Semiannual Report - Financial Statements
T. Rowe Price
Tax-Free
Income Fund
August 31, 1998
Portfolio Highlights
- --------------------------------------------------------------------------------
SECTOR DIVERSIFICATION
Percent of Percent of
Net Assets Net Assets
2/28/98 8/31/98
- --------------------------------------------------------------------------------
Hospital Revenue 13% 17%
Prerefunded Bonds 11 11
Nuclear Revenue 12 9
Housing Finance Revenue 10 9
General Obligation - Local 6 9
Dedicated Tax Revenue 7 6
Ground Transportation Revenue 6 6
General Obligation - State 7 5
Escrowed to Maturity 5 5
Electric Revenue 4 5
Lease Revenue 5 4
Educational Revenue 4 3
Air and Sea Transportation Revenue 1 3
Miscellaneous Revenue 2 3
Water and Sewer Revenue 4 3
All others 4 3
Other Assets Less Liabilities -1 -1
- --------------------------------------------------------------------------------
Total 100% 100%
T. Rowe Price Tax-Free Income Fund
- --------------------------------------------------------------------------------
Unaudited
For a share outstanding throughout each period
Financial Highlights
- --------------------------------------------------------------------------------
6 Months Year
Ended Ended
8/31/98 2/28/98 2/28/97 2/29/96 2/28/95 2/28/94
NET ASSET VALUE
Beginning of period $ 9.95 $ 9.59 $ 9.66 $ 9.25 $ 9.66 $ 9.84
Investment activities
Net investment
income 0.25 0.52 0.52 0.52 0.53 0.54
Net realized and
unrealized gain
(loss) 0.09 0.36 (0.07) 0.41 (0.37) --
Total from
investment
activities 0.34 0.88 0.45 0.93 0.16 0.54
Distributions
Net investment
incoome (0.25) (0.52) (0.52) (0.52) (0.53) (0.54)
Net realized gain (0.01) -- -- -- (0.04) (0.18)
Total distributions (0.26) (0.52) (0.52) (0.52) (0.57) (0.72)
NET ASSET VALUE
End of period $ 10.03 $ 9.95 $ 9.59 $ 9.66 $ 9.25 $ 9.66
---------------------------------------------------------
Ratios/Supplemental Data
Total return(C) 3.51% 9.37% 4.81% 10.31% 1.90% 5.50%
Ratio of expenses to
average net assets 0.55%! 0.55% 0.57% 0.58% 0.59% 0.59%
Ratio of net investment
income to average
net assets 5.09%! 5.31% 5.41% 5.49% 5.80% 5.40%
Portfolio turnover
rate 21.5% 36.3% 40.7% 48.7% 49.3% 71.2%
Net assets,
end of period
(in millions) $ 1,458 $ 1,396 $ 1,337 $ 1,376 $ 1,329 $ 1,453
(C) Total return reflects the rate that an investor would have earned on
an investment in the fund during each period, assuming reinvestment of
all distributions.
! Annualized.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free Income Fund
- --------------------------------------------------------------------------------
Unaudited August 31, 1998
Statement of Net Assets
Par Value
- --------------------------------------------------------------------------------
In thousands
ALABAMA 2.9%
Alabama, GO
Zero Coupon, 9/1/03 $ 10,000 $ 7,691
Zero Coupon, 3/1/04 10,000 7,409
Zero Coupon, 9/1/04 5,500 3,930
Alabama Docks Dept., Docks Fac.
5.25%, 10/1/10 (MBIA Insured) 2,400 2,561
5.50%, 10/1/22 (MBIA Insured) 5,000 5,237
Alabama Water Pollution Control
Auth., Revolving Fund Loan
6.75%, 8/15/17 (AMBAC Insured) 2,685 3,041
Alexander Special Care Fac.
Fin. Auth., Russell Hosp.
6.00%, 12/1/22 3,250 3,391
Baldwin County Eastern Shore
Health Care Auth., Thomas Hosp.
5.75%, 4/1/27 2,500 2,537
6.75%, 4/1/21 1,900 2,081
Mobile, GO
Capital Improvement Warrants
Zero Coupon, 8/15/16 (MBIA Insured) 4,330 1,435
Zero Coupon, 8/15/17 (MBIA Insured) 4,435 1,371
Zero Coupon, 8/15/20 (MBIA Insured) 5,000 1,581
Total Alabama (Cost $38,768) 42,265
ALASKA 1.2%
Alaska Housing Fin.
5.85%, 12/1/14 (MBIA Insured) 3,405 3,556
5.875%, 12/1/24 (MBIA Insured) 11,000 11,572
General Mortgage
Zero Coupon, 12/1/17 (MBIA Insured) 6,250 1,986
Total Alaska (Cost $16,000) 17,114
ARIZONA 0.8%
Maricopa County, PCR, Arizona Public Service
3.35%, 5/1/29 3,200 3,200
Salt River Agricultural Improvement
and Power Dist. Electric System
6.50%, 1/1/22 (FSA Insured)
(Prerefunded 1/1/01!) $ 8,000 $ 8,633
Total Arizona (Cost $10,901) 11,833
ARKANSAS 0.5%
Little Rock Health Fac. Board,
Baptist Medical Center
6.85%, 11/1/08 2,495 2,978
North Little Rock, Electric System
6.50%, 7/1/15 (MBIA Insured) 4,000 4,807
Total Arkansas (Cost $6,476) 7,785
CALIFORNIA 6.1%
Foothill / Eastern Transportation
Agency, Toll Road
Zero Coupon, 1/1/15 5,000 2,162
Zero Coupon, 1/1/17 20,000 7,761
Zero Coupon, 1/1/26 5,000 1,197
Los Angeles City, GO
5.80%, 9/1/09 (FGIC Insured) 2,400 2,639
6.00%, 9/1/14 (MBIA Insured) 5,000 5,554
Wastewater, 7.15%, 6/1/20
(Prerefunded 6/1/00!) 10,500 11,340
Los Angeles County, GO, COP, Marina del Rey
6.25%, 7/1/03 4,500 4,756
6.50%, 7/1/08 3,250 3,539
Los Angeles County Metropolitan
Transportation Auth.
Sales Tax
6.25%, 7/1/13 (MBIA Insured) 8,965 9,927
7.40%, 7/1/15 5,530 5,802
Los Angeles County Public Works Fin.
Auth., Rowland Heights
5.50%, 10/1/18 (FSA Insured) 7,000 7,627
Los Angeles Harbor Dept.
7.60%, 10/1/18 (Escrowed to Maturity) 3,200 4,147
San Bernardino,
Sisters of Charity Health Care
7.00%, 7/1/21 (Prerefunded 7/1/01!) 3,000 3,319
San Mateo County Transit Dist.,
5.25%, 6/1/16 (MBIA Insured) 6,000 6,349
Southern California Public Power Auth.,
6.75%, 7/1/11 $ 4,050 $ 4,865
Torrance Redev. Agency,
Torrance Ind. Redev. Project
5.50%, 9/1/28 (MBIA Insured) 7,280 7,393
Total California (Cost $77,080) 88,377
COLORADO 2.9%
Boulder County, Longmont United Hosp.
8.20%, 12/1/20 (Prerefunded 12/1/00!) 2,000 2,208
Denver Airport System,
City and County Airport
5.50%, 11/15/25 (MBIA Insured) 12,875 13,513
E-470 Public Highway Auth.
Zero Coupon, 9/1/13 (MBIA Insured) 10,000 4,866
Zero Coupon, 9/1/17 (MBIA Insured) 7,000 2,749
Zero Coupon, 8/31/26
(Prerefunded 8/31/05!) 7,000 1,090
4.75%, 9/1/23 10,000 9,659
Jefferson County School Dist., GO
6.00%, 12/15/12 (AMBAC Insured)
(Prerefunded 12/15/02!) 8,000 8,748
Total Colorado (Cost $40,193) 42,833
CONNECTICUT 1.0%
Connecticut, State Special Tax,
7.125%, 6/1/10 7,350 9,110
Connecticut Dev. Auth.,
Mystic Marinelife Aquarium
7.00%, 12/1/27 1,700 1,834
Mashantucket Western Pequot Tribe,
5.75%, 9/1/27 3,000 3,114
Total Connecticut (Cost $11,955) 14,058
DELAWARE 0.3%
Delaware HFA, Beebe Medical Center,
6.75%, 6/1/14 3,500 3,863
Total Delaware (Cost $3,425) 3,863
DISTRICT OF COLUMBIA 2.2%
Dist. of Columbia, GO
5.25%, 6/1/27 (MBIA Insured) 9,000 8,791
6.00%, 6/1/14 (MBIA Insured) 4,705 5,329
Dist. of Columbia, GO
6.00%, 6/1/17 (MBIA Insured) $ 3,250 $ 3,672
American Assoc. for the
Advancement of Science
5.125%, 1/1/27 (AMBAC Insured) 3,500 3,507
Howard University, 5.50%, 10/1/16
(MBIA Insured) 3,560 3,823
Smithsonian Institution, 5.00%, 2/1/28 7,265 7,133
Total District of Columbia (Cost $31,384) 32,255
FLORIDA 3.9%
Broward County Resource Recovery
Broward Waste Energy, L.P. North
7.95%, 12/1/08 10,185 10,922
Broward Waste Energy, L.P. South
7.95%, 12/1/08 835 895
Dade County
4.75%, 10/1/30 (MBIA Insured) 5,000 4,782
Capital Appreciation
Zero Coupon, 2/1/09 (MBIA Insured) 12,185 7,572
Zero Coupon, 2/1/13 (MBIA Insured) 9,000 4,268
Florida Board of Ed., GO,
Public Ed. Capital Outlay
7.25%, 6/1/23 6,210 6,656
Jacksonville HFA,
Genesis Rehabilitation Hosp.
