<PAGE>
- --------------------------------------------------------------------------------
ANNUAL REPORT - FINANCIAL STATEMENTS
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T. ROWE PRICE
TAX-FREE
INCOME FUND
-----------------
FEBRUARY 28, 1998
-----------------
- --------------------------------------------------------------------------------
- --------------------
PORTFOLIO HIGHLIGHTS
- --------------------
SECTOR DIVERSIFICATION
Percent of Percent of
Net Assets Net Assets
8/31/97 2/28/98
-----------------------------------------------------------------------------
Hospital Revenue 13% 13%
.............................................................................
Nuclear Revenue 13 12
.............................................................................
Prerefunded Bonds 9 11
.............................................................................
Housing Finance Revenue 10 10
.............................................................................
General Obligation - State 6 7
.............................................................................
Dedicated Tax Revenue 9 7
.............................................................................
General Obligation - Local 7 6
.............................................................................
Ground Transportation Revenue 5 6
.............................................................................
Escrowed to Maturity 5 5
.............................................................................
Lease Revenue 4 5
.............................................................................
Water and Sewer Revenue 3 4
.............................................................................
Electric Revenue 4 4
.............................................................................
Educational Revenue 4 4
.............................................................................
Solid Waste Revenue 2 2
.............................................................................
All Others 5 5
.............................................................................
Other Assets Less Liabilities 1 -1
-----------------------------------------------------------------------------
Total 100% 100%
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T. ROWE PRICE TAX-FREE INCOME FUND
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- --------------------
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
- --------------------------------------------------------------------------------
Year
Ended
2/28/98 2/28/97 2/29/96 2/28/95 2/28/94
NET ASSET VALUE
Beginning of period $ 9.59 $ 9.66 $ 9.25 $ 9.66 $ 9.84
...................................................
Investment activities
Net investment income 0.52 0.52 0.52 0.53 0.54
Net realized and
unrealized gain (loss) 0.36 (0.07) 0.41 (0.37) --
...................................................
Total from
investment activities 0.88 0.45 0.93 0.16 0.54
...................................................
Distributions
Net investment income (0.52) (0.52) (0.52) (0.53) (0.54)
Net realized gain -- -- -- (0.04) (0.18)
...................................................
Total distributions (0.52) (0.52) (0.52) (0.57) (0.72)
...................................................
NET ASSET VALUE
End of period $ 9.95 $ 9.59 $ 9.66 $ 9.25 $ 9.66
---------------------------------------------------
Ratios/Supplemental Data
Total return 9.37% 4.81% 10.31% 1.90% 5.50%
...................................................
Ratio of expenses to
average net assets 0.55% 0.57% 0.58% 0.59% 0.59%
...................................................
Ratio of net investment
income to average
net assets 5.31% 5.41% 5.49% 5.80% 5.40%
...................................................
Portfolio turnover rate 36.3% 40.7% 48.7% 49.3% 71.2%
...................................................
Net assets, end of period
(in millions) $ 1,396 $ 1,337 $ 1,376 $ 1,329 $ 1,453
...................................................
The accompanying notes are an integral part of these financial statements.
2
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T. ROWE PRICE TAX-FREE INCOME FUND
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February 28, 1998
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STATEMENT OF NET ASSETS Par Value
- --------------------------------------------------------------------------------
In thousands
ALABAMA 3.1%
Alabama, GO
Zero Coupon, 9/1/03 $ 10,000 $ 7,516
.........................................................................
Zero Coupon, 3/1/04 10,000 7,237
.........................................................................
Zero Coupon, 9/1/04 5,500 3,838
................................................................................
Alabama Docks Dept., Docks Fac.
5.25%, 10/1/10 (MBIA Insured) ** 2,400 2,514
.........................................................................
5.50%, 10/1/22 (MBIA Insured) ** 5,000 5,107
................................................................................
Alabama Water Pollution Control Auth., Revolving Fund Loan
6.75%, 8/15/17 (AMBAC Insured) 2,685 3,019
................................................................................
Alexander Special Care Fac. Fin. Auth., Russell Hosp.
6.00%, 12/1/22 3,250 3,395
................................................................................
Baldwin County, Eastern Shore Health Care Auth.,
Thomas Hosp.
6.75%, 4/1/21 1,900 2,074
................................................................................
Huntsville Health Care Auth., Health Care
5.00%, 6/1/23 (MBIA Insured) 5,000 4,867
................................................................................
Mobile, GO
Capital Improvement Warrants
Zero Coupon, 8/15/16 (MBIA Insured) 4,330 1,374
.........................................................................
Zero Coupon, 8/15/17 (MBIA Insured) 4,435 1,309
................................................................................
Mobile IDB, Mobile Energy, 6.95%, 1/1/20 1,500 1,685
................................................................................
Total Alabama (Cost $40,290) 43,935
..............
ALASKA 2.2%
Alaska Housing Fin.
5.85%, 12/1/14 (MBIA Insured) 3,405 3,523
.........................................................................
5.875%, 12/1/24 (MBIA Insured) 11,000 11,459
.........................................................................
General Mortgage
Zero Coupon, 12/1/17 (MBIA Insured) 6,250 1,945
................................................................................
Valdez Marine Terminal, British Petroleum Pipelines
5.65%, 12/1/28 13,850 14,127
................................................................................
Total Alaska (Cost $29,627) 31,054
..............
3
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T. ROWE PRICE TAX-FREE INCOME FUND
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Par Value
- --------------------------------------------------------------------------------
In thousands
ARIZONA 0.6%
Salt River Agricultural Improvement and Power Dist.
Electric System, 6.50%, 1/1/22
(Prerefunded 1/1/01+) $ 8,000 $ 8,675
................................................................................
Total Arizona (Cost $7,699) 8,675
............
ARKANSAS 0.5%
Little Rock Health Fac. Board, Baptist Medical Center
6.85%, 11/1/08 2,495 2,950
................................................................................
North Little Rock, Electric System
6.50%, 7/1/15 (MBIA Insured) 4,000 4,747
................................................................................
Total Arkansas (Cost $6,476) 7,697
..............
CALIFORNIA 5.7%
Foothill / Eastern Transportation Agency, Toll Road
Zero Coupon, 1/1/15 5,000 2,031
.........................................................................
Zero Coupon, 1/1/17 20,000 7,261
.........................................................................
Zero Coupon, 1/1/26 5,000 1,113
................................................................................
Los Angeles City, GO
5.80%, 9/1/09 (FGIC Insured) 2,400 2,590
.........................................................................
6.00%, 9/1/14 (MBIA Insured) 5,000 5,491
.........................................................................
Wastewater, 7.15%, 6/1/20 (Prerefunded 6/1/00+) 10,500 11,452
................................................................................
Los Angeles County, Marina del Rey, COP
6.25%, 7/1/03 4,000 4,329
.........................................................................
6.50%, 7/1/08 3,250 3,527
................................................................................
Los Angeles County Metropolitan Transportation Auth.
Sales Tax
6.25%, 7/1/13 (MBIA Insured) 8,965 9,796
.........................................................................
7.40%, 7/1/15 5,530 5,880
................................................................................
Los Angeles County Public Works Fin. Auth.,
Rowland Heights
5.50%, 10/1/18 (FSA Insured) 7,000 7,437
................................................................................
Los Angeles Harbor Dept.
7.60%, 10/1/18 (Escrowed to Maturity) 3,200 4,067
................................................................................
San Bernardino, Sisters of Charity Health Care
7.00%, 7/1/21 (Prerefunded 7/1/01+) 3,000 3,332
................................................................................
4
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T. ROWE PRICE TAX-FREE INCOME FUND
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Par Value
- --------------------------------------------------------------------------------
In thousands
San Mateo County Transit Dist., 5.25%, 6/1/16
(MBIA Insured) $6,000 $ 6,222
................................................................................
Southern California Public Power Auth., 6.75%, 7/1/11 4,050 4,839
................................................................................
Total California (Cost $68,985) 79,367
............
COLORADO 1.4%
Boulder County, Longmont United Hosp.
8.20%, 12/1/20 (Prerefunded 12/1/00+) 2,000 2,238
................................................................................
E-470 Public Highway Auth.
Zero Coupon, 9/1/13 (MBIA Insured) 10,000 4,649
.........................................................................
Zero Coupon, 9/1/17 (MBIA Insured) 7,000 2,571
.........................................................................
Zero Coupon, 8/31/26 (Prerefunded 8/31/05+) 7,000 1,052
................................................................................
Jefferson County School Dist., GO
6.00%, 12/15/12 (AMBAC Insured)
(Prerefunded 12/15/02+) 8,000 8,736
................................................................................
Total Colorado (Cost $17,579) 19,246
............
CONNECTICUT 1.5%
Connecticut, State Special Tax, 7.125%, 6/1/10 7,350 9,042
................................................................................
