 3,000 2,891
5.25%, 1/1/21....................................................................... 5,500 4,980
Triborough Bridge and Tunnel Auth., (AMBAC Insured), 6.00%, 1/1/15................... 2,500 2,600
- ------------------------------------------------------------------------------------------------------------------------------------
NORTH CAROLINA -- 3.0%
Charlotte-Mecklenberg Hosp. Auth., North Carolina HealthCare System,
6.25%, 1/1/20....................................................................... 5,000 5,325
North Carolina Eastern Municipal Power Agency,
7.50%, 1/1/10 (Escrowed to Maturity)................................................ 4,650 5,755
7.50%, 1/1/10....................................................................... 4,330 5,115
6.00%, 1/1/18....................................................................... 2,750 2,785
6.50%, 1/1/18 (Escrowed to Maturity)................................................ 2,655 3,013
6.50%, 1/1/18....................................................................... 3,935 4,256
6.00%, 1/1/26....................................................................... 3,500 3,560
North Carolina Housing Fin. Agency, 7.40%, 3/1/28.................................... 2,255 2,347
North Carolina Medical Care Commission, Stanley Memorial Hosp.,
7.80%, 10/1/19...................................................................... 3,000 3,365
North Carolina Municipal Power Agency, Catawba Electric, (MBIA Insured),
5.75%, 1/1/20....................................................................... 8,510 8,486
- ------------------------------------------------------------------------------------------------------------------------------------
OHIO -- 2.7%
Cleveland Waterworks, (MBIA Insured), 5.50%, 1/1/13.................................. 4,100 4,167
5.50%, 1/1/21....................................................................... 5,000 5,035
Columbus, Sewerage System, 6.25%, 6/1/08............................................. 2,250 2,421
Waterworks Enlargement, GO, 6.00%, 5/1/13........................................... 2,000 2,081
Franklin County, GO, 6.80%, 12/1/09 (Pre-refunded 12/1/00+).......................... 2,860 3,260
6.80%, 12/1/10 (Pre-refunded 12/1/00+)............................................ 3,240 3,693
County Courthouse (Limited Tax), GO, 6.375%, 12/1/17
(Pre-refunded 12/1/01+)........................................................... 2,000 2,250
Hamilton County, Sisters of Charity HealthCare System, 5.25%, 5/15/13................ 1,250 1,203
The Metropolitan Sewer Dist. of Greater Cincinnati, (FGIC Insured),
5.00%, 12/1/14.................................................................... 11,800 11,060
Montgomery County, Sisters of Charity HealthCare System, 5.25%, 5/15/11.............. 1,750 1,698
Montgomery County Hosp. Fac., Kettering Medical Center, (MBIA Insured),
7.375%, 4/1/02...................................................................... 2,500 2,804
- ------------------------------------------------------------------------------------------------------------------------------------
OKLAHOMA -- 2.2%
Grand River Dam Auth., 5.50%, 6/1/09................................................. 7,250 7,309
Oklahoma Municipal Power Auth., Power Supply System, (MBIA Insured),
5.875%, 1/1/12...................................................................... 3,000 3,176
5.75%, 1/1/24....................................................................... 16,305 16,898
Tulsa County Home Fin. Auth., Single Family Mortgage, (FGIC Insured),
6.90%, 8/1/10 (Escrowed to Maturity)................................................ 4,250 4,923
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Amounts in Thousands
-----------------------------
Face Amount Value
----------- ----------
<S> <C> <C>
PENNSYLVANIA -- 1.3%
Allegheny County Hosp. Dev. Auth., Montefiore Hosp. Assoc. of Western
Pennsylvania, 9.75%, 7/1/05 (Pre-refunded 7/1/96+).................................. $ 12,000 $ 13,792
Commonwealth of Pennsylvania, GO, (AMBAC Insured), 5.00%, 4/15/10.................... 4,000 3,800
State Public School Building Auth., Commonwealth of Pennsylvania,
9.625%, 11/1/03 (Pre-refunded 11/1/95+)............................................. 1,150 1,263
- ------------------------------------------------------------------------------------------------------------------------------------
PUERTO RICO -- 3.2%
Puerto Rico Aqueduct and Sewer Auth., 7.875%, 7/1/17................................. 10,250 11,668
Puerto Rico Housing Bank and Fin. Agency, Loan Insurance Claims,
4.125%, 12/1/96..................................................................... 10,660 10,611
Puerto Rico Ind., Med., Higher Ed. & Environmental Pollution Control Fac.