VRDN (Currently 3.35%) 4,500 4,500
Jacksonville Transportation Auth., GO
7.375%, 7/1/20 (Prerefunded 7/1/00!) 8,750 9,490
Port St. Lucie
Capital Appreciation
Zero Coupon, 9/1/16 (FGIC Insured)
(Prerefunded 9/1/06!) 5,000 2,006
Zero Coupon, 9/1/26 (FGIC Insured)
(Prerefunded 9/1/06!) 5,000 1,053
Sarasota County Public Hosp. Board,
Sarasota Memorial Hosp., FR
(Currently 5.764%),
10/1/21 (MBIA Insured) 4,000 3,920
Total Florida (Cost $52,252) 56,064
GEORGIA 5.4%
Coweta County Residential Care Fac.
for the Elderly Auth.
Wesley Woods of Newnan-Peachtree City
8.20%, 10/1/16 $ 1,350 $ 1,573
8.25%, 10/1/26 1,800 2,103
Fulton-Dekalb Hosp. Auth.
Grady Memorial Hosp.
6.80%, 1/1/07 (AMBAC Insured)
(Escrowed to Maturity) 5,530 6,552
6.80%, 1/1/08 (AMBAC Insured)
(Escrowed to Maturity) 5,905 7,078
6.85%, 1/1/09 (AMBAC Insured)
(Escrowed to Maturity) 6,310 7,629
6.85%, 1/1/10 (AMBAC Insured)
(Escrowed to Maturity) 6,745 8,193
Gwinnett County School Dist., GO
6.40%, 2/1/11 1,905 2,255
6.40%, 2/1/12 1,255 1,486
Henry County School Dist.,
GO, 6.45%, 8/1/11 2,100 2,482
Metropolitan Atlanta Rapid
Transit Auth., Sales Tax
6.90%, 7/1/16 (MBIA Insured)
(Prerefunded 7/1/04!) 5,655 6,593
Municipal Electric Auth. of Georgia
5.50%, 1/1/20 3,000 3,167
5.70%, 1/1/19 (FGIC Insured) 5,100 5,642
6.125%, 1/1/14 (FGIC Insured) 5,500 5,959
6.40%, 1/1/07 (AMBAC Insured) 7,500 8,621
7.25%, 1/1/24 (AMBAC Insured) 6,500 8,679
Total Georgia (Cost $66,368) 78,012
ILLINOIS 4.8%
Chicago, GO
5.50%, 1/1/14 (FGIC Insured) 5,000 5,433
5.50%, 1/1/18 (AMBAC Insured) 6,630 7,157
6.25%, 1/1/15 (AMBAC Insured) 1,000 1,168
Chicago Board of Ed., GO
Chicago School Reform,
5.75%, 12/1/27
(AMBAC Insured) 4,500 4,827
Chicago Midway Airport,
5.00%, 1/1/35 (MBIA Insured) $ 4,200 $ 4,097
Cook, Dupage, Kane, Lake, McHenry,
and Will Counties
Regional Transportation Auth.
7.75%, 6/1/19 (FGIC Insured) 5,350 7,330
Illinois EFA, Northwestern
Univ., Zero Coupon, 11/1/32 4,000 4,201
Illinois HFA
Glen Oaks Medical Center
7.00%, 11/15/19
(Escrowed to Maturity) 3,300 3,775
Highland Park Hosp.
5.75%, 10/1/26 (MBIA Insured) 2,000 2,142
Hinsdale Hosp.
9.00%, 11/15/15 (Escrowed to Maturity) 4,570 5,159
Loyola Univ. Health
5.00%, 7/1/24 (MBIA Insured) 10,510 10,227
Illinois Regional Transportation Auth.
6.70%, 11/1/21 (FGIC Insured) 5,000 6,211
Metropolitan Pier and Exposition Authority
Zero Coupon, 6/15/09 (FGIC Insured) 7,580 4,616
Village of Glenview,
Valley Lo Towers, 5.20%, 12/1/27 3,500 3,595
Total Illinois (Cost $64,162) 69,938
INDIANA 1.6%
Indiana HFFA
Ancilla Systems Obligated Group
5.25%, 7/1/22 (MBIA Insured) 5,000 5,061
Clarian Health Partners, 5.50%, 2/15/16 9,205 9,584
Indiana State Office Building Commission,
Correctional Fac.
5.50%, 7/1/20 (AMBAC Insured) 5,750 6,003
St. Joseph's County Hosp. Auth.,
St. Joseph's Medical Center
6.70%, 12/1/02 (MBIA Insured) 1,985 2,195
Total Indiana (Cost $20,990) 22,843
IOWA 0.5%
Iowa Finance Auth.,
Iowa Health Systems, 5.125%, 1/1/28 5,000 4,929
Iowa HFA, Wesley Retirement,
6.25%, 2/1/12 2,400 2,469
Total Iowa (Cost $7,223) 7,398
KENTUCKY 1.5%
Carroll County, PCR,
Kentucky Utilities, 7.45%, 9/15/16 $ 15,000 $ 16,951
Kentucky Economic Dev. Fin. Auth.
Appalachian Regional Health,
5.60%, 10/1/09 2,000 2,112
Sisters of Charity of Nazareth
VRDN (Currently 3.55%) 2,400 2,400
Total Kentucky (Cost $20,148) 21,463
LOUISIANA 2.1%
Jefferson Sales Tax Dist.
Capital Appreciation
Zero Coupon, 12/1/09 (FSA Insured) 4,485 2,674
Zero Coupon, 12/1/10 (FSA Insured) 5,755 3,238
Lake Charles Harbor and
Terminal Dist., Port Fac.
DuPont (CONOCO), VRDN (Currently 3.35%) 1,600 1,600
Louisiana Offshore Terminal Auth.,
Deepwater Port
7.60%, 9/1/10 (Prerefunded 9/1/00!) 10,440 11,335
Louisiana Public Fac. Auth. Hosp.,
Franciscan Missionaries
5.00%, 7/1/25 (MBIA Insured) 10,000 9,840
St. Tammany Public Trust Fin. Auth.,
Zero Coupon, 7/20/14 5,525 2,581
Total Louisiana (Cost $29,952) 31,268
MAINE 0.2%
Maine Housing Auth.,
6.10%, 11/15/15 (AMBAC Insured) 3,000 3,218
Total Maine (Cost $3,000) 3,218
MARYLAND 5.1%
Baltimore City, Convention Center,
6.00%, 9/1/17 (FGIC Insured) 1,750 1,937
Baltimore County,
Pickersgill Retirement Community
7.70%, 1/1/21 (Prerefunded 1/1/02!) 2,000 2,268
Gaithersburg Economic Auth.,
Asbury Methodist Home
7.85%, 1/1/20 (Prerefunded 1/1/00!) 3,000 3,213
Maryland, GO, Residual Certificates,
(Currently 6.735%), 7/15/13 5,000 5,551
Maryland CDA
Single Family
5.60%, 4/1/18 $ 4,400 $ 4,506
5.95%, 4/1/16 7,380 7,850
5.95%, 7/1/23 3,730 3,945
6.45%, 4/1/14 2,000 2,143
7.25%, 4/1/19 2,500 2,629
7.60%, 4/1/17 7,810 8,131
Maryland HHEFA
Johns Hopkins Hosp., Zero Coupon, 7/1/19 7,775 2,802
Kennedy Kreiger Institute
6.75%, 7/1/22 (Prerefunded 7/1/01!) 1,500 1,618
Pooled Loan Program,
VRDN (Currently 3.25%) 5,300 5,300
Univ. of Maryland Medical System
7.00%, 7/1/22 (FGIC Insured) 1,500 1,932
Maryland Stadium Auth., Sports Fac.