Connecticut Dev. Auth., Mystic Marinelife Aquarium
7.00%, 12/1/27 1,700 1,817
................................................................................
Connecticut HEFA, Yale-New Haven Hosp.
7.10%, 7/1/25 (MBIA Insured)
(Prerefunded 7/1/00+) 5,825 6,345
................................................................................
Mashantucket Western Pequot Tribe, 5.75%, 9/1/27 3,000 3,066
................................................................................
Total Connecticut (Cost $17,853) 20,270
............
DELAWARE 0.3%
Delaware HFA, Beebe Medical Center, 6.75%, 6/1/14 3,500 3,856
................................................................................
Total Delaware (Cost $3,424) 3,856
............
DISTRICT OF COLUMBIA 0.7%
Dist. of Columbia
American Assoc. for the Advancement of Science
5.125%, 1/1/27 (AMBAC Insured) 3,500 3,430
................................................................................
5
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T. ROWE PRICE TAX-FREE INCOME FUND
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Par Value
- --------------------------------------------------------------------------------
In thousands
Dist. of Columbia
American Univ.
5.625%, 10/1/26 (AMBAC Insured) $ 1,180 $ 1,231
.........................................................................
Smithsonian Institution, 5.00%, 2/1/28 5,000 4,820
................................................................................
Total District of Columbia (Cost $9,239) 9,481
..............
FLORIDA 3.9%
Broward County Resource Recovery
Broward Waste Energy, L.P. North
7.95%, 12/1/08 10,185 11,103
.........................................................................
Broward Waste Energy, L.P. South
7.95%, 12/1/08 835 910
................................................................................
Dade County
Zero Coupon, 2/1/09 (MBIA Insured) 12,185 7,295
.........................................................................
Zero Coupon, 2/1/13 (MBIA Insured) 9,000 4,119
.........................................................................
Florida Board of Ed., GO
Capital Outlay, VRDN (Currently 3.65%) 7,200 7,200
............................................................................
Public Ed. Capital Outlay, 7.25%, 6/1/23 6,210 6,716
............................................................................
Jacksonville Transportation Auth., GO
7.375%, 7/1/20 (Prerefunded 7/1/00+) 8,750 9,592
................................................................................
Port St. Lucie, Utility
Zero Coupon, 9/1/16 (FGIC Insured)
(Prerefunded 9/1/06+) 5,000 1,937
.........................................................................
Zero Coupon, 9/1/26 (FGIC Insured)
(Prerefunded 9/1/06+) 5,000 1,017
.........................................................................
Sarasota County Public Hosp. Board
Sarasota Memorial Hosp., FR
(Currently 3.424%), 10/1/21 (MBIA Insured) 4,000 3,920
................................................................................
Total Florida (Cost $49,943) 53,809
..............
GEORGIA 6.3%
Coweta County Residential Care Fac. for the Elderly Auth.
Wesley Woods of Newnan-Peachtree City
8.20%, 10/1/16 1,350 1,568
.........................................................................
8.25%, 10/1/26 1,800 2,096
................................................................................
6
<PAGE>
T. ROWE PRICE TAX-FREE INCOME FUND
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Par Value
- --------------------------------------------------------------------------------
In thousands
Fulton-Dekalb Hosp. Auth.
Grady Memorial Hosp.
6.80%, 1/1/07 (AMBAC Insured)
(Escrowed to Maturity) $ 5,530 $ 6,501
.........................................................................
6.80%, 1/1/08 (AMBAC Insured)
(Escrowed to Maturity) 5,905 7,008
.........................................................................
6.85%, 1/1/09 (AMBAC Insured)
(Escrowed to Maturity) 6,310 7,566
.........................................................................
6.85%, 1/1/10 (AMBAC Insured)
(Escrowed to Maturity) 6,745 8,140
................................................................................
Gwinnett County School Dist., GO
6.40%, 2/1/11 1,905 2,230
.........................................................................
6.40%, 2/1/12 1,255 1,469
................................................................................
Henry County School Dist., GO, 6.45%, 8/1/11 2,100 2,454
................................................................................
Metropolitan Atlanta Rapid Transit Auth.
Sales Tax
6.55%, 7/1/20 (Prerefunded 7/1/01+) 5,500 6,022
.........................................................................
6.90%, 7/1/16 (MBIA Insured)
(Prerefunded 7/1/04+) 5,655 6,570
................................................................................
Municipal Electric Auth. of Georgia
5.00%, 1/1/21 (MBIA Insured) 5,000 4,867
.........................................................................
5.50%, 1/1/20 3,000 3,100
.........................................................................
5.70%, 1/1/19 (FGIC Insured) 5,100 5,517
.........................................................................
6.125%, 1/1/14 (FGIC Insured) 5,500 5,936
.........................................................................
6.40%, 1/1/07 (AMBAC Insured) 7,500 8,603
.........................................................................
7.25%, 1/1/24 (AMBAC Insured) 6,500 8,502
................................................................................
Total Georgia (Cost $76,834) 88,149
..............
IDAHO 0.0%
Idaho Housing Agency, 7.70%, 7/1/17 (FHA Guaranteed) 525 550
................................................................................
Total Idaho (Cost $525) 550
..............
ILLINOIS 5.3%
Chicago, GO
5.50%, 1/1/18 (AMBAC Insured) 6,630 7,018
.........................................................................
6.25%, 1/1/15 (AMBAC Insured) 1,000 1,150
.........................................................................
7
<PAGE>
T. ROWE PRICE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
Chicago, GO
Water Systems
Zero Coupon, 11/1/17 (FGIC Insured) $ 3,040 $ 1,096
................................................................................
Chicago Board of Ed., GO, Chicago School Reform
5.75%, 12/1/27 (AMBAC Insured) 4,500 4,793
................................................................................
Cook, Dupage, Kane, Lake, McHenry, and Will Counties
Regional Transportation Auth.
7.75%, 6/1/19 (FGIC Insured) 5,350 7,195
................................................................................
Glenview Housing, Valley Lo Towers, Zero Coupon, 12/1/27 3,500 3,556
................................................................................
Illinois EFA, Northwestern Univ., Zero Coupon, 11/1/32 4,000 4,149
................................................................................
Illinois HFA
Glen Oaks Medical Center
7.00%, 11/15/19 (Escrowed to Maturity) 3,300 3,750
........................................................................
Highland Park Hosp.
5.75%, 10/1/26 (MBIA Insured) 2,000 2,109
........................................................................
Hinsdale Hosp.
9.00%, 11/15/15 (Escrowed to Maturity) 4,570 5,221
........................................................................
Loyola Univ. Health
5.00%, 7/1/24 (MBIA Insured) 10,510 10,122
........................................................................
Sherman Health
5.25%, 8/1/22 (AMBAC Insured) 2,500 2,486
................................................................................
Illinois Regional Transportation Auth.
6.70%, 11/1/21 (FGIC Insured) 5,000 6,071
................................................................................
Metropolitan Pier and Exposition Auth., McCormick Place
5.25%, 6/15/27 (AMBAC Insured) 15,000 14,932
................................................................................
Total Illinois (Cost $67,884) 73,648
.............
INDIANA 1.6%
Indiana HFFA
Ancilla Systems Obligated Group
5.25%, 7/1/22 (MBIA Insured) 5,000 4,972
........................................................................
Clarian Health Partners, 5.50%, 2/15/16 9,205 9,403
................................................................................
Indiana State Office Building Commission,
Correctional Fac.
5.50%, 7/1/20 (AMBAC Insured) 5,750 5,902
................................................................................
St. Joseph's County Hosp. Auth., St. Joseph's
Medical Center
6.70%, 12/1/02 (MBIA Insured) 1,985 2,196
................................................................................
Total Indiana (Cost $20,978) 22,473
.............
8
<PAGE>
T. ROWE PRICE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
IOWA 0.2%
Iowa HFA, Wesley Retirement, 6.25%, 2/1/12 $ 2,400 $ 2,449
................................................................................
Total Iowa (Cost $2,400) 2,449
..............
KENTUCKY 1.4%
Carroll County, PCR, Kentucky Utilities,
7.45%, 9/15/16 15,000 17,002
................................................................................
Kentucky Economic Dev. Fin. Auth.
Appalachian Regional Health, 5.60%, 10/1/09 2,000 2,071
................................................................................
Kentucky Turnpike Auth., Economic Dev.
7.25%, 5/15/10 (Prerefunded 5/15/00+) 855 928
................................................................................
Total Kentucky (Cost $18,623) 20,001
..............
LOUISIANA 1.0%
Louisiana Offshore Terminal Auth., Deepwater Port
7.60%, 9/1/10 4,970 5,416
.........................................................................
7.60%, 9/1/10 (Prerefunded 9/1/00+) 5,470 6,033
................................................................................