Fin. Auth., Catholic Univ. of Puerto Rico, 9.25%, 12/1/97........................... 6,330 7,522
Puerto Rico Infrastructure Fin. Auth., 7.75%, 7/1/08................................. 1,740 1,969
7.50%, 7/1/09....................................................................... 9,955 11,171
Puerto Rico Public Fin., GO, Floating Rate, 7/1/95 (Currently 6.35%)
(Escrowed to Maturity).............................................................. 3,145 3,244
- ------------------------------------------------------------------------------------------------------------------------------------
RHODE ISLAND -- 1.0%
Rhode Island Health & Ed. Building Corp., Bryant College, (MBIA Insured),
6.125%, 6/1/19.................................................................... 5,000 5,132
Rhode Island Hosp., (FGIC Insured), RIB (Currently 10.932%)......................... 1,000 1,189
Rhode Island Housing & Mortgage Fin. Corp., Homeownership Opportunity,
7.85%, 10/1/16...................................................................... 8,000 8,712
- ------------------------------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA -- 2.8%
Charleston Waterworks & Sewer System, 10.375%, 1/1/15
(Pre-refunded 1/1/95+).............................................................. 10,000 10,909
Darlington County PCR, Carolina Power & Light, (MBIA Insured),
6.60%, 11/1/10...................................................................... 4,000 4,428
Greenville Hosp. System, Board of Trustees, Hosp. Fac., 5.50%, 5/1/16................ 5,250 5,105
Piedmont Municipal Power Agency, (FGIC Insured), 6.50%, 1/1/14....................... 3,500 3,910
(MBIA Insured), 6.30%, 1/1/14....................................................... 2,390 2,534
5.375%, 1/1/25...................................................................... 5,900 5,631
South Carolina Public Service Auth., Santee Cooper,
7.00%, 7/1/12 (Pre-refunded 7/1/01+)................................................ 1,650 1,900
6.625%, 7/1/31 (Pre-refunded 7/1/02+)............................................... 5,000 5,692
- ------------------------------------------------------------------------------------------------------------------------------------
SOUTH DAKOTA -- 0.5%
South Dakota Building Auth., 7.50%, 12/1/16.......................................... 7,000 7,626
- ------------------------------------------------------------------------------------------------------------------------------------
TENNESSEE -- 2.5%
Chattanooga Ind. Dev. Board, Dupont, 6.35%, 7/1/22................................... 2,000 2,180
Clarksville Public Building Auth., Pooled Loan, (MBIA Insured),
VRDN (Currently 2.35%).............................................................. 6,000 6,000
</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>
TENNESSEE (cont'd)
Health & Ed. Board of the Metropolitan Gov't of Nashville and Davidson
County, Vanderbilt Univ., 5.125%, 7/1/13............................................ $ 4,000 $ 3,759
Health, Ed. & Housing Fac. Board of the City of Chattanooga, Memorial Hosp.,
(MBIA Insured), 6.625%, 9/1/07...................................................... 2,950 3,327
6.625%, 9/1/08...................................................................... 3,150 3,538
Memphis, Electric System, 6.75%, 1/1/11 (Pre-refunded 1/1/00+)....................... 2,500 2,797
Metropolitan Gov't. of Nashville and Davidson County, Water and Sewer,
(AMBAC Insured), VRDN (Currently 2.44%)............................................. 7,200 7,200
Shelby County, GO, 5.10%, 3/1/16..................................................... 2,490 2,331
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................ 5,000 4,943
- ------------------------------------------------------------------------------------------------------------------------------------
TEXAS -- 6.7%
Brazos River Auth., Houston Lighting & Power, 8.25%, 5/1/15.......................... 18,000 20,252
Dallas-Fort Worth Regional Airport, 10.00%, 11/1/12.................................. 20,000 21,366
Harris County Health Fac. Dev. Corp., Memorial Hosp., 7.125%, 6/1/15................. 2,500 2,813
Sisters of Charity of the Incarnate Word, 7.10%, 7/1/21............................. 4,000 4,468
St. Luke's Episcopal Hosp., VRDN (Currently 2.30%).................................. 1,000 1,000
Texas Medical Center, (MBIA Insured), 7.375%, 5/15/20............................... 7,645 8,698
Harris County Hosp. Dist., (AMBAC Insured), 7.40%, 2/15/10........................... 1,500 1,825
Houston Health Fac. Dev. Corp., Methodist Hosp., VRDN (Currently 2.30%).............. 2,400 2,400
Matagorda County Navigation Dist. Number One PCR, Central Power & Light,
7.50%, 12/15/14................................................................... 1,500 1,688
Houston Lighting & Power, (FGIC Insured), 7.20%, 12/1/18............................ 3,600 4,054
Texas, GO, TRAN, 3.25%, 8/31/94...................................................... 5,000 5,010
Texas State Public Fin. Auth., GO, 7.00%, 10/1/08 (Pre-refunded 1/1/99+)............. 3,000 3,372
Texas State Veterans, GO, 8.25%, 12/1/10............................................. 3,900 4,266