5.75%, 3/1/18 (AMBAC Insured) 2,000 2,134
Maryland Water Quality Fin. Administration
Revolving Loan Fund
7.25%, 9/1/12 (Prerefunded 9/1/00!) 1,950 2,121
Montgomery County Housing
Opportunities Commission
Single Family
Zero Coupon, 7/1/28 13,000 2,550
7.50%, 7/1/17 1,060 1,112
Prince George's County,
Dimensions Health, 5.30%, 7/1/24 7,685 7,723
Univ. of Maryland, Auxiliary Fac.
and Tuition, 5.75%, 4/1/17 5,000 5,380
Total Maryland (Cost $68,472) 74,845
MASSACHUSETTS 3.9%
Massachusetts Bay Transportation Auth., GO
General Transportation
7.00%, 3/1/14 3,150 3,910
7.00%, 3/1/21 6,200 7,913
Massachusetts HEFA
Harvard Univ., 6.25%, 4/1/20 5,000 5,949
Massachusetts General Hosp.
6.00%, 7/1/15 (AMBAC Insured) 4,500 4,814
Massachusetts HEFA
Southcoast Health System
4.75%, 7/1/27 (MBIA Insured) $ 18,000 $ 17,157
Massachusetts Housing Fin. Agency,
6.30%, 12/1/14 6,250 6,700
Massachusetts Port Authority,
5.00%, 7/1/28 10,000 9,787
Total Massachusetts (Cost $51,346) 56,230
MICHIGAN 0.9%
Michigan HDA
6.45%, 12/1/14 2,120 2,258
7.55%, 12/1/15 1,750 1,838
Michigan Hosp. Fin. Auth.
Bay Medical Center, 8.25%, 7/1/12 1,000 1,094
Mercy Health, 5.50%, 8/15/20 5,500 5,716
Michigan Strategic Fund
Dow Chemical, VRDN (Currently 3.30%) 100 100
Holland Home, 5.25%, 11/15/08 2,100 2,086
Total Michigan (Cost $12,189) 13,092
MINNESOTA 1.0%
Northern Minnesota Municipal Power Agency,
7.35%, 1/1/02 5,000 5,156
Rochester Health Care Fac.
Mayo Foundation/Mayo Medical Center
6.25%, 11/15/21 3,000 3,260
Univ. of Minnesota
Residual Interest Bond / Inverse Floater
(Currently 5.868%), 8/15/03 5,800 6,249
Total Minnesota (Cost $13,080) 14,665
MISSISSIPPI 0.3%
Claiborne County, PCR,
Systems Energy Resources
7.30%, 5/1/25 2,750 2,899
Warren County, PCR,
Mississippi Power and Light
7.00%, 4/1/22 1,500 1,666
Total Mississippi (Cost $4,250) 4,565
MISSOURI 0.3%
Good Shepherd Nursing Home Dist.,
Nursing Home Facilities
5.90%, 8/15/23 $ 2,000 $ 2,027
Joplin IDA, Tri-State Osteopathic Hosp.,
8.25%, 12/15/14 1,340 1,530
Missouri HEFA,
Bethesda Health Group, 7.50%, 8/15/12 1,250 1,407
Total Missouri (Cost $4,542) 4,964
NEBRASKA 0.4%
City of Kearney,
Great Platte River Road, 6.75%, 1/1/23 3,000 2,940
Omaha Public Power Dist., Electric
6.20%, 2/1/17 (Escrowed to Maturity) 3,000 3,422
Total Nebraska (Cost $5,913) 6,362
NEVADA 1.2%
Clark County Passenger Fac.,
McCarran Int'l. Airport
4.75%, 7/1/22 (MBIA Insured) 10,000 9,620
Clark County School Dist., GO
Limited Tax School Improvement
7.00%, 6/1/11 (MBIA Insured) 3,500 4,322
Nevada, GO, Municipal Bond Bank
7.25%, 11/1/10 (Escrowed to Maturity) 3,050 3,442
Total Nevada (Cost $15,874) 17,384
NEW HAMPSHIRE 0.4%
New Hampshire HHEFA, Wentworth Douglass Hosp.
5.375%, 1/1/15 (MBIA Insured) 5,600 5,988
Total New Hampshire (Cost $5,578) 5,988
NEW JERSEY 0.5%
New Jersey Sports and Exposition Auth.,
Monmouth Park,
8.00%, 1/1/25 4,500 5,144
New Jersey Turnpike Auth.,
6.50%, 1/1/16 (MBIA Insured) 2,000 2,405
Total New Jersey (Cost $6,538) 7,549
NEW MEXICO 0.5%
Farmington, PCR
Public Service Co. of New Mexico
6.30%, 12/1/16 $ 2,400 $ 2,602
6.375%, 4/1/22 4,325 4,721
Total New Mexico (Cost $6,725) 7,323
NEW YORK 15.6%
Dormitory Auth. of the State of New York
City Univ.
5.75%, 7/1/13 10,000 11,010
5.75%, 7/1/18 (AMBAC Insured) 5,000 5,589
6.00%, 7/1/14 10,000 11,296
New York Medical College
4.75%, 7/1/27 (MBIA Insured) 17,140 16,514
North Shore Health System
5.50%, 11/1/13 (MBIA Insured) 6,000 6,523
State Univ. Ed. Fac., 5.25%, 5/15/19 3,325 3,457
Vassar College
7.25%, 7/1/15 (Prerefunded 7/1/00!) 2,000 2,165
Long Island Power Auth., Electric System
Zero Coupon, 12/1/09 (FSA Insured) 11,605 7,034
Metropolitan Transportation Auth. of New York
Commuter Fac.,
5.75%, 7/1/21 (MBIA Insured) 12,750 13,748
New York City, GO
5.00%, 8/1/23 6,250 6,110
5.125%, 8/1/10 10,025 10,407
6.00%, 12/1/18 (FSA Insured)
(Escrowed to Maturity) 5,000 5,068
6.00%, 2/15/25 4,525 4,865
6.00%, 2/15/25 (Prerefunded 2/15/05!) 475 530
6.00%, 8/15/26 4,380 4,751
6.00%, 8/15/26 (Prerefunded 8/15/06!) 620 706
6.00%, 10/15/26 5,450 5,938
6.00%, 10/15/26 (Prerefunded 10/15/07!) 50 57
6.25%, 8/1/09 9,550 10,801
6.375%, 8/1/04 4,145 4,516
New York City Municipal Water Fin. Auth.
5.75%, 6/15/26 (AMBAC Insured) $ 6,000 $ 6,446
New York City Transitional Fin.
Auth., Future Tax
4.75%, 5/1/23 8,500 8,165
New York State Environmental Fac., PCR
State Water Revolving Fund,
6.90%, 11/15/15 5,365 6,212
New York State Housing Fin. Agency,
State Univ. Construction
7.80%, 5/1/01 (Escrowed to Maturity) 2,000 2,204
New York State Local Gov't. Assistance
7.20%, 4/1/04 (Prerefunded 4/1/01!) 5,000 5,505
New York State Medical Care Fac. Fin. Agency
Albany and St. John's Medical Center
6.20%, 2/15/28 (FHA Guaranteed) 3,480 3,809
Buffalo General Hosp.
6.00%, 8/15/14 (FHA Guaranteed) 8,870 9,511
Mental Health, 6.50%, 8/15/24 6,000 6,811
New York Hosp.
6.50%, 8/15/29 (AMBAC Insured)
(Prerefunded 8/15/05!) 4,625 5,331
New York State Thruway Auth., VRDN
(Currently 3.40%) 6,000 6,000
New York State Urban Dev.
Sr. Lien
5.375%, 7/1/22 5,000 5,140
5.50%, 7/1/26 10,000 10,400
Triborough Bridge and Tunnel Auth.,
5.50%, 1/1/17 18,500 20,066
Total New York (Cost $203,967) 226,685
NORTH CAROLINA 1.4%
Cumberland County, Civic Center, COP
6.40%, 12/1/24 (AMBAC Insured) 2,750 3,158
North Carolina Eastern Municipal Power Agency
6.00%, 1/1/26 (CAPMAC Insured) 2,500 2,887
7.50%, 1/1/10 (Escrowed to Maturity) 8,980 11,170
North Carolina Medical Care Commission
Stanley Memorial Hosp.