St. Tammany Public Trust Fin. Auth., Zero Coupon, 7/20/14 5,525 2,412
................................................................................
Total Louisiana (Cost $12,871) 13,861
..............
MAINE 0.2%
Maine Housing Auth., 6.10%, 11/15/15 (AMBAC Insured) 3,000 3,165
................................................................................
Total Maine (Cost $3,000) 3,165
..............
MARYLAND 5.6%
Baltimore City, Convention Center
6.00%, 9/1/17 (FGIC Insured) 1,750 1,861
................................................................................
Baltimore County, Pickersgill Retirement Community
7.70%, 1/1/21 (Prerefunded 1/1/02+) 2,000 2,281
................................................................................
Gaithersburg Economic Auth., Asbury Methodist Home
7.85%, 1/1/20 (Prerefunded 1/1/00+) 3,000 3,258
................................................................................
Maryland CDA
Single Family
5.95%, 4/1/16 7,500 7,907
.........................................................................
5.95%, 7/1/23 3,730 3,927
.........................................................................
9
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T. ROWE PRICE TAX-FREE INCOME FUND
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Par Value
- --------------------------------------------------------------------------------
In thousands
Maryland CDA
Single Family
6.45%, 4/1/14 $ 2,000 $ 2,135
.........................................................................
7.25%, 4/1/19 2,500 2,633
.........................................................................
7.60%, 4/1/17 7,810 8,157
................................................................................
Maryland HHEFA
Helix Health
5.125%, 7/1/09 (AMBAC Insured) 3,160 3,314
.........................................................................
5.125%, 7/1/12 (AMBAC Insured) 2,100 2,146
.........................................................................
Johns Hopkins Hosp., Zero Coupon, 7/1/19 8,050 2,669
............................................................................
Johns Hopkins Univ.
5.125%, 7/1/20 ** 3,850 3,826
.........................................................................
5.25%, 7/1/17 ** 1,750 1,786
.........................................................................
7.50%, 7/1/20 9,475 9,768
.........................................................................
Kennedy Kreiger Institute
6.75%, 7/1/22 (Prerefunded 7/1/01+) 1,500 1,624
.........................................................................
Univ. of Maryland Medical System
7.00%, 7/1/22 (FGIC Insured) 1,500 1,900
.........................................................................
Maryland Stadium Auth., Sports Fac.
5.75%, 3/1/18 (AMBAC Insured) 2,000 2,114
................................................................................
Maryland Water Quality Fin. Administration
Revolving Loan Fund
7.25%, 9/1/12 (Prerefunded 9/1/00+) 1,950 2,142
................................................................................
Montgomery County Housing Opportunities Commission
Single Family, 7.50%, 7/1/17 1,070 1,127
................................................................................
Prince George's County, Dimensions Health, 5.30%, 7/1/24 7,685 7,609
................................................................................
Univ. of Maryland, Auxiliary Fac. and Tuition,
5.75%, 4/1/17 5,000 5,339
................................................................................
Total Maryland (Cost $71,211) 77,523
..............
MASSACHUSETTS 3.2%
Massachusetts Bay Transportation Auth., GO
General Transportation
4.50%, 3/1/26 (MBIA Insured) 5,000 4,507
.........................................................................
4.75%, 3/1/21 (MBIA Insured) 7,500 7,069
.........................................................................
7.00%, 3/1/14 3,150 3,874
.........................................................................
7.00%, 3/1/21 6,200 7,825
.........................................................................
Massachusetts HEFA
Caregroup Issue, 4.50%, 7/1/14 (MBIA Insured) 5,000 4,675
............................................................................
10
<PAGE>
T. ROWE PRICE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
Massachusetts HEFA
Harvard Univ., 6.25%, 4/1/20 $ 5,000 $ 5,882
............................................................................
Massachusetts General Hosp.
6.00%, 7/1/15 (AMBAC Insured) 4,500 4,785
................................................................................
Massachusetts Housing Fin. Agency, 6.30%, 12/1/14 6,250 6,655
................................................................................
Total Massachusetts (Cost $41,396) 45,272
..............
MICHIGAN 0.9%
Garden City Hosp. Fin. Auth., Garden City Hosp.
5.625%, 9/1/10 1,265 1,250
................................................................................
Michigan HDA
6.45%, 12/1/14 2,120 2,245
................................................................................
7.55%, 12/1/15 1,750 1,842
................................................................................
Michigan Hosp. Fin. Auth.
Bay Medical Center, 8.25%, 7/1/12 1,000 1,108
............................................................................
Mercy Health, 5.50%, 8/15/20 5,500 5,627
................................................................................
Total Michigan (Cost $11,271) 12,072
..............
MINNESOTA 1.0%
Northern Minnesota Municipal Power Agency, 7.35%, 1/1/02 5,000 5,233
................................................................................
Rochester Health Care Fac.
Mayo Foundation/Mayo Medical Center
6.25%, 11/15/21 3,000 3,253
................................................................................
Univ. of Minnesota
Residual Interest Bond / Inverse Floater
(Currently 5.919%), 8/15/03 5,800 6,134
................................................................................
Total Minnesota (Cost $13,079) 14,620
..............
MISSISSIPPI 0.8%
Claiborne County, PCR, Systems Energy Resources
7.30%, 5/1/25 2,750 2,915
.........................................................................
9.875%, 12/1/14 3,400 3,623
.........................................................................
Mississippi Home, Single Family
9.25%, 3/1/12 (FGIC Insured) 511 546
................................................................................
Mississippi Hosp. Equipment and Fac. Auth.
Rush Medical Foundation
6.00%, 1/1/16 1,245 1,305
.........................................................................
6.00%, 1/1/22 935 976
................................................................................
11
<PAGE>
T. ROWE PRICE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
Warran County, PCR, Mississippi Power and Light
7.00%, 4/1/22 $ 1,500 $ 1,670
................................................................................
Total Mississippi (Cost $10,527) 11,035
..............
MISSOURI 0.2%
Joplin IDA, Tri-State Osteopathic Hosp., 8.25%, 12/15/14 1,340 1,540
................................................................................
Missouri HEFA, Bethesda Health Group, 7.50%, 8/15/12 1,250 1,406
................................................................................
Total Missouri (Cost $2,541) 2,946
..............
NEBRASKA 0.2%
Omaha Public Power Dist., Electric System
6.20%, 2/1/17 (Escrowed to Maturity) 3,000 3,353
................................................................................
Total Nebraska (Cost $2,988) 3,353
..............
NEVADA 0.8%
Clark County School Dist., GO
Limited Tax School Improvement
7.00%, 6/1/11 (MBIA Insured) 3,500 4,291
................................................................................
Clark County, PCR, Nevada Power, 5.30%, 10/1/11 1,800 1,804
................................................................................
Nevada, GO, Municipal Bond Bank
7.25%, 11/1/10 (Escrowed to Maturity) 3,050 3,428
................................................................................
Nevada Housing Division, Single Family, 7.85%, 10/1/15 945 993
................................................................................
Total Nevada (Cost $9,238) 10,516
..............
NEW HAMPSHIRE 0.4%
New Hampshire HHEFA, Wentworth Douglass Hosp.
5.375%, 1/1/15 (MBIA Insured) 5,600 5,902
................................................................................
Total New Hampshire (Cost $5,578) 5,902
..............
NEW JERSEY 0.5%
New Jersey Sports and Exposition Auth., Monmouth Park
8.00%, 1/1/25 4,500 5,141
................................................................................
New Jersey Turnpike Auth., 6.50%, 1/1/16 (MBIA Insured) 2,000 2,360
................................................................................
Total New Jersey (Cost $6,540) 7,501
..............
12
<PAGE>
T. ROWE PRICE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
NEW MEXICO 0.7%
Farmington, PCR
Public Service Co. of New Mexico
6.30%, 12/1/16 $ 2,400 $ 2,599
.........................................................................
6.375%, 4/1/22 4,325 4,711
................................................................................
Gallup, PCR, Plains Electric Generation and Transmission
6.65%, 8/15/17 (MBIA Insured) 2,000 2,209
................................................................................
Total New Mexico (Cost $8,717) 9,519
..............
NEW YORK 15.8%
Dormitory Auth. of the State of New York
Bronx/Lebanon Hosp., 5.10%, 2/15/11 4,000 4,005
............................................................................
City Univ.
5.75%, 7/1/13 10,000 10,841
.........................................................................
5.75%, 7/1/18 (AMBAC Insured) 5,000 5,482
.........................................................................
6.00%, 7/1/14 10,000 11,131
.........................................................................
Interfaith Medical Center, 5.375%, 2/15/12 4,340 4,428
............................................................................
State Univ. Ed. Fac., 5.25%, 5/15/19 3,325 3,419
............................................................................
Vassar College
7.25%, 7/1/15 (Prerefunded 7/1/00+) 2,000 2,187
.........................................................................