Land Refunding, GO, 7.40%, 12/1/20.................................................. 14,205 15,821
- ------------------------------------------------------------------------------------------------------------------------------------
UTAH -- 0.8%
Intermountain Power Agency, 7.20%, 7/1/19............................................ 6,200 6,790
7.50%, 7/1/21....................................................................... 4,750 5,314
- ------------------------------------------------------------------------------------------------------------------------------------
VERMONT -- 0.8%
Vermont Ed. and Health Buildings Fin. Agency, Medical Center Hosp. of
Vermont, (FGIC Insured), RIB, 9/1/13 (Currently 7.35%).............................. 4,650 5,092
RIB, 9/1/23 (Currently 7.45%)..................................................... 2,000 2,195
Middlebury College, 6.00%, 11/1/22.................................................. 4,585 4,650
- ------------------------------------------------------------------------------------------------------------------------------------
VIRGINIA -- 4.1%
Fairfax County Water Auth., 6.00%, 4/1/22............................................ 15,500 15,745
Henrico County IDA, Bon Secours Health System (St. Mary's Hosp.),
7.50%, 9/1/07..................................................................... 1,805 2,082
Bon Secours Health Systems (Saint John's Hosp.), 7.50%, 9/1/15...................... 1,950 2,246
Richmond Metropolitan Auth., Expressway Revenue and Refunding,
6.375%, 7/15/16..................................................................... 7,000 7,433
Roanoke IDA, Roanoke Memorial Hosp., Community Hosp. of Roanoke Valley,
Bedford County Memorial Hosp., VRDN (Currently 2.30%)............................... 1,800 1,800
Upper Occoquan Sewage Auth., (FGIC Insured), 5.00%, 7/1/15........................... 3,000 2,781
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Amounts in Thousands
-----------------------------
Face Amount Value
----------- ----------
<S> <C> <C>
VIRGINIA (cont'd)
Virginia HDA, 6.90%, 7/1/13.......................................................... $ 11,100 $ 11,668
Virginia Transportation Board, Northern Virginia Transportation Dist.,
5.25%, 5/15/19.................................................................... 4,990 4,704
U.S. Route 58 Corridor Dev. Program, 6.00%, 5/15/19................................. 5,925 6,040
Winchester IDA, Winchester Medical Center, Inc., (AMBAC Insured),
RIB, 1/1/05 (Currently 6.36%)....................................................... 1,500 1,467
RIB, 1/1/06 (Currently 6.46%)....................................................... 1,500 1,466
RIB, 1/1/07 (Currently 6.56%)....................................................... 1,600 1,569
- ------------------------------------------------------------------------------------------------------------------------------------
WASHINGTON -- 3.2%
Municipality of Metropolitan Seattle, Limited Sales Tax, GO,
7.20%, 1/1/20 (Pre-refunded 1/1/97+)................................................ 6,000 6,612
Port of Seattle, 7.40%, 12/1/09...................................................... 1,000 1,136
Washington Public Power Supply System, Bonneville Power Administration,
7.25%, 7/1/09....................................................................... 3,000 3,501
5.375%, 7/1/15...................................................................... 10,500 9,883
7.25%, 7/1/15 (Pre-refunded 1/1/00+)................................................ 2,200 2,511
7.50%, 7/1/15 (Pre-refunded 7/1/99+)................................................ 2,225 2,573
7.50%, 7/1/15....................................................................... 4,885 5,543
(FGIC Insured), Zero Coupon, 7/1/09................................................. 3,000 1,239
(MBIA Insured), 5.60%, 7/1/15....................................................... 7,500 7,380
6.25%, 7/1/17....................................................................... 6,000 6,255
- ------------------------------------------------------------------------------------------------------------------------------------
WEST VIRGINIA -- 1.0%
Kanawha County Building Commission, Charleston Area Medical Center,
7.50%, 11/1/08...................................................................... 2,250 2,546
West Virginia State Parkway, Economic Dev. & Tourism Auth., (FGIC Insured),
RIB, 5/16/19 (Currently 8.944%)..................................................... 3,600 3,614
West Virginia State Univ. Board of Trustees, (AMBAC Insured),
6.00%, 4/1/12....................................................................... 8,000 8,315
- ------------------------------------------------------------------------------------------------------------------------------------
WISCONSIN -- 0.1%
Wisconsin Public Power System, (AMBAC Insured), 7.00%, 7/1/02........................ 1,500 1,685
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES -- 97.0% (COST -- $1,321,751)........................ 1,408,641
- ------------------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- 3.0%................................................ 43,940