7.80%, 10/1/19 (Prerefunded 10/1/99!) 3,000 3,194
Total North Carolina (Cost $17,362) 20,409
NORTH DAKOTA 0.3%
Mercer County, PCR, Basin Electric Power
6.05%, 1/1/19 (AMBAC Insured) $ 4,500 $ 4,919
Total North Dakota (Cost $4,538) 4,919
OHIO 1.8%
Cleveland, Waterworks,
5.50%, 1/1/13 (MBIA Insured) 4,765 5,195
Dayton Special Fac.,
Emery Air Freight, 6.05%, 10/1/09 2,500 2,735
Franklin County, GO
6.375%, 12/1/17 (Prerefunded 12/1/01!) 2,000 2,189
6.80%, 12/1/09 (Prerefunded 12/1/00!) 2,860 3,100
6.80%, 12/1/10 (Prerefunded 12/1/00!) 3,240 3,512
Montgomery County,
Grandview Hosp. and Medical Center
5.40%, 12/1/09 1,800 1,885
Ohio Air Quality Dev. Auth., PCR,
Cleveland Electric
6.00%, 8/1/20 3,500 3,654
Ohio Water Dev. Auth., PCR,
Cleveland Electric, 7.70%, 8/1/25 3,950 4,540
Total Ohio (Cost $24,550) 26,810
OKLAHOMA 0.4%
Tulsa County Home Fin. Auth., Single Family
6.90%, 8/1/10 (FGIC Insured)
(Escrowed to Maturity) 4,250 5,191
Total Oklahoma (Cost $4,227) 5,191
PENNSYLVANIA 1.9%
Beaver County IDA, PCR,
Cleveland Electric, 7.75%, 7/15/25 3,900 4,503
Chester County HEFA,
Jefferson Health, 5.375%, 5/15/27 12,050 12,201
Pennsylvania Convention Center Auth.
6.70%, 9/1/14 (FSA Insured) 5,000 5,718
Pennsylvania Intergovernmental
Cooperative Auth., Special Tax
6.75%, 6/15/21 (FGIC Insured)
(Prerefunded 6/15/05!) 4,750 5,498
Total Pennsylvania (Cost $25,739) 27,920
RHODE ISLAND 1.4%
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 10.019%), 8/15/21
(FGIC Insured) (Escrowed to Maturity) 1,000 1,204
Rhode Island Housing and Mortgage Fin.
Homeownership Opportunity
6.70%, 10/1/14 5,000 5,399
7.85%, 10/1/16 8,000 8,441
Total Rhode Island (Cost $18,857) 20,458
SOUTH CAROLINA 4.0%
Connector 2000 Assoc.
Greenville Toll Road
Zero Coupon, 1/1/09 2,700 1,445
Zero Coupon, 1/1/10 3,400 1,820
Zero Coupon, 1/1/11 6,675 3,277
5.25%, 1/1/23 3,800 3,605
Florence County Hosp.,
Mcleod Regional Medical Center
4.75%, 11/1/27 (MBIA Insured) 13,500 12,854
Piedmont Municipal Power Agency
6.50%, 1/1/14 (FGIC Insured)
(Escrowed to Maturity) 3,500 4,198
South Carolina Public Service Auth.
5.875%, 1/1/23 (FGIC Insured) 8,410 9,081
Santee Cooper
6.25%, 1/1/22 (AMBAC Insured) 17,750 20,010
7.00%, 7/1/12 (Prerefunded 7/1/01!) 1,650 1,824
Total South Carolina (Cost $54,169) 58,114
SOUTH DAKOTA 0.2%
South Dakota HDA,
Homeownership, 6.65%, 5/1/14 2,000 2,160
Total South Dakota (Cost $2,000) 2,160
TENNESSEE 2.3%
Chattanooga and Hamilton County Hosp. Auth.
Erlanger Medical Center, VRDN
(Currently 3.35%) $ 2,000 $ 2,000
Chattanooga Health Ed.
and Housing Fac. Board
Catholic Health Initiatives,
5.00%, 12/1/18 1,000 1,000
Memorial Hosp.
6.625%, 9/1/07 (MBIA Insured) 2,950 3,484
6.625%, 9/1/08 (MBIA Insured) 3,150 3,757
Metropolitan Gov't. of Nashville
and Davidson Counties
Water and Sewer, STEP,
0%, 1/1/12 (FGIC Insured) 11,250 14,221
Shelby County Health Ed. and Housing Fac. Board
Le Bonhuer Children's Medical Center
5.50%, 8/15/12 (MBIA Insured)
(Escrowed to Maturity) 4,250 4,508
Tennessee Housing Dev. Agency,
Homeownership
Zero Coupon, 7/1/16 12,000 4,427
Total Tennessee (Cost $30,718) 33,397
TEXAS 5.8%
Amarillo Health Fac. Dev.
Baptist St. Anthony's Hosp.
5.00%, 1/1/22 (FSA Insured) 6,500 6,394
Sears Panhandle Retirement,
7.75%, 8/15/26 5,000 5,676
Arlington Independent School Dist., GO
4.75%, 2/15/21 8,780 8,440
Capital Appreciation,
Zero Coupon, 2/15/16 9,650 3,703
Denison Hosp. Auth.,
Texoma Medical Center, 7.00%, 8/15/14 4,245 4,739
Harris County, GO, Toll Road,
Zero Coupon, 8/15/04 (MBIA Insured) 6,000 4,679
Harris County Health Fac. Dev.
Memorial Hosp.
7.125%, 6/1/15 (Prerefunded 6/1/02!) 2,500 2,810
Methodist Hosp., VRDN (Currently 3.35%) 5,500 5,500
Sisters of Charity of the Incarnate Word
7.10%, 7/1/21 (Prerefunded 7/1/01!) 4,000 4,423
St. Luke's Episcopal Hosp.
VRDN (Currently 3.375%) 400 400
Harris County Health Fac. Dev.
Texas Medical Center
7.375%, 5/15/20 (MBIA Insured)
(Prerefunded 5/15/00!) $ 7,645 $ 8,251
Harris County Hosp. Dist.,
7.40%, 2/15/10 (AMBAC Insured) 1,500 1,809
Matagorda County Navigation Dist., PCR
Central Power and Light, 7.50%, 12/15/14 1,500 1,606
Houston Lighting and Power
7.20%, 12/1/18 (FGIC Insured) 3,600 3,814
Northwest Texas Independent School Dist., GO
School Buildings, Zero Coupon, 8/15/17 4,000 1,387
Texas, GO
Veterans Housing Assistance
6.25%, 12/1/15 2,135 2,223
7.40%, 12/1/20 14,205 15,532
Texas Dept. of Housing and
Community Affairs, NHP Foundation
6.40%, 1/1/27 3,500 3,774
Total Texas (Cost $78,245) 85,160
UTAH 1.3%
Intermountain Power Agency
5.25%, 7/1/15 (MBIA Insured) 10,000 10,308
5.75%, 7/1/19 (MBIA Insured) 3,000 3,241
Power Supply, 7.50%, 7/1/21 4,750 4,859
Total Utah (Cost $17,785) 18,408
VERMONT 0.5%
Vermont Ed. and Health Buildings Fin. Agency
Medical Center Hosp. of Vermont
7.35%, 9/1/13 (FGIC Insured) 4,650 5,103
7.45%, 9/1/23 (FGIC Insured) 2,000 2,203
Total Vermont (Cost $6,650) 7,306
VIRGINIA 3.6%
Fairfax County IDA,
Inova Health, 6.00%, 8/15/26 7,200 7,854
Fairfax County Water Auth.,
6.00%, 4/1/22 (Prerefunded 4/1/07!) 10,650 11,932
Hanover County IDA,
Memorial Regional Medical Center
6.375%, 8/15/18 (MBIA Insured) 6,185 7,341
Virginia HDA
6.25%, 7/1/11 $ 5,000 $ 5,263
6.75%, 7/1/14 7,435 7,996
6.80%, 7/1/17 8,375 9,006
Virginia Transportation Board,
Route 28 Project, 6.50%, 4/1/18 3,000 3,278
Total Virginia (Cost $47,923) 52,670
WASHINGTON 5.8%
Chelan County Public Utility Dist. No. 1
Columbia River-Rock Hydroelectric
Zero Coupon, 6/1/18 (MBIA Insured) 10,100 3,743
King County, GO, 5.70%, 12/1/10 3,545 3,933
Tacoma
Electric
6.25%, 1/1/15 (FGIC Insured) 7,550 8,323
Residual Interest Bond / Inverse Floater
(Currently 9.013%), 1/2/15 (AMBAC Insured)
(Prerefunded 1/1/01!) 5,000 5,775
Solid Waste Utilities, 5.50%, 12/1/17
(AMBAC Insured) 14,500 15,332
Washington, GO, 5.70%, 10/1/15 14,000 15,547
Washington Health Care Fac. Auth.,
Multicare Health System
5.375%, 8/15/11 (MBIA Insured) 5,000 5,314
Washington Public Power Supply System
Nuclear Project
5.25%, 7/1/16 (FSA Insured) 3,000 3,065
5.50%, 7/1/17 7,000 7,042
6.25%, 7/1/12 (Prerefunded 7/1/02!) 5,000 5,483
6.25%, 7/1/17 (MBIA Insured) 5,175 5,633
7.25%, 7/1/09 3,000 3,578
7.25%, 7/1/15 (Prerefunded 7/1/00!) 2,200 2,344
Total Washington (Cost $76,439) 85,112
WEST VIRGINIA 1.8%
Kanawha County Building Commission
Charleston Area Medical Center,
7.50%, 11/1/08
(Prerefunded 11/1/99!) 2,250 2,394
West Virginia, GO, State Road,
4.50%, 6/1/23 (FGIC Insured) $ 5,000 $ 4,634
West Virginia Building Commission
5.375%, 7/1/18 (AMBAC Insured) 1,785 1,894
Regional Jail, 5.375%, 7/1/21
(AMBAC Insured) 8,005 8,501
West Virginia Hosp. Fin. Auth.,
Charleston Area Medical Center
5.75%, 9/1/13 (MBIA Insured) 4,200 4,563
West Virginia State Parkways,
Economic Dev. and Tourism Auth.