Wyckoff Heights Hosp., 5.10%, 2/15/11 6,160 6,168
................................................................................
Metropolitan Transportation Auth. of New York
Commuter Fac., 5.75%, 7/1/21 (MBIA Insured) 12,750 13,558
................................................................................
New York City, GO
5.125%, 8/1/10 10,025 10,181
.........................................................................
6.00%, 12/1/18 (FSA Insured)
(Escrowed to Maturity) 5,000 5,105
.........................................................................
6.00%, 2/15/25 5,000 5,272
.........................................................................
6.00%, 8/15/26 5,000 5,327
.........................................................................
6.00%, 10/15/26 5,500 5,872
.........................................................................
6.25%, 8/1/09 9,550 10,646
.........................................................................
6.375%, 8/1/04 4,145 4,500
.........................................................................
8.00%, 8/1/16 180 205
................................................................................
New York City Municipal Water Fin. Auth.
5.75%, 6/15/26 (AMBAC Insured) 16,000 16,942
.........................................................................
Water and Sewer, 5.75%, 6/15/29 5,500 5,811
................................................................................
13
<PAGE>
T. ROWE PRICE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
New York State Environmental Fac., PCR
State Water Revolving Fund, 6.90%, 11/15/15 $ 5,365 $ 6,166
................................................................................
New York State Housing Fin. Agency, State Univ.
Construction 7.80%, 5/1/01 (Escrowed to Maturity) 2,000 2,224
................................................................................
New York State Local Gov't. Assistance
7.20%, 4/1/04 (Prerefunded 4/1/01+) 5,000 5,540
................................................................................
New York State Medical Care Fac. Fin. Agency
Albany and St. John's Medical Center
6.20%, 2/15/28 (FHA Guaranteed) 3,480 3,770
.........................................................................
Buffalo General Hosp.
6.00%, 8/15/14 (FHA Guaranteed) 8,905 9,432
.........................................................................
Mental Health, 6.50%, 8/15/24 6,000 6,572
............................................................................
New York Hosp.
6.50%, 8/15/29 (AMBAC Insured)
(Prerefunded 2/15/05+) 4,625 5,307
................................................................................
New York State Thruway Auth., VRDN (Currently 4.05%) 11,200 11,200
................................................................................
New York State Urban Dev.
Sr. Lien
5.375%, 7/1/22 9,000 9,153
................................................................................
5.50%, 7/1/26 10,000 10,301
................................................................................
Triborough Bridge and Tunnel Auth., 5.50%, 1/1/17 18,500 19,713
................................................................................
Total New York (Cost $200,496) 220,458
..............
NORTH CAROLINA 1.6%
Cumberland County, Civic Center, COP
6.40%, 12/1/24 (AMBAC Insured) 2,750 3,067
................................................................................
North Carolina Eastern Municipal Power Agency
6.00%, 1/1/26 (CAPMAC Insured) 2,500 2,816
.........................................................................
7.50%, 1/1/10 (Escrowed to Maturity) 8,980 11,103
................................................................................
North Carolina Housing Fin. Agency, 7.40%, 3/1/28 1,835 1,956
................................................................................
North Carolina Medical Care Commission
Stanley Memorial Hosp.
7.80%, 10/1/19 (Prerefunded 10/1/99+) 3,000 3,242
................................................................................
Total North Carolina (Cost $19,197) 22,184
..............
14
<PAGE>
T. ROWE PRICE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
NORTH DAKOTA 0.3%
Mercer County, PCR, Basin Electric Power
6.05%, 1/1/19 (AMBAC Insured) $ 4,500 $ 4,874
................................................................................
Total North Dakota (Cost $4,538) 4,874
..............
OHIO 2.3%
Butler County Transportation Improvement Dist.
6.00%, 4/1/10 (FSA Insured) 1,500 1,673
.........................................................................
6.00%, 4/1/12 (FSA Insured) 2,000 2,215
................................................................................
Cleveland, Waterworks, 5.50%, 1/1/13 (MBIA Insured) 4,765 5,121
................................................................................
Dayton Special Fac., Emery Air Freight, 6.05%, 10/1/09 2,500 2,720
................................................................................
Franklin County, GO
6.375%, 12/1/17 (Prerefunded 12/1/01+) 2,000 2,190
.........................................................................
6.80%, 12/1/09 (Prerefunded 12/1/00+) 2,860 3,122
.........................................................................
6.80%, 12/1/10 (Prerefunded 12/1/00+) 3,240 3,537
................................................................................
Montgomery County, Grandview Hosp. and Medical Center
5.40%, 12/1/09 1,800 1,850
................................................................................
Montgomery County Hosp. Fac., Kettering Medical Center
7.375%, 4/1/02 (MBIA Insured) 2,500 2,643
................................................................................
Ohio Air Quality Dev. Auth., PCR, Cleveland Electric
6.00%, 8/1/20 3,500 3,665
................................................................................
Ohio Water Dev. Auth., PCR, Cleveland Electric,
7.70%, 8/1/25 2,700 3,123
................................................................................
Total Ohio (Cost $29,419) 31,859
..............
OKLAHOMA 0.4%
Tulsa County Home Fin. Auth., Single Family
6.90%, 8/1/10 (FGIC Insured)
(Escrowed to Maturity) 4,250 5,157
................................................................................
Total Oklahoma (Cost $4,227) 5,157
..............
PENNSYLVANIA 2.0%
Beaver County IDA, PCR, Cleveland Electric,
7.75%, 7/15/25 3,900 4,520
................................................................................
Chester County HEFA, Jefferson Health,
5.375%, 5/15/27 12,050 12,108
................................................................................
Pennsylvania Convention Center Auth.
6.70%, 9/1/14 (FSA Insured) 5,000 5,674
................................................................................
15
<PAGE>
T. ROWE PRICE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
Pennsylvania Intergovernmental Cooperative Auth.
Special Tax
6.75%, 6/15/21 (FGIC Insured)
(Prerefunded 6/15/05+) $ 4,750 $ 5,479
................................................................................
Total Pennsylvania (Cost $25,753) 27,781
..............
PUERTO RICO 1.2%
Puerto Rico Commonwealth, GO
5.65%, 7/1/15 (MBIA Insured) 7,300 8,015
................................................................................
Puerto Rico Highway and Transportation Auth.
5.00%, 7/1/38 3,000 2,851
................................................................................
Puerto Rico Infrastructure Fin. Auth.
5.25%, 7/1/10 (AMBAC Insured) ** 5,000 5,330
................................................................................
Total Puerto Rico (Cost $15,198) 16,196
..............
RHODE ISLAND 1.5%
Rhode Island Health and Ed. Building
Bryant College, 6.125%, 6/1/19 (MBIA Insured) 5,000 5,414
................................................................................
Rhode Island Hosp.
Residual Interest Bond / Inverse Floater
(Currently 9.918%), 8/15/21
(FGIC Insured) (Escrowed to Maturity) 1,000 1,220
................................................................................
Rhode Island Housing and Mortgage Fin.
Homeownership Opportunity
6.70%, 10/1/14 5,000 5,381
.........................................................................
7.85%, 10/1/16 8,000 8,476
................................................................................
Total Rhode Island (Cost $18,855) 20,491
..............
SOUTH CAROLINA 3.5%
Connector 2000 Assoc.
Greenville Toll Road
Zero Coupon, 1/1/09 2,700 1,401
.........................................................................
Zero Coupon, 1/1/10 3,400 1,800
.........................................................................
Zero Coupon, 1/1/11 6,675 3,221
.........................................................................
Zero Coupon, 1/1/12 3,900 1,830
.........................................................................
Zero Coupon, 1/1/13 2,275 1,004
.........................................................................
Zero Coupon, 1/1/14 1,200 498
................................................................................
16
<PAGE>
T. ROWE PRICE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
Florence County Hosp., Mcleod Regional Medical Center
4.75%, 11/1/27 (MBIA Insured) $ 5,000 $ 4,640
................................................................................
Piedmont Municipal Power Agency
6.50%, 1/1/14 (FGIC Insured)
(Escrowed to Maturity) 3,500 4,141
................................................................................
South Carolina Public Service Auth.
5.875%, 1/1/23 (FGIC Insured) 8,410 9,003
.........................................................................
Santee Cooper
6.25%, 1/1/22 (AMBAC Insured) 17,750 19,659
.........................................................................
7.00%, 7/1/12 (Prerefunded 7/1/01+) 1,650 1,831
.........................................................................
Total South Carolina (Cost $45,865) 49,028
..............
SOUTH DAKOTA 0.2%
South Dakota HDA, Homeownership, 6.65%, 5/1/14 2,000 2,143
................................................................................
Total South Dakota (Cost $2,000) 2,143
..............
TENNESSEE 2.1%
Chattanooga Health, Ed. and Housing Fac. Board
Memorial Hosp.