----------
NET ASSETS CONSISTING OF:
Accumulated net investment income -- net of distributions............................ 632
Accumulated realized gains/losses -- net of distributions............................ 3,789
Unrealized appreciation of investments............................................... 86,890
Paid-in-capital applicable to 150,315,881 shares of $1.00 par value
capital stock outstanding; 500,000,000 shares authorized............................ 1,361,270
----------
</TABLE>
11
<PAGE>
T. Rowe Price Tax-Free Income Fund
Statement of Net Assets
<TABLE>
<CAPTION>
Amounts in Thousands
-----------------------------
Face Amount Value
----------- ----------
<S> <C> <C>
NET ASSETS -- 100.0%................................................................. $1,452,581
==========
NET ASSET VALUE PER SHARE............................................................ $9.66
=====
</TABLE>
* -- Interest subject to alternative minimum tax
+ -- Used in determining portfolio maturity
AMBAC -- American Municipal Bond Assurance Corporation
BIGI -- Bond Investors Guaranty Insurance
COP -- Certificates of Participation
FGIC -- Financial Guaranty Insurance Company
GO -- General Obligation
HDA -- Housing Development Authority
HEFA -- Health & Educational Facility Authority
HFA -- Health Facility Authority
HHEFA -- Health & Higher Educational Facility Authority
IDA -- Industrial Development Authority
MBIA -- Municipal Bond Insurance Association
PCR -- Pollution Control Revenue
RAN -- Revenue Anticipation Note
RIB -- Residual Interest Bond
TRAN -- Tax Revenue Anticipation Note
VRDN -- Variable Rate Demand Note
T. Rowe Price Tax-Free Income Fund
Statement of Operations / Year Ended February 28, 1994
<TABLE>
<CAPTION>
Amounts in Thousands
----------------------
<S> <C>
INVESTMENT INCOME
Interest income........................................... $ 88,645
Expenses
Investment management fees............................... $ 7,362
Shareholder servicing fees & expenses.................... 859
Custodian and accounting fees & expenses................. 283
Prospectus & shareholder reports......................... 77
Registration fees & expenses............................. 50
Legal & auditing fees.................................... 38
Directors' fees & expenses............................... 26
Miscellaneous............................................ 30
--------
Total expenses........................................... 8,725
--------
Net investment income..................................... 79,920
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss)
Securities............................................... 48,125
Options.................................................. (1,337)
Futures.................................................. (1,473)
--------
Net realized gain........................................ 45,315
Change in unrealized appreciation or depreciation......... (44,503)
--------
Net gain on investments................................... 812
--------
INCREASE IN NET ASSETS FROM OPERATIONS.................... $ 80,732
========
========================================================================================
</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
<TABLE>
<CAPTION>
Amounts in Thousands
----------------------------------------------
Year Ended Year Ended
Feb. 28, 1994 Feb. 28, 1993
---------------------- ---------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income............................................ $ 79,920 $ 78,603
Net realized gain on investments................................. 45,315 37,123
Change in unrealized appreciation or
depreciation of investments..................................... (44,503) 70,100
---------- ----------
Increase in net assets from operations........................... 80,732 185,826
---------- ----------
Distributions to shareholders
Net investment income............................................ (79,920) (78,603)
Net realized gain on investments................................. (27,101) --
---------- ----------
Decrease in net assets from distributions to shareholders........ (107,021) (78,603)
---------- ----------
Capital share transactions
Sold 26,880 and 28,664 shares.................................... 265,837 267,115
Distributions reinvested of 7,772 and 5,903 shares............... 76,861 55,097
Redeemed 30,902 and 25,045 shares................................ (305,474) (233,086)
---------- ----------
Increase in net assets from capital share transactions........... 37,224 89,126
---------- ----------
Total increase.................................................... 10,935 196,349
NET ASSETS
Beginning of year................................................ 1,441,646 1,245,297
---------- ----------
End of year...................................................... $1,452,581 $1,441,646
========== ==========
========================================================================================================================
</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 / February 28, 1994
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.