Residual Interest Bond / Inverse Floater
(Currently 7.673%), 5/16/19
(FGIC Insured) 3,600 4,059
Total West Virginia (Cost $24,682) 26,045
WISCONSIN 0.6%
Wisconsin HEFA, United Health Group
5.50%, 12/15/16 (MBIA Insured) 6,540 6,871
Wisconsin Public Power Agency
7.00%, 7/1/02 (AMBAC Insured) 1,500 1,613
Total Wisconsin (Cost $7,748) 8,484
WYOMING 0.2%
Sweetwater County, PCR, 3.30%, 7/15/26 3,400 3,400
Total Wyoming (Cost $3,400) 3,400
OPTIONS PURCHASED 0.0%
September 1998 Municipal
Bond Index Futures, Put
9/21/98 @ $122.00 700 11
Total Options Purchased (Cost $223) 11
T. Rowe Price Tax-Free Income Fund
- --------------------------------------------------------------------------------
Value
- --------------------------------------------------------------------------------
In Thousands
Total Investments in Securities
101.3% of Net Assets (Cost $1,344,006) $ 1,476,213
Futures Contracts
In thousands
Contract Unrealized
Expiration Value Gain (Loss)
---------- ---------- -----------
Short, 100 30 yr.
Treasury contracts,
$400,000 of
Los Angeles City
Wastewater pledged as
initial margin 12/98 $(12,700) $ (63)
Net payments (receipts)
of variation
margin to date (3)
Variation margin receivable
(payable) on open futures contracts (66)
Other Assets Less Liabilities (18,248)
NET ASSETS $ 1,457,899
-----------
Net Assets Consist of:
Accumulated net investment income
- - net of distributions $ 659
Accumulated net realized gain/loss
- - net of distributions 2,805
Net unrealized gain (loss) 132,144
Paid-in-capital applicable to 145,414,212 shares
of $1.00 par value capital stock outstanding;
500,000,000 shares authorized 1,322,291
NET ASSETS $1,457,899
----------
NET ASSET VALUE PER SHARE $ 10.03
----------
! 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
FR Floating Rate
FSA Financial Security Assurance Corp.
GO General Obligation
HDA Housing Development Authority
HFA Health Facility Authority
HEFA Health & Educational Facility Authority
HFFA Health Facility Financing Authority
HHEFA Health & Higher Educational Facility Authority
IDA Industrial Development Authority
MBIA Municipal Bond Investors Assurance Corp.
PCR Pollution Control Revenue
STEP Stepped coupon bond for which the interest rate will adjust on
specified future date(s)
VRDN Variable Rate Demand Note
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free Income Fund
- --------------------------------------------------------------------------------
Unaudited
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
6 Months
Ended
8/31/98
Investment Income
Interest income $ 40,056
Expenses
Investment management 3,347
Shareholder servicing 399
Custody and accounting 118
Prospectus and shareholder reports 25
Registration 19
Legal and audit 6
Directors 4
Miscellaneous 5
Total expenses 3,923
Net investment income 36,133
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 5,001
Futures 88
Net realized gain (loss) 5,089
Change in net unrealized gain or loss
Securities 7,640
Futures (63)
Change in net unrealized gain or loss 7,577
Net realized and unrealized gain (loss) 12,666
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 48,799
---------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free Income Fund
- --------------------------------------------------------------------------------
Unaudited
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
6 Months Year
Ended Ended
8/31/98 2/28/98
Increase (Decrease) in Net Assets
Operations
Net investment income $ 36,133 $ 71,861
Net realized gain (loss) 5,089 8,060
Change in net unrealized gain or loss 7,577 42,319
Increase (decrease) in net
assets from operations 48,799 122,240
Distributions to shareholders
Net investment income (36,133) (71,861)
Net realized gain (1,403) --
Decrease in net assets
from distributions (37,536) (71,861)
Capital share transactions*
Shares sold 110,721 157,893
Distributions reinvested 24,632 47,065
Shares redeemed (85,005) (195,675)
Increase (decrease) in net
assets from capital
share transactions 50,348 9,283
Net Assets
Increase (decrease) during period 61,611 59,662
Beginning of period 1,396,288 1,336,626
End of period $ 1,457,899 $ 1,396,288
---------------------------------
*Share information
Shares sold 11,185 16,209
Distributions reinvested 2,487 4,830
Shares redeemed (8,591) (20,125)
Increase (decrease) in
shares outstanding 5,081 914
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free Income Fund
- --------------------------------------------------------------------------------
Unaudited August 31, 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. 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.
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. Payments ("variation margin")
made or received by the fund to settle the daily fluctuations in the value
of futures contracts are recorded as unrealized gains or losses until the
contracts are closed. Unrealized gains and losses on futures contracts are
included in Change in net unrealized gain or loss in the accompanying
financial statements.
NOTE 2 - INVESTMENT TRANSACTIONS
Consistent with its investment objective, the fund engages in the following
practices to manage exposure to certain risks or enhance performance. The
investment objective, policies, program, and risk factors of the fund are
described more fully in the fund's prospectus and Statement of Additional
Information.
Futures Contracts At August 31, 1998, the fund was a party to futures
contracts, which provide for the future sale by one party and purchase by
another of a specified amount of a specific financial instrument at an
agreed upon price, date, time, and place. Risks arise from possible
illiquidity of the futures market and from movements in security values.
Options Call and put options give the holder the right to purchase or
sell, respectively, a security at a specified price on a certain date.
Risks arise from possible illiquidity of the options market and from
movements in security values. Options are reflected in the accompanying
Statement of Net Assets at market value.
Other Purchases and sales of portfolio securities, other than short-term
securities, aggregated $337,591,000 and $299,996,000, respectively, for the
six months ended August 31, 1998.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of
its income. At August 31, 1998, the aggregate cost of investments for
federal income tax and financial reporting purposes was $1,344,006,000, and
net unrealized gain aggregated $132,207,000, of which $132,583,000 related
to appreciated investments and $376,000 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 $578,000 was payable at August 31, 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 August 31, 1998, and for the six months 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.
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
$362,000 for the six months ended August 31, 1998, of which $72,000 was
payable at period-end.
T. Rowe Price Shareholder Services
- --------------------------------------------------------------------------------
Investment Services And Information
KNOWLEDGEABLE SERVICE REPRESENTATIVES
By Phone 1-800-225-5132 Available Monday through Friday from 8 a.m. to 10
p.m. ET and weekends from 8:30 a.m. to 5 p.m. ET.
In Person Available in T. Rowe Price Investor Centers.
ACCOUNT SERVICES
Checking Available on most fixed income funds ($500 minimum).
Automatic Investing From your bank account or paycheck.
Automatic Withdrawal Scheduled, automatic redemptions.
Distribution Options Reinvest all, some, or none of your distributions.
Automated 24-Hour Services Including Tele*Access(registered trademark) and
the T. Rowe Price Web site on the Internet. Address: www.troweprice.com
DISCOUNT BROKERAGE*
Individual Investments Stocks, bonds, options, precious metals, and other
securities at a savings over regular commission rates.
INVESTMENT INFORMATION
Combined Statement Overview of all your accounts with T. Rowe Price.
Shareholder Reports Fund managers' reviews of their strategies and results.
T. Rowe Price Report Quarterly investment newsletter discussing markets and
financial strategies.
Performance Update Quarterly review of all T. Rowe Price fund results.
Insights Educational reports on investment strategies and financial
markets.
Investment Guides Asset Mix Worksheet, College Planning Kit, Diversifying
Overseas: A Guide to International Investing, Personal Strategy Planner,
Retirees Financial Guide, and Retirement Planning Kit.