6.625%, 9/1/07 (MBIA Insured) 2,950 3,456
.........................................................................
6.625%, 9/1/08 (MBIA Insured) 3,150 3,720
................................................................................
Metropolitan Gov't. of Nashville and Davidson Counties
Water and Sewer
Zero Coupon, 1/1/12 (FGIC Insured) 11,250 13,814
................................................................................
Shelby County Health Ed. and Housing Fac. Board
Le Bonheur Children's Medical Center
5.50%, 8/15/12 (MBIA Insured)
(Escrowed to Maturity) 4,250 4,446
................................................................................
Tennessee Housing Dev. Agency, Homeownership
Zero Coupon, 7/1/16 12,000 4,342
................................................................................
Total Tennessee (Cost $27,299) 29,778
..............
TEXAS 6.7%
Amarillo Health Fac., Sears Panhandle Retirement
7.75%, 8/15/26 5,000 5,637
................................................................................
17
<PAGE>
T. ROWE PRICE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
Arlington Independent School Dist., GO, Capital
Appreciation Zero Coupon, 2/15/16 $ 9,650 $ 3,464
................................................................................
Brazos River Auth.
Houston Ind., 5.125%, 11/1/20 (AMBAC Insured) 10,000 9,848
............................................................................
Houston Lighting and Power
8.25%, 5/1/15 (Prerefunded 5/1/98+) 18,000 18,479
................................................................................
Denison Hosp. Auth., Texoma Medical Center,
7.00%, 8/15/14 4,245 4,732
................................................................................
Harris County, GO, Toll Road
Zero Coupon, 8/15/04 (MBIA Insured) 6,000 4,514
................................................................................
Harris County Health Fac. Dev.
Memorial Hosp.
7.125%, 6/1/15 (Prerefunded 6/1/02+) 2,500 2,837
.........................................................................
Sisters of Charity of the Incarnate Word
7.10%, 7/1/21 (Prerefunded 7/1/01+) 4,000 4,445
.........................................................................
Texas Medical Center
7.375%, 5/15/20 (MBIA Insured)
(Prerefunded 5/15/00+) 7,645 8,342
................................................................................
Harris County Hosp. Dist., 7.40%, 2/15/10 (AMBAC Insured) 1,500 1,834
................................................................................
Matagorda County Navigation Dist., PCR
Central Power and Light, 7.50%, 12/15/14 1,500 1,622
............................................................................
Houston Lighting and Power
7.20%, 12/1/18 (FGIC Insured) 3,600 3,862
................................................................................
Northwest Texas Independent School Dist., GO
School Buildings, Zero Coupon, 8/15/17 4,000 1,316
................................................................................
Texas, GO
Veterans Housing Assistance
6.25%, 12/1/15 2,590 2,682
.........................................................................
7.40%, 12/1/20 14,205 15,658
................................................................................
Texas Dept. of Housing and Community Affairs
NHP Foundation, 6.40%, 1/1/27 3,500 3,742
................................................................................
Total Texas (Cost $86,515) 93,014
..............
UTAH 0.6%
Intermountain Power Agency
5.75%, 7/1/19 (MBIA Insured) 3,000 3,190
.........................................................................
Power Supply, 7.50%, 7/1/21 4,750 4,902
................................................................................
Total Utah (Cost $7,586) 8,092
................................................................................
18
<PAGE>
T. ROWE PRICE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
VERMONT 0.5%
Vermont Ed. and Health Buildings Fin. Agency
Medical Center Hosp. of Vermont
7.35%, 9/1/13 (FGIC Insured) $ 4,650 $ 5,101
.........................................................................
7.45%, 9/1/23 (FGIC Insured) 2,000 2,204
.........................................................................
Total Vermont (Cost $6,650) 7,305
..............
VIRGINIA 4.6%
Fairfax County IDA, Inova Health, 6.00%, 8/15/26 7,200 7,726
................................................................................
Fairfax County Water Auth.
6.00%, 4/1/22 (Prerefunded 4/1/07+) 10,250 11,353
................................................................................
Hanover County IDA, Memorial Regional Medical Center
6.375%, 8/15/18 (MBIA Insured) 6,185 7,219
................................................................................
Virginia HDA
6.25%, 7/1/11 5,000 5,256
.........................................................................
6.75%, 7/1/14 7,435 8,075
.........................................................................
6.80%, 7/1/17 8,900 9,637
.........................................................................
6.90%, 7/1/13 11,100 11,536
................................................................................
Virginia Transportation Board, Route 28 Project,
6.50%, 4/1/18 3,000 3,284
................................................................................
Total Virginia (Cost $59,370) 64,086
..............
WASHINGTON 5.8%
Chelan County Public Utility Dist. No. 1
Columbia River-Rock Hydroelectric
Zero Coupon, 6/1/18 (MBIA Insured) 10,100 3,528
................................................................................
King County, GO, 5.70%, 12/1/10 3,545 3,890
................................................................................
Port of Seattle, 7.40%, 12/1/09 (Prerefunded 12/1/00+) 1,000 1,108
................................................................................
Tacoma
Electric
6.25%, 1/1/15 (FGIC Insured) 7,550 8,269
.........................................................................
Residual Interest Bond / Inverse Floater
(Currently 9.043%), 1/2/15
(AMBAC Insured) (Prerefunded 1/1/01+) 5,000 5,831
.........................................................................
Solid Waste Utilities
5.50%, 12/1/17 (AMBAC Insured) 14,500 15,059
................................................................................
19
<PAGE>
T. ROWE PRICE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
Washington, GO, 5.70%, 10/1/15 $ 14,000 $ 15,327
................................................................................
Washington Public Power Supply System
Nuclear Project
5.25%, 7/1/16 (FSA Insured) 3,000 3,013
.........................................................................
6.25%, 7/1/12 (FSA Insured) 5,000 5,455
.........................................................................
6.25%, 7/1/17 (MBIA Insured)
(Prerefunded 7/1/02+) 6,000 6,542
.........................................................................
7.25%, 7/1/09 3,000 3,624
.........................................................................
7.25%, 7/1/15 (Prerefunded 1/1/00+) 2,200 2,370
.........................................................................
7.50%, 7/1/15 (Prerefunded 7/1/99+) 7,110 7,587
................................................................................
Total Washington (Cost $72,924) 81,603
..............
WEST VIRGINIA 0.8%
Kanawha County Building Commission
Charleston Area Medical Center
7.50%, 11/1/08 (Prerefunded 11/1/99+) 2,250 2,426
................................................................................
West Virginia Hosp. Fin. Auth.
Charleston Area Medical Center
5.75%, 9/1/13 (MBIA Insured) 4,200 4,518
................................................................................
West Virginia State Parkways
Economic Dev. and Tourism Auth.
Residual Interest Bond / Inverse Floater
(Currently 7.829%), 5/16/19 (FGIC Insured) 3,600 4,068
................................................................................
Total West Virginia (Cost $9,913) 11,012
..............
WISCONSIN 0.7%
Wisconsin HEFA
Saint Johns Home and Sunrise Care
5.625%, 12/15/22 1,500 1,510
.........................................................................
United Health Group
5.50%, 12/15/16 (MBIA Insured) 6,540 6,763
................................................................................
Wisconsin Public Power Agency
7.00%, 7/1/02 (AMBAC Insured) 1,500 1,627
................................................................................
Total Wisconsin (Cost $9,218) 9,900
..............
20
<PAGE>
T. ROWE PRICE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Value
- --------------------------------------------------------------------------------
In thousands
Total Investments in Securities
100.8% of Net Assets (Cost $1,282,339) $ 1,406,906
Other Assets Less Liabilities (10,618)
.............
NET ASSETS $ 1,396,288
--------------
Net Assets Consist of:
Accumulated net investment income - net of distributions $ 659
Accumulated net realized gain/loss - net of distributions (881)
Net unrealized gain (loss) 124,567
Paid-in-capital applicable to 140,333,495 shares of $1.00 par
value capital stock outstanding; 500,000,000 shares authorized 1,271,943
..............
NET ASSETS $ 1,396,288
--------------
NET ASSET VALUE PER SHARE $ 9.95
--------------
** When-issued security
+ Used in determining portfolio maturity
AMBAC AMBAC Indemnity Corp.
CAPMAC Capital Markets Assurance Corp.
CDA Community Development Administration
COP Certificates of Participation
EFA Educational Facility Authority
FGIC Financial Guaranty Insurance Company
FHA Federal Housing Authority
FR Floating Rate
FSA Financial Security Assurance Corp.
GO General Obligation
HDA Housing Development Authority
HEFA Health & Educational Facility Authority
HFA Health Facility Authority
HFFA Health Facility Financing Authority
HHEFA Health & Higher Educational Facility Authority
IDA Industrial Development Authority
IDB Industrial Development Bond
MBIA Municipal Bond Investors Assurance Corp.