D) Accounting Change - Effective as of the beginning of the year, the Fund
adopted a recently issued accounting standard related to shareholder
distributions. This change resulted in a reclassification to paid-in-capital of
permanent differences between tax and financial reporting of net investment
income and net realized gains/losses. The cumulative effect of this change as
of February 28, 1993, increased Accumulated net investment income - net of
distributions by $632,000, increased Accumulated net realized gains/losses - net
of distributions by $1,649,000 and decreased Paid-in-capital by $2,281,000. The
results of operations, shareholder distributions and net assets were not
affected by this change.
NOTE 2 - PORTFOLIO TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term securities,
aggregated $1,003,011,000 and $1,166,421,000, respectively, for the year ended
February 28, 1994.
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 February 28, 1994, the aggregate cost of investments for federal income
tax and financial reporting purposes was $1,321,751,000 and net unrealized
appreciation aggregated $86,890,000, of which $91,514,000 related to appreciated
investments and $4,624,000 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
14
<PAGE>
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
February 28, 1994, was 0.34%, and for the year then ended was 0.35%. 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 year ended February 28, 1994, the Fund incurred fees totalling
approximately $741,000 for these services provided by related parties. At
February 28, 1994, investment management and service fees payable were
$633,000.
T. Rowe Price Tax-Free Income Fund
Financial Highlights
<TABLE>
<CAPTION>
For a share outstanding throughout each year ended
---------------------------------------------------------------------------
Feb. 28, Feb. 28, Feb. 29, Feb. 28, Feb. 28,
1994 1993 1992 1991 1990
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR................ $ 9.84 $ 9.09 $ 8.79 $ 8.66 $ 8.57
---------- ---------- ---------- ---------- ----------
Investment Activities
Net investment income........................... .54 0.56 0.57 0.57 0.59
Net realized and unrealized gain................ -- 0.75 0.30 0.13 0.09
---------- ---------- ---------- ---------- ----------
Total from Investment Activities.................. 0.54 1.31 0.87 0.70 0.68
---------- ---------- ---------- ---------- ----------
Distributions
Net investment income........................... (0.54) (0.56) (0.57) (0.57) (0.59)
Net realized gain............................... (0.18) -- -- -- --
---------- ---------- ---------- ---------- ----------
Total Distributions............................... (0.72) (0.56) (0.57) (0.57) (0.59)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF YEAR...................... $ 9.66 $ 9.84 $ 9.09 $ 8.79 $ 8.66
========== ========== ========== ========== ==========
=================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Total Return...................................... 5.50% 14.88% 10.17% 8.40% 8.15%
Ratio of Expenses to Average Net Assets........... 0.59% 0.61% 0.62% 0.63% 0.64%
Ratio of Net Investment Income
to Average Net Assets............................ 5.40% 5.98% 6.34% 6.59% 6.80%
Portfolio Turnover Rate........................... 71.2% 76.7% 57.9% 79.7% 140.5%
Net Assets, End of Year (in thousands)............ $1,452,581 $1,441,646 $1,245,297 $1,128,635 $1,123,143
Number of Shareholder Accounts,
End of Year...................................... 34,000 34,000 33,000 33,000 35,000
=================================================================================================================================
</TABLE>
15
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Directors of
T. Rowe Price Tax-Free Income Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the selected per share
data and information (which appears under the heading "Financial Highlights")
present fairly, in all material respects, the financial position of T. Rowe
Price Tax-Free Income Fund, Inc. at February 28, 1994, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the selected per share data and
information for each of the five years in the period then ended, in conformity
with generally accepted accounting principles. These financial statements and
selected per share data and information (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 28, 1994 by
correspondence with custodians and brokers and, where appropriate, the
application of alternative auditing procedures for unsettled security
transactions, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE
Baltimore, Maryland
March 17, 1994
Officers and Directors
George J. Collins, Chairman
William T. Reynolds, President/Director
Calvin W. Burnett, Director
Anthony W. Deering, Director
F. Pierce Linaweaver, Director
James S. Riepe, Vice President/Director
John Sagan, Director
John G. Schreiber, Director
Janet G. Albright, Vice President
Patrice L. Berchtenbreiter, Vice President
Michael P. Buckley, Vice President
Patricia S. Deford, Vice President
Charles B. Hill, Vice President
Charles O. Holland, Vice President
Henry H. Hopkins, Vice President
Mary J. Miller, Vice President
Alan P. Richman, Vice President
C. Stephen Wolfe II, Vice President
Lenora V. Hornung, Secretary
Carmen F. Deyesu, Treasurer
David S. Middleton, Controller
16