*A division of T. Rowe Price Investment Services, Inc. Member NASD/SIPC.
For yield, price, last transaction,
current balance, or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access(registered trademark):
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
Invest With Confidence(registered trademark)
T. Rowe Price Investment Services, Inc., Distributor. F45-051 8/31/98
Semiannual Report
Tax-Free Funds
August 31, 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 August 31, 1998.
o Fund results were aided by portfolio management decisions and below-average
expenses.
o Low inflation, budget surpluses, and cash flows into fixed income
investments benefited municipal securities during the past six months.
o Municipal prices rose and yields declined, but tax-exempt performance was
not as strong as that of Treasuries, which continued to be the haven of
choice for investors concerned about global turmoil.
o Municipal securities offer good value compared with their taxable
counterparts and should reward investors over time.
Fellow Shareholders
Low inflation, budget surpluses at federal and state levels, and asset shifts
toward fixed income investments aided the municipal market during the six months
ended August 31. Your funds benefited in this environment and turned in
performances ahead of their respective benchmarks for the past 6- and 12-month
periods, a reflection of our management decisions and below-average expenses.
MARKET ENVIRONMENT
Municipal bond prices rose during the past six months, and yields across the
maturity spectrum fell as a result. The performance of tax-exempt securities
exceeded most asset classes but was not as strong as the Treasury market, which
further solidified its position as a safe haven for global investors seeking a
refuge from problems in Asia, Russia, and Latin America. The gap between yields
on municipal and Treasury securities continued to narrow, making tax-exempt
investments particularly attractive compared with Treasuries. A near-record
supply of tax-exempt issues also constrained the municipal market somewhat
throughout the year and contributed to the contracting yield spread. During the
same period, Treasury issuance continued to decline.
Municipal Bond and Note Yields
30-Year 5-Year 1 Year
8/31/97 5.35 4.35 3.85
5.25 4.20 3.80
5.23 4.15 3.80
11/97 5.18 4.20 3.85
5.03 4.10 3.85
5.00 4.00 3.65
2/98 5.08 4.05 3.60
5.13 4.10 3.65
5.20 4.30 3.85
5/98 5.05 4.10 3.75
5.05 4.10 3.60
5.10 4.10 3.70
8/98 4.93 3.85 3.50
The 30-year AAA general obligation bond yield fell 15 basis points from the end
of February through August 31. By comparison, the bellwether 30-year Treasury
yield declined a more dramatic 60 basis points, including a 40-basis-point drop
in August alone. The pattern was similar for one- and five-year maturities,
whose yields slipped 10 and 20 basis points, respectively, while comparable
Treasury yields dropped more sharply. Therefore, when income taxes are
considered, municipal securities yielded substantially more than other fixed
income investments.
Preparing For The Year 2000
The Year 2000 draws closer every day, and it holds special meaning beyond the
arrival of a new millennium. The issue for investors is that many computer
programs throughout the world use two digits instead of four to identify the
year and may assume the next century starts with 1900. If these programs are not
modified, they will not be able to correctly handle the century change when the
year changes from "99" to "00" on January 1, 2000, and they will no longer be
able to perform necessary functions. The Year 2000 issue affects all companies
and organizations. T. Rowe Price has been taking steps to assure that its
computer systems and processes are capable of functioning in the Year 2000.
Detailed plans for remediation efforts have been developed and are currently
being executed.
OUR PLAN OF ACTION
We began to address these issues several years ago by requiring that all new
systems process and store four-digit years. We plan to complete all
reprogramming efforts for the major application systems, including business
applications required to service our customers and processing infrastructure
necessary to ensure the integrity of customer data and investments, by December
31, 1998, leaving a full 12 months for system testing. Because we exchange data
electronically with customers and vendors, we are working with them to assess
the adequacy of their own compliance efforts. Our goal is to ensure the
continuation of the same level of service to all our mutual fund shareholders
and clients after December 31, 1999. We are asking all vendors and companies we
do business with for a Year 2000 compliance status, with the expectation that
some organizations will not be able to modify their interface files prior to
December 31, 1999. Our goal is to identify any noncompliant files so that we can
implement alternative solutions. In addition, we are scheduling tests for
critical vendors and companies that claim Year 2000 compliance to ensure that
time-related data and calculations function properly as we move into the next
century.
SMOOTH TRANSITION EXPECTED
We believe our programs and initiatives will provide a smooth transition into
the next millennium. We are assessing all systems providing products or services
to our retail mutual fund shareholders, retirement plan sponsors and
participants, and we are taking steps to make modifications where necessary for
the Year 2000. Our plan provides time to develop solutions for all noncompliant
systems and data files from customers or vendors. The Securities Industry
Association (SIA) is coordinating Year 2000 testing to assure that securities
markets, clearing corporations, depositories, and third party software and
hardware vendors can send, receive, and process files and transactions
accurately. T. Rowe Price will participate in this industry-wide effort. For a
more detailed discussion of our Year 2000 effort, as well as continuing updates
on our progress, please check our Web site (www.troweprice.com).
TAX-EXEMPT MONEY FUND
Your fund's performance versus the peer group average was favorable for both the
six-month and one-year periods ended August 31, as we sought good value at both
ends of the short-term yield curve.
Performance Comparison
Periods Ended 8/31/98 6 Months 12 Months
- -----------------------------------------------------
Tax-Exempt Money Fund 1.57% 3.20%
Lipper Tax-Exempt Money
Market Funds Average 1.50 3.04
During the past six months, six-month and one-year municipal note yields were
fairly stable, varying only 35 basis points between high and low. On average,
one-year maturities offered only an additional 20 basis points over the shortest
maturities. Yields were most volatile in the variable rate sector, which
includes overnight and seven-day demand notes, vacillating 275 basis points
between their high and low points since the end of February.
We took advantage of this opportunity to overweight the portfolio in variable
rate securities when we believed the yields had reached the upper end of their
range. In addition, throughout the entire period, we maintained a longer
weighted average maturity than the peer group average by combining the variable
rate positions with one-year maturities. This fairly aggressive posture
succeeded in enhancing yield. The fund's maturity averaged 20 days longer than
competitive funds during the period and, at one point, was 28 days longer.
The supply of new issues in the municipal note market so far this year was 27%
below the same period in 1997. Considering the low long-term interest rates and
the improved financial condition of municipalities, there is no reason to
believe that short-term issuance will pick up during the rest of the year. As a
result, total short-term new issues may finish 1998 at the lowest level since
1990. In addition, cash flows into money market funds remain positive, so solid
demand coupled with lighter supply has helped keep rates in a narrow range.
Our strategy allowed us to pick up incremental yield at the long end of the
curve and to maintain our relatively long average maturity with little fear of
rising rates.
TAX-FREE SHORT-INTERMEDIATE FUND
Your fund posted good returns and outperformed the Lipper Short-Intermediate
Debt Funds Average for both the 6- and 12-month periods ended August 31. Returns
were enhanced by our slightly longer duration and low expense ratio. (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.)
Performance Comparison
Periods Ended 8/31/98 6 Months 12 Months
- -----------------------------------------------------
Tax-Free Short-
Intermediate Fund 2.45% 5.60%
Lipper Short-Intermediate
Debt Funds Average 2.32 5.25
Our strategy since the third quarter of 1997 has been to maintain a slightly
long duration, since we see little evidence of inflationary pressure and believe
the trend toward lower interest rates is intact. While bonds with longer
maturities were constrained to some extent by a record supply of new issues in
the first half of the year, short- and intermediate-term municipals were not
under as much pressure. Our long duration helped performance when yields on
short-term bonds fell about 20 basis points.
Our credit strategy changed moderately. Over the past two years, the fund
purchased BBB rated bonds as the economic expansion improved credit conditions,
resulting in better performance for BBB bonds than for AAA bonds. This was
reflected in the narrowing gap between the yields of higher- and lower-quality
bonds. We currently see little potential for superior performance in the BBB
sector of the market and, therefore, have lowered our exposure. Lower-rated
bonds performed in line with or slightly below their high-quality counterparts
during the past six months.
In the spring we sought permission from the fund's Executive Committee to invest
up to 5% of fund assets in below-investment-grade BB securities (or, if unrated,
the T. Rowe Price equivalent rating). Permission was granted to invest in these
securities as of October 1, 1998, and the change was reflected in the prospectus
dated July 1, 1998. Although, as mentioned, we do not see a great deal of value
in lower-rated bonds at present, we felt it was important to have this
flexibility if the opportunity presented itself. As always, we will continue to
monitor yields among various credit qualities and use our in-house research
capabilities for opportunities to increase shareholder value.