PCR Pollution Control Revenue
VRDN Variable Rate Demand Note
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
T. ROWE PRICE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
- -----------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
In thousands
Year
Ended
2/28/98
Investment Income
Interest income $ 79,283
...............
Expenses
Investment management 6,428
Shareholder servicing 670
Custody and accounting 183
Prospectus and shareholder reports 66
Registration 37
Legal and audit 11
Directors 9
Miscellaneous 18
...............
Total expenses 7,422
...............
Net investment income 71,861
...............
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 8,884
Futures (824)
...............
Net realized gain (loss) 8,060
Change in net unrealized gain or loss on securities 42,319
...............
Net realized and unrealized gain (loss) 50,379
...............
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 122,240
---------------
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
T. ROWE PRICE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
- ----------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
In thousands
Year
Ended
2/28/98 2/28/97
Increase (Decrease) in Net Assets
Operations
Net investment income $ 71,861 $ 72,545
Net realized gain (loss) 8,060 (3,053)
Change in net unrealized gain or loss 42,319 (7,061)
.............................
Increase (decrease) in net assets from operations 122,240 62,431
.............................
Distributions to shareholders
Net investment income (71,861) (72,541)
.............................
Capital share transactions *
Shares sold 157,893 133,711
Distributions reinvested 47,065 48,012
Shares redeemed (195,675) (210,494)
.............................
Increase (decrease) in net assets from capital
share transactions 9,283 (28,771)
.............................
Net Assets
Increase (decrease) during period 59,662 (38,881)
Beginning of period 1,336,626 1,375,507
.............................
End of period $1,396,288 $ 1,336,626
-----------------------------
* Share information
Shares sold 16,209 14,128
Distributions reinvested 4,830 5,064
Shares redeemed (20,125) (22,237)
.............................
Increase (decrease) in shares outstanding 914 (3,045)
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
T. ROWE PRICE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
February 28, 1998
- -----------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Tax-Free Income Fund, Inc. (the fund) is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company and commenced operations on October 26, 1976.
The accompanying financial statements are prepared in accordance with generally
accepted accounting principles for the investment company industry; these
principles may require the use of estimates by fund management.
Valuation Debt securities are generally traded in the over-the-counter market.
Investments in securities 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.
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.
Premiums and Discounts Premiums and original issue discounts on municipal
securities are amortized for both financial reporting and tax purposes. Market
discounts are recognized upon disposition of the security as gain or loss for
financial reporting purposes and as ordinary income for tax purposes.
Other Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses are
reported on the identified cost basis. Distributions to shareholders are
recorded by the fund on the ex-dividend date. Income and capital gain
distributions are determined in accordance with federal income tax regulations
and may differ from those determined in accordance with generally accepted
accounting principles.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term securities,
aggregated $524,525,000 and $477,562,000, respectively, for the year ended
February 28, 1998.
24
<PAGE>
T. ROWE PRICE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
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. Capital loss carryforwards utilized in fiscal 1998 amounted to
$7,665,000.
In order for the fund's capital accounts and distributions to shareholders to
reflect the tax character of certain transactions, the following
reclassifications were made during the year ended February 28, 1998. The results
of operations and net assets were not affected by the increases/(decreases) to
these accounts.
- --------------------------------------------------------------------------------
Undistributed net investment income $ (1,000)
Undistributed net realized gain (8,000)
Paid-in-capital 9,000
At February 28, 1998, the aggregate cost of investments for federal income tax
and financial reporting purposes was $1,282,339,000, and net unrealized gain
aggregated $124,567,000, of which $124,906,000 related to appreciated
investments and $339,000 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,
of which $507,000 was payable at February 28, 1998. The fee is computed daily
and paid monthly, and consists 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 0.30% for assets in excess of $80 billion. At
February 28, 1998, and for the year then ended, the effective annual group fee
rate was 0.32%. The fund pays a pro-rata share of the group fee based on the
ratio of its net assets to those of the group.
25
<PAGE>
T. ROWE PRICE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
In addition, the fund has entered into agreements with the manager and a wholly
owned subsidiary of the manager, pursuant to which the fund receives certain
other services. The manager computes the daily share price and maintains the
financial records of the fund. T. Rowe Price Services, Inc., is the fund's
transfer and dividend disbursing agent and provides shareholder and
administrative services to the fund. The fund incurred expenses pursuant to
these related party agreements totaling approximately $637,000 for the year
ended February 28, 1998, of which $54,000 was payable at period-end.
- ----------------------------------------------------------
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED 2/28/98
- --------------------------------------------------------------------------------
We are providing this information as required by the Internal Revenue Code. The
amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The fund's dividend income included $71,679,000 which qualified as exempt-
interest dividends.
- --------------------------------------------------------------------------------
26
<PAGE>
T. ROWE PRICE TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
- ---------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
T. Rowe Price Tax-Free Income Fund, Inc.
We have audited the accompanying statement of net assets of T. Rowe Price Tax-
Free Income Fund, Inc. as of February 28, 1998, and the related statement of
operations for the year then ended, statement of changes in net assets for each
of the two years then ended and the financial highlights for each of the three
years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for each of the preceding years
presented were audited by other auditors, whose report, dated March 17, 1995,
expressed an unqualified opinion thereon.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
February 28, 1998, by correspondence with the custodian and the brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of T.
Rowe Price Tax-Free Income Fund, Inc. as of February 28, 1998, the results of
its operations, the changes in its net assets, and financial highlights each of
the respective periods stated in the first paragraph, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
March 18, 1998
27
<PAGE>
For yield, price, last transaction, current balance, or to conduct transactions,
24 hours, 7 days a week, call Tele*Access(R): 1-800-638-2587 toll free
For assistance with your existing fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
410-625-6500 Baltimore area
To open a Discount Brokerage
account or obtain information,
call: 1-800-638-5660 toll free
Internet address:
www.troweprice.com
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for distribution only to shareholders and to others
who have received a copy of the prospectus of the T. Rowe Price Tax-Free Income
Fund.
Investor Centers:
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
[LOGO OF T. ROWE PRICE APPEARS HERE]
T. Rowe Price Investment Services, Inc., Distributor. F45-050 2/28/98
Annual Report
Tax-Free
Funds
February 28, 1998
T. Rowe Price
Report Highlights
Tax-Free Funds
o All five funds posted better returns than their peer
group averages for the 6- and 12-month periods ended
February 28, 1998.
o Municipal bonds performed well during both periods,
buoyed by subdued inflation and a flight to the quality
of U.S. bonds following the Asian financial crisis.
o Municipal credit ratings improved significantly due to
continuing economic growth. Yield spreads between higher-
and lower-quality bonds narrowed to record lows,
providing an extra boost to the high-yield sector.
o We expect slower economic growth and continued low
inflation in 1998, which bodes well for municipal bond
investors.
Fellow Shareholders
The bond market and your funds enjoyed good returns during the
past 6- and 12-month periods, fueled by low inflation and
credit upgrades due to strong economic growth. In the
aftermath of the currency crises in Southeast Asia, domestic
bonds, including municipals, benefited from a flight to the
relative stability of U.S. fixed income markets.
MARKET ENVIRONMENT
During the six months ended February 28, 1998, municipal bond
prices rose and yields declined, with yields on long-term
AAA-rated bonds falling about 27 basis points (100 basis
points equal one percent) from the end of August. Intermediate
yields fell in tandem with long-term rates, but short-term
rates fell less sharply. As a result, the yield curve
flattened throughout most of the past six months, causing
long-term bonds to outperform shorter maturities.
Municipal Bond and Note Yields
1-Year Moody's
30-Year AAA 5-Year AAA Investment Grade
General Obligation General Obligation 1 Note
2/28/97 5.5 4.4 3.7
5.75 4.75 3.9
5.6 4.8 3.95
5/97 5.5 4.55 3.9
5.45 4.4 3.85
5.15 4.15 3.85
8/97 5.35 4.35 3.85
5.25 4.2 3.8
5.23 4.15 3.8
11/97 5.18 4.2 3.85
5.03 4.1 3.85
5 4 3.65
2/28/98 5.08 4.05 3.6
The major influence on rates was (and continues to be) moderate inflation
in the U.S. Consumer prices increased only slightly, and producer prices
actually declined over the last 12 months. The Federal Reserve has left
short-term interest rates unchanged since March 1997 despite strong
economic growth. Shortly after the hike in the federal funds rate last
spring, yields had risen in anticipation of further Fed tightening, but
low inflation and the events in Asia have put the Fed on hold.