TAX-FREE INSURED INTERMEDIATE BOND FUND
Returns on intermediate-term municipal bonds came mostly from their coupon
income, with a modest contribution from price appreciation. Fund results were
ahead of the Lipper Intermediate Municipal Debt Funds Average for both the 6-
and 12-month periods.
Performance Comparison
Periods Ended 8/31/98 6 Months 12 Months
- -------------------------------------------------------
Tax-Free Insured
Intermediate Bond Fund 3.04% 7.56%
Lipper Intermediate
Municipal Debt Funds Average 2.82 7.01
We kept duration in a range from neutral to long in our belief that bonds were
attractive relative to stock dividend yields, inflation, and global interest
rates. (For an explanation of duration, see the report for the Tax-Free
Short-Intermediate Fund.) This longer duration helped performance by providing a
higher yield with some principal appreciation as interest rates fell.
Our credit strategy became a bit more defensive during the period as we took
steps to reduce exposure to insured bonds with weaker underlying credit
characteristics. Specifically, we decreased holdings in the hospital sector and
increased positions in state and local general obligations after our hospital
bonds appreciated strongly relative to other sectors of the market. We believe
there may be an opportunity to increase hospital bond exposure at more
attractive prices in the future.
TAX-FREE INCOME FUND
Performance Comparison
Periods Ended 8/31/98 6 Months 12 Months
- --------------------------------------------------------
Tax-Free Income Fund 3.51% 8.87%
Lipper General Municipal
Debt Funds Average 3.03 8.20
Fund results exceeded those of the Lipper peer group average during the past 6-
and 12-month periods, due in part to our duration strategy, our fully invested
posture, and our underweighting in lower-quality bonds. (For an explanation of
duration, see the report for the Tax-Free Short-Intermediate Fund.) The fund's
relative performance also benefited from our below-average expenses.
Long-term bonds did well over the past six months, with a total return
reflecting mostly income plus some price appreciation as interest rates fell.
After trading in a narrow range between February and May, long-term rates came
down in the summer as international events sparked nervousness about the stock
market and the longevity of the economic expansion.
As mentioned, strong relative performance was related to an extension in fund
duration in June, which positioned the fund well for lower rates. A steady
increase in cash coming into the municipal bond market and your fund enabled us
to take advantage of heavier-than-normal supply and remain fully invested. The
fund benefited as well from our relative underweighting in lower-quality bonds,
which came under some modest pressure in the period. High-yield (junk) bonds
have been strong municipal performers during the past two years as the yield
spread narrowed between high- and lower-quality bonds, but this trend has
reversed. Accordingly, we did not add exposure in this area, and the fund's
weighted average credit quality was AA- at the end of August.
In addition, we focused on the 15- to 20-year maturity range where we see the
best risk-and-return characteristics. We continued to preserve income from
older, higher-yielding bonds in the portfolio, offsetting their defensive
characteristics with noncallable and lower-coupon bonds that respond well to
falling interest rates.
TAX-FREE HIGH YIELD FUND
Performance Comparison
Periods Ended 8/31/98 6 Months 12 Months
- ---------------------------------------------------------
Tax-Free High Yield Fund 3.18% 8.87%
Lipper High Yield Municipal
Debt Funds Average 3.03 8.62
The municipal high-yield market turned in a steady performance over the past six
months. Your fund was able to exceed the returns of its peer group average
through a combination of factors, including our below-average expenses and a
modest extension of duration. (For an explanation of duration, see the report
for the Tax-Free Short-Intermediate Fund.)
Yield spreads between high- and lower-quality municipal bonds increased over
this period, as the prices of lower-quality securities did not appreciate as
rapidly as their higher-quality counterparts. Credit quality spreads began the
period close to their all-time lows and subsequently increased an average of
about 25 basis points. Though muted, this widening occurred in sympathy with
trends in the corporate bond sector and adverse developments in a small number
of municipal high-yield issues. Despite this, however, the municipal high-yield
fund sector outperformed the general municipal sector for the past year and
matched it for the past six
months.
We believe these differences between credit quality yields could increase in
coming months, and this outlook has affected the way we manage the fund. As
noted in prior reports, we allowed fund exposure to lower-quality municipal
bonds to decline over time because we felt the rewards were insufficient. At the
end of August, the fund's weighting in below-investment-grade bonds was
approximately 24% of net assets. The fund's weighting in BBB and lower-rated
bonds together slipped a notch to 49% of net assets from 50% at the end of
February.
Quality Diversification
Tax-Free High Yield Fund
AAA 6%
AA 24%
A 21%
BBB 25%
BB and Below 24%
Based on net assets as of 8/31/98.
We began the period with a duration of 7.2 years. Duration ranged between 6.9
and 7.5 years during the past six months, although we generally maintained it
near the higher end of the range. This proved advantageous when interest rates
fell late in the period, largely a result of volatile equity markets. At
present, we expect to maintain this posture. In addition, we will maintain our
usual caution when investing in lower-quality issues. While we do not expect to
materially increase our exposure to them, we will also take advantage of
situations that we believe offer long-term value.
OUTLOOK
Federal Reserve Chairman Alan Greenspan recently implied that the Fed's next
move could well be a lowering of key short-term rates in the face of turmoil
overseas. Just weeks before, it was widely suspected that the Fed was leaning
toward a possible interest rate hike because of concerns about tight labor
markets and wage pressures.
We believe the rate of domestic economic growth will slow through the remainder
of the year. Exports may fall further because of weak international markets and
the strong dollar, and growth in consumer spending could decline in the
aftermath of the correction in stock prices. Commodity prices have also been
under pressure, further containing inflation. In this environment, the trend
toward lower overall interest rates should remain intact.
We expect municipal securities to remain undervalued compared with Treasuries
until demand catches up with heavy supply. However, investors should eventually
recognize the attractive yields available in the municipal market compared with
taxable yields, and rising demand would benefit municipal bond investors over
the long term.
Respectfully submitted,
Mary J. Miller
Director
Municipal Bond Department
September 18, 1998
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Portfolio Highlights
KEY STATISTICS
2/28/98 8/31/98
Tax-Exempt Money Fund
- --------------------------------------------------------------------------------
Price Per Share $ 1.00 $ 1.00
Dividends Per Share
For 6 months 0.016 0.016
For 12 months 0.032 0.032
Dividend Yield (7-Day Compound) * 3.03% 2.98%
Weighted Average Maturity (days) 59 59
Weighted Average Quality ** First Tier First Tier
Tax-Free Short-Intermediate Fund
- --------------------------------------------------------------------------------
Price Per Share $ 5.37 $ 5.39
Dividends Per Share
For 6 months 0.11 0.11
For 12 months 0.22 0.22
Dividend Yield *
For 6 months 4.28% 4.13%
For 12 months 4.32 4.24
30-Day Standardized Yield 3.54 3.59
Weighted Average Maturity (years) 4.1 4.4
Weighted Average Effective Duration (years) 3.0 2.9
Weighted Average Quality *** AA AA
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Portfolio Highlights
KEY STATISTICS
2/28/98 8/31/98
Tax-Free Insured Intermediate Bond Fund
- --------------------------------------------------------------------------------
Price Per Share $ 11.06 $ 11.13
Dividends Per Share
For 6 months 0.24 0.24
For 12 months 0.48 0.48
Dividend Yield *
For 6 months 4.49% 4.39%
For 12 months 4.52 4.49
30-Day Standardized Yield 3.69 3.78
Weighted Average Maturity (years) 8.4 8.8
Weighted Average Effective Duration (years) 5.5 5.6
Weighted Average Quality *** AA AA
Tax-Free Income Fund
- --------------------------------------------------------------------------------
Price Per Share $ 9.95 $ 10.03
Dividends Per Share
For 6 months 0.26 0.25
For 12 months 0.52 0.51
Dividend Yield *
For 6 months 5.33% 5.15%
For 12 months 5.44 5.31
30-Day Standardized Yield 4.28 4.35
Weighted Average Maturity (years) 17.1 17.1
Weighted Average Effective Duration (years) 7.4 7.6
Weighted Average Quality *** AA- AA-
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Portfolio Highlights
KEY STATISTICS
2/28/98 8/31/98
Tax-Free High Yield Fund
- --------------------------------------------------------------------------------
Price Per Share $ 12.66 $ 12.72
Dividends Per Share
For 6 months 0.34 0.34
For 12 months 0.69 0.68
Dividend Yield *
For 6 months 5.57% 5.38%
For 12 months 5.74 5.55
30-Day Standardized Yield 4.54 4.59
Weighted Average Maturity (years) 18.9 19.4
Weighted Average Effective Duration (years) 7.2 7.3
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.