The municipal market also benefited from the positive impact of subdued
inflation on all fixed income investments. However, municipals
underperformed Treasuries as issuers rushed to the market to take
advantage of low borrowing costs, driving up supply. Issuance rose 20% in
1997, and supply so far in 1998 is the highest ever for the first two
months of the year. Strong economic growth boosted the financial condition
of municipal governments, resulting in improving municipal credits. Rating
upgrades exceeded downgrades by a seven-to-one margin. The difference
between the yields of higher- and lower-quality bonds narrowed,
contributing to good returns from lower-quality bonds.
TAX-EXEMPT MONEY FUND
Our longer-maturity strategy resulted in relatively good returns and
enabled your fund to outperform its peer group during both the 6- and
12-month periods ended February 28, 1998.
Performance Comparison
Periods Ended 2/28/98 6 Months 12 Months
__________________________________________________________________
Tax-Exempt Money Fund 1.60% 3.24%
Lipper Tax-Exempt Money
Market Funds Average 1.52 3.09
The fund ended its fiscal year with a weighted average maturity of 59
days, close to where it was at the end of February and August of 1997.
This maturity was significantly longer than the peer group average of 43
days, and it ranged from 10 to 20 days longer than the competition
throughout the last six months. Our longer maturity posture was warranted
by both a stable U.S. monetary policy and strong cash flows into the
short-term tax-exempt sector. Your fund's increased holdings in six-month
to one-year maturities provided an additional average yield of 10 to 20
basis points.
Short-term tax-exempt yields closed the fiscal year at 3.50% for six-month
and 3.60% for one-year maturities. These yields were 20 and 25 basis
points lower, respectively, than the yields that prevailed on August 31,
but only five to 10 basis points lower than a year ago. All in all, the
rate environment has been remarkably docile in the short end of the yield
curve, and most of the move toward lower yields took place during the
first two months of 1998.
The supply of new short-term issues increased more than 10% in 1997 to
almost $46 billion, the largest yearly volume since 1993. More important,
however, was the increase in tax-exempt money fund assets, which rose
almost $25 billion to a record $172.3 billion. As investors have become
more willing to accept a lower rate of return for stability of principal,
money funds across the board have benefited. This is best evidenced by the
assets of all money funds, both tax-exempt and taxable, which surpassed
the $l trillion milestone in 1997 and reached $1.124 trillion on February
28, 1998.
TAX-FREE SHORT-INTERMEDIATE FUND
Performance Comparison
Periods Ended 2/28/98 6 Months 12 Months
__________________________________________________________________
Tax-Free Short-
Intermediate Fund 3.08% 5.28%
Lipper Short-Intermediate
Debt Funds Average 2.91 5.14
Your fund posted solid returns and outperformed the Lipper
Short-Intermediate Debt Funds Average over both the 6- and 12-month
periods ended February 28, 1998. Returns were enhanced by an extension of
duration, a low expense ratio, and a narrowing of yields between higher-
and lower-quality bonds. (Duration is a measure of a bond fund's
sensitivity to interest rates. For example, a fund with a duration of
three years would fall or rise about 3% in price in response to a
one-percentage-point rise or fall in interest rates.)
At the end of August the fund's duration was 2.8 years, which we
considered a neutral posture. In September, Treasury yields began to fall
and new issuance of municipal bonds increased. This additional supply kept
municipal yields from falling as fast as Treasury yields and improved the
relative attractiveness of tax-exempt bonds. At that time, we considered
municipal yields appealing enough to extend duration to a more aggressive
3.1 years. When municipal yields continued to drop into January, we
shortened the fund's duration slightly to 3.0 years, where it stood at the
end of the reporting period.
Also helping performance was the improving credit quality of many
municipal issuers. As a result, more than 10% of fund holdings enjoyed
credit upgrades during the past 12 months.
TAX-FREE INSURED INTERMEDIATE BOND FUND
Intermediate-term bonds generated strong returns over the last 12 months,
a combination of good capital appreciation and coupon income. Fund results
were ahead of the Lipper Intermediate Municipal Debt Funds Average for
both the 6- and 12-month periods ended February 28, 1998. The fund's
superior performance relative to its peers occurred in the second half of
the fiscal year as we extended duration. (For an explanation of duration,
see the report for the Tax-Free Short-Intermediate Fund.) Also
contributing to the strong results was the fund's low expense ratio.
Performance Comparison
Periods Ended 2/28/98 6 Months 12 Months
__________________________________________________________________
Tax-Free Insured
Intermediate Bond Fund 4.39% 7.31%
Lipper Intermediate
Municipal Debt Funds Average 4.07 7.10
During the first six months, we had adopted a slightly defensive duration
posture that caused us to lag our peer group. When bond prices fell and
yields moved higher in August and September, we took advantage of the
opportunity to move from a defensive to a neutral posture. The heavy
supply of new municipal bond issuance caused Treasuries to outperform
municipals in late 1997, resulting in narrower spreads between tax-exempt
and taxable yields. Municipal bonds grew more attractive relative to
taxable securities, and we extended duration further. As prices continued
to rally into January, we trimmed duration once again to 5.5 years at the
end of February. The continuing growth of insured bonds added to the
municipal market's appeal, as insured securities approached 50% of all new
issues in 1997.
We also adopted a "barbell" structure for part of the portfolio, which
consists of shorter- and longer-term securities together producing an
intermediate duration with a higher yield. The combination of the two
securities appreciates in value faster than a single bond with an
intermediate-term duration.
TAX-FREE INCOME FUND
Performance Comparison
Periods Ended 2/28/98 6 Months 12 Months
___________________________________________________________________
Tax-Free Income Fund 5.18% 9.37%
Lipper General Municipal
Debt Funds Average 4.99 9.12
Long-term national municipal bond funds performed well over the past year
with total returns above 9% as long-term interest rates ended about 40
basis points lower than a year ago. This compares with an average annual
return closer to 7% for these funds over the last five years. Your fund's
results exceeded those of its Lipper peer group average for the 6- and
12-month periods ended February 28, 1998.
The Tax-Free Income Fund surpassed the average for its peers due to
several factors. First, we extended duration in the second half of the
fund's fiscal year as we put more cash to work in the long end of the
market. Second, we followed a "barbelled" maturity strategy to take
advantage of a flattening yield curve with long rates falling while
short-term rates were little changed. This meant holding fewer
intermediate-term bonds that did not appreciate as much as long-term
securities. The duration of the fund (see Tax-Free Short-Intermediate Fund
section for an explanation) was slightly shorter at the end of February as
more bonds traded to their call dates. To mitigate this effect, we
continued to overweight noncallable bonds among maturities longer than 10
years. Finally, we tried to enhance the yield by holding older premium
bonds with higher coupons, while deploying new cash into more
price-sensitive lower-coupon bonds.
While the fund's portfolio structure produced good returns, in retrospect
we should have invested in more lower-quality bonds to participate further
in the spread tightening of the past year. We were pleased that many of
our larger lower-rated positions performed well and were upgraded during
the year.
TAX-FREE HIGH YIELD FUND
Performance Comparison
Periods Ended 2/28/98 6 Months 12 Months
__________________________________________________________________
Tax-Free High Yield Fund 5.51% 10.42%
Lipper High Yield Municipal
Debt Funds Average 5.39 10.13
The high-yield sector was the best-performing part of the municipal bond
market last year, buoyed by narrowing differences in yields between
higher- and lower-quality bonds. The yield spread declined to a record low
level during the period. Within this environment, the Tax-Free High Yield
Fund generated strong returns and outperformed the average of similar
funds for both the fiscal year and most recent six months. The fund's
return over the past 10 years is also well ahead of the average for
competing funds.
The narrowing of credit quality yield spreads was the dominant theme of
the municipal high-yield market last year, since tighter spreads enhance
the price performance of lower-quality bonds versus higher-quality
securities. Much of the tightening occurred during the first half of the
year, with spreads stabilizing at the lower level over the second half. To
illustrate, consider the yield spread difference between our municipal
high-yield index with an average rating of BB+ versus one composed of
bonds with an average AA rating. Since January 1995, the spread between
these two indices has moved from 130 basis points to only 30 basis points.
The principal forces that could reverse this trend, such as a recession
and heavy high-yield issuance, do not appear likely at present. Thus, we
expect the difference between yields of lower- and higher-quality to
remain narrow.
Quality Diversification
Tax-Free High Yield Fund
AAA AA A BBB BB and Below
4% 26% 20% 27% 23%
While this compression of yield spreads has generally reduced our
enthusiasm for lower-quality bonds, we are nevertheless able to find
issues to our liking. Over the past six months, the fund's exposure to
below-investment-grade bonds rose from 19% to 23% of net assets. Our
weighting in bonds rated BBB fell from 32% to 27% due to an upgrade of the
fund's largest holding, New York City general obligation bonds.
New York City's rating upgrade illustrates a broader trend: while the
fund's average credit quality is little changed from a year ago, nearly
12% of holdings were upgraded by at least one rating agency last year.
Fund performance during the past six and 12 months benefited from its
higher noninvestment-grade exposure, low expense ratio, the ratings
upgrades discussed, and a modest extension of duration. (For an
explanation of duration, see the report for the Tax-Free
Short-Intermediate Fund.) We began the recent six-month period with a
duration of 7.0 years and ended at 7.2 years as interest rates rose in
February. The fund's weighted average maturity hovered around 19 years,
and cash levels averaged about 3%.
OUTLOOK
The problems in Asia could affect the U.S. economy and slice a bit off
1998 growth, but the so-called Asian flu does not appear serious enough to
precipitate a downturn while domestic consumer demand remains healthy. The
recent Congressional testimony of Federal Reserve officials suggests that
the Fed will leave monetary policy unchanged until it fully appraises the
impact of Asia's problems on the U.S. economy.
Municipal bonds produced good results over the last 12 months despite the
steady growth of new issuance. However, we ended the year with a slightly
more cautious view. A surge in issuance in the first quarter of 1998 meant
we were paid to be patient as yields rose from their lows in mid-January.
Municipal bonds look attractive compared with taxable alternatives, which
could represent an opportunity to buy bonds at higher yields.
We anticipate slower economic growth in 1998, continued low inflation, and
stable monetary policy, all of which should be favorable for the municipal
bond market.
Respectfully submitted,
Mary J. Miller
Director, Municipal Bond Department
March 20, 1998
T. Rowe Price Tax-Free Funds
Portfolio Highlights
Key statistics
8/31/97 2/28/98
Tax-Exempt Money Fund
_____________________________________________________________________
Price Per Share $ 1.00 $ 1.00
Dividends Per Share
For 6 months 0.016 0.016
For 12 months 0.031 0.032
Dividend Yield (7-Day Compound) * 3.04% 3.03%
Weighted Average Maturity (days) 60 59
Weighted Average Quality ** First Tier First Tier
Tax-Free Short-Intermediate Fund
_______________________________________________________________________
Price Per Share $ 5.33 $ 5.37
Dividends Per Share
For 6 months 0.11 0.11
For 12 months 0.22 0.22
Dividend Yield *
For 6 months 4.27% 4.28%
For 12 months 4.37 4.32
Capital Gain Distribution (long
term, paid 12/30/97) - $ 0.01
Weighted Average Maturity (years) 3.8 4.1
Weighted Average Effective
Duration (years) 2.8 3.0
Weighted Average Quality *** AA- AA
T. Rowe Price Tax-Free Funds
Portfolio Highlights
Key statistics
8/31/97 2/28/98
Tax-Free Insured Intermediate Bond Fund
_______________________________________________________________________
Price Per Share $ 10.86 $ 11.06
Dividends Per Share
For 6 months 0.24 0.24
For 12 months 0.48 0.48
Dividend Yield *
For 6 months 4.44% 4.49%
For 12 months 4.56 4.52
Capital Gain Distribution (paid 12/30/97)
Short-Term - $ 0.02
Long-Term - 0.01
Weighted Average Maturity (years) 8.5 8.4
Weighted Average Effective Duration
(years) 5.4 5.5
Weighted Average Quality *** AA AA
Tax-Free Income Fund
______________________________________________________________________
Price Per Share $ 9.71 $ 9.95
Dividends Per Share
For 6 months 0.26 0.26
For 12 months 0.52 0.52
Dividend Yield *
For 6 months 5.40% 5.33%
For 12 months 5.51 5.44
Weighted Average Maturity (years) 17.4 17.1
Weighted Average Effective
Duration (years) 7.5 7.4
Weighted Average Quality *** AA- AA-
T. Rowe Price Tax-Free Funds
Portfolio Highlights
Key statistics
8/31/97 2/28/98
Tax-Free High Yield Fund
______________________________________________________________________
Price Per Share $ 12.33 $ 12.66
Dividends Per Share
For 6 months 0.35 0.34
For 12 months 0.70 0.69
Dividend Yield *
For 6 months 5.74% 5.57%
For 12 months 5.92 5.74
Weighted Average Maturity (years) 18.7 18.9
Weighted Average Effective Duration
(years) 7.0 7.2
Weighted Average Quality *** A- A-
* 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.
** All securities purchased in the money fund are rated in the two
highest categories (tiers) as established by national rating agencies
or, if unrated, are deemed of comparable quality by T. Rowe Price.
*** Based on T. Rowe Price research.
T. Rowe Price Tax-Free Funds
Average Annual Compound Total Return
This table shows how each fund would have performed each year if its
actual (or cumulative) returns for the periods shown had been earned at a
constant rate.
Periods Ended 2/28/98
SinceInception
1 Year 5 Years 10 Years Inception Date
______________________________________________________________________
Tax-Exempt Money 3.24% 2.87% 3.65% - 4/8/81
Tax-Free Short-
Intermediate 5.28 4.50 5.44 -12/23/83
Tax-Free Insured
Intermediate
Bond 7.31 5.81 - 6.87%11/30/92
Tax-Free Income 9.37 6.33 7.70 -10/26/76
Tax-Free High
Yield 10.42 7.15 8.58 - 3/1/85
Investment returns represent past performance and will vary. Shares of the
bond funds may be worth more or less at redemption than at original
purchase. The Money Fund's $1.00 share price is not guaranteed, nor is the
fund insured by the U.S. government.
Performance Comparison
These charts show the value of a hypothetical $10,000 investment in each
fund over the past 10 fiscal year periods or since inception (for funds
lacking 10-year records). The result is compared with a broad-based
average or index. The index return does not reflect expenses, which have
been deducted from each fund's return.
Tax-Exempt Money Fund
As of 2/28/98
Lipper Tax-Exempt
Money Market Tax-Exempt
Fund Index Money Fund
2/88 $10,000$ 10,000
2/89 10,500 10,508
2/90 11,120 11,125
2/91 11,719 11,705
2/92 12,176 12,138
2/93 12,470 12,424
2/94 12,707 12,679
2/95 13,030 13,012
2/96 13,464 13,453
2/97 13,858 13,864
2/98 14,296 14,312
T. Rowe Price Tax-Free Funds
Performance Comparison
Tax-Free Short-Intermediate Fund
As of 2/28/98
Lehman 3-Year Lipper Short- Tax-Free
GO Bond Intermediate Short-Intermediate
Index Debt Funds Average Fund
2/88 $10,000 $ 10,000 $10,000
2/89 10,261 10,389 10,314
2/90 11,088 11,183 11,073
2/91 12,016 12,038 11,855
2/92 12,996 12,989 12,677
2/93 14,124 14,182 13,629
2/94 14,615 14,731 14,105
2/95 14,998 15,040 14,515
2/96 16,206 16,130 15,512
2/97 16,952 16,808 16,136
2/98 17,857 17,720 16,987
Tax-Free Insured Intermediate Bond Fund
As of 2/28/98
Lehman 7-Year Lipper Intermediate Tax-Free
Municipal Municipal Debt Insured Intermediate
Bond Index Funds Average Bond Fund
11/30/92 $10,000 $ 10,000 $10,000
2/93 10,542 10,540 10,681
2/94 11,008 11,038 11,267
2/95 11,277 11,250 11,566
2/96 12,434 12,278 12,672
2/97 13,050 12,816 13,204
2/98 14,043 13,767 14,168
T. Rowe Price Tax-Free Funds
Performance Comparison
Tax-Free Income Fund
As of 2/28/98
Lehman Lipper General
Municipal Municipal Debt Tax-Free
Bond Index Funds Average Income Fund
2/88 $10,000 $10,000 $10,000
2/89 10,621 10,693 10,411
2/90 11,710 11,642 11,259
2/91 12,790 12,599 12,205
2/92 14,067 13,882 13,447
2/93 16,003 15,871 15,447
2/94 16,890 16,738 16,297
2/95 17,208 16,867 16,606
2/96 19,109 18,560 18,318
2/97 20,161 19,440 19,199
2/98 22,004 21,268 20,998
Tax-Free High Yield Fund
As of 2/28/98
Lipper High Yield Tax-Free
Lehman Revenue Municipal Debt High Yield
Bond Index Funds Average Fund
2/88 $10,000 $10,000 $10,000
2/89 10,805 10,798 10,827
2/90 11,968 11,741 11,861
2/91 13,069 12,420 12,801
2/92 14,475 13,706 14,154
2/93 16,580 15,373 16,127
2/94 17,619 16,374 17,335
2/95 17,890 16,615 17,554
2/96 19,918 18,354 19,419
2/97 21,093 19,370 20,627
2/98 23,149 21,661 22,776
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T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
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distribution only to shareholders
and to others who have received
a copy of the prospectus of the
T. Rowe Price Tax-Free Funds.
Investor Centers:
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T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
Invest With Confidence(registered trademark)
T. Rowe Price
T. Rowe Price Investment Services, Inc., Distributor.
C03-050 2/28/98