Since Inception
Periods Ended 8/31/98 1 Year 5 Years 10 Years Inception Date
- --------------------------------------------------------------------------------
Tax-Exempt Money 3.20% 2.99% 3.57% - 4/8/81
Tax-Free
Short-Intermediate 5.60 4.56 5.58 - 12/23/83
Tax-Free Insured
Intermediate Bond 7.56 5.63 - 6.80% 11/30/92
Tax-Free Income 8.87 6.06 7.92 - 10/26/76
Tax-Free High Yield 8.87 6.65 8.60 - 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 8/31/98
Lipper Tax-Exempt
Money Market Tax-Exempt
Funds Average Money Fund
8/88 10,000 10,000
8/89 10,583 10,588
8/90 11,170 11,169
8/91 11,696 11,662
8/92 12,063 12,010
8/93 12,311 12,261
8/94 12,558 12,529
8/95 12,960 12,939
8/96 13,361 13,348
8/97 13,766 13,768
8/98 14,186 14,208
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Performance Comparison
TAX-FREE SHORT-INTERMEDIATE FUND
- --------------------------------------------------------------------------------
As of 8/31/98
Lehman Lipper Short- Tax-Free
3-Year Intermediate Short-
GO Bond Debt Funds Intermdiate
Index Average Fund
8/88 10,000 10,000 10,000
8/89 10,667 10,647 10,571
8/90 11,370 11,318 11,249
8/91 12,374 12,259 12,079
8/92 13,461 13,236 12,935
8/93 14,348 14,215 13,774
8/94 14,719 14,479 14,073
8/95 15,725 15,334 14,900
8/96 16,343 15,905 15,473
8/97 17,251 16,780 16,298
8/98 18,246 17,674 17,210
TAX-FREE INSURED INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
As of 8/31/98
Lehman Lipper Tax-Free
7-Year Intermediate Insured
Municipal Municipal Debt Intermediate
Bond Fund Funds Average Bond Fund
11/30/92 10,000 10,000 10,000
8/93 10,883 10,895 11,103
8/94 11,037 11,016 11,308
8/95 12,007 11,815 12,212
8/96 12,475 12,308 12,696
8/97 13,446 13,201 13,572
8/98 14,471 14,158 14,599
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Performance Comparison
TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
As of 8/31/98
Lehman Lipper General Tax-Free
Municipal Municipal Debt Income
Bond Index Funds Average Fund
8/88 10,000 10,000 10,000
8/89 11,099 11,133 10,755
8/90 11,811 11,664 11,325
8/91 13,203 13,056 12,606
8/92 14,678 14,554 14,075
8/93 16,469 16,362 15,979
8/94 16,492 16,210 15,852
8/95 17,953 17,439 17,136
8/96 18,894 18,300 18,071
8/97 20,641 19,976 19,693
8/98 22,426 21,677 21,440
TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
As of 8/31/98
Lehman High-Yield Tax-Free
Revenue Municipal Debt High-Yield
Bond Index Funds Average Fund
8/88 10,000 10,000 10,000
8/89 11,231 11,155 11,068
8/90 11,972 11,668 11,842
8/91 13,469 12,812 13,113
8/92 15,060 14,125 14,614
8/93 17,023 15,691 16,542
8/94 16,997 15,798 16,667
8/95 18,510 17,030 17,966
8/96 19,590 17,983 19,014
8/97 21,512 19,751 20,968
8/98 23,423 21,467 22,827
T. Rowe Price Shareholder Services
- --------------------------------------------------------------------------------
Investment Services And Information
KNOWLEDGEABLE SERVICE REPRESENTATIVES
By Phone 1-800-225-5132 Available Monday through Friday from 8 a.m. to 10
p.m. ET and weekends from 8:30 a.m. to 5 p.m. ET.
In Person Available in T. Rowe Price Investor Centers.
ACCOUNT SERVICES
Checking Available on most fixed income funds ($500 minimum).
Automatic Investing From your bank account or paycheck.
Automatic Withdrawal Scheduled, automatic redemptions.
Distribution Options Reinvest all, some, or none of your distributions.
Automated 24-Hour Services Including Tele*Access(registered trademark) and
the T. Rowe Price Web site on the Internet. Address: www.troweprice.com
DISCOUNT BROKERAGE*
Individual Investments Stocks, bonds, options, precious metals, and other
securities at a savings over regular commission rates.
INVESTMENT INFORMATION
Combined Statement Overview of all your accounts with T. Rowe Price.
Shareholder Reports Fund managers' reviews of their strategies and results.
T. Rowe Price Report Quarterly investment newsletter discussing markets and
financial strategies.
Performance Update Quarterly review of all T. Rowe Price fund results.
Insights Educational reports on investment strategies and financial
markets.
Investment Guides Asset Mix Worksheet, College Planning Kit, Diversifying
Overseas: A Guide to International Investing, Personal Strategy Planner,
Retirees Financial Guide, and Retirement Planning Kit.
*A division of T. Rowe Price Investment Services, Inc. Member NASD/SIPC.
T. Rowe Price Mutual Funds
- --------------------------------------------------------------------------------
STOCK FUNDS
Domestic
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Diversified Small-Cap Growth
Dividend Growth
Equity Income
Equity Index 500*
Extended Equity Market Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Media & Telecommunications**
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons***
Real Estate
Science & Technology
Small-Cap Stock
Small-Cap Value***
Spectrum Growth
Total Equity Market Index
Value
International/Global
Emerging Markets Stock
European Stock
Global Stock
International Discovery
International Stock
Japan
Latin America
New Asia
Spectrum International
BOND FUNDS
Domestic Taxable
Corporate Income
GNMA
High Yield
New Income
Short-Term Bond
Short-Term U.S. Government
Spectrum Income
Summit GNMA
Summit Limited-Term Bond
U.S. Treasury Intermediate
U.S. Treasury Long-Term
Domestic Tax-Free
California Tax-Free Bond
Florida Insured
Intermediate Tax-Free
Georgia Tax-Free Bond
Maryland Short-Term
Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Summit Municipal Intermediate
Tax-Free High Yield
Tax-Free Income
Tax-Free Insured
Intermediate Bond
Tax-Free Short-Intermediate
Virginia Short-Term
Tax-Free Bond
Virginia Tax-Free Bond
International/Global
Emerging Markets Bond
Global Bond!
International Bond
MONEY MARKET FUNDS!!
Taxable
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
Tax-Free
California Tax-Free Money
New York Tax-Free Money
Summit Municipal
Money Market
Tax-Exempt Money
BLENDED ASSET FUNDS
Balanced
Personal Strategy Balanced
Personal Strategy Growth
Personal Strategy Income
Tax-Efficient Balanced
T. ROWE PRICE NO-LOAD
VARIABLE ANNUITY
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
Mid-Cap Growth Portfolio
New America Growth Portfolio
Personal Strategy Balanced Portfolio
Prime Reserve Portfolio
* Formerly named Equity Index.
** Formerly the closed-end New Age Media Fund. Converted to open-end status on
7/28/97.
*** Closed to new investors.
! Formerly named Global Government Bond.
!! Neither the funds nor their share prices are insured or guaranteed by the
U.S. government.
Please call for a prospectus. Read it carefully before investing.
The T. Rowe Price No-Load Variable Annuity [#V6021] is issued by Security
Benefit Life Insurance Company. In New York, it [#FSB201(11-96)] is issued by
First Security Benefit Life Insurance Company of New York, White Plains, NY. T.
Rowe Price refers to the underlying portfolios' investment managers and the
distributors, T. Rowe Price Investment Services, Inc.; T. Rowe Price Insurance
Agency, Inc.; and T. Rowe Price Insurance Agency of Texas, Inc. The Security
Benefit Group of Companies and the T. Rowe Price companies are not affiliated.
The variable annuity may not be available in all states. The contract has
limitations. Call a representative for costs and complete details of the
coverage.
T. Rowe Price Discount Brokerage
- --------------------------------------------------------------------------------
DISCOUNT BROKERAGE
A Division of T. Rowe Price Investment Services, Inc., Member NASD/SIPC
This low-cost service gives you the opportunity to easily consolidate all
your investments with one company. Through T. Rowe price discount
brokerage, you can buy and sell individual securities-stocks, bonds,
options, and others-as well as mutual funds at considerable commission
savings over full-service brokers.* We also provide a wide range of
services, including:
Automated Telephone and Internet Services You can enter trades, access
quotes, and review account information 24 hours a day, seven days a week.
Any trades executed through these programs provide additional savings on
commissions.**
Investor Information A variety of informative reports, such as our
Brokerage Insights series, S&P Market Month newsletter, and select stock
reports, can help you better evaluate economic trends and investment
opportunities.
Dividend Reinvestment Service Virtually all stocks held in customer
accounts are eligible for this service, free of charge.
* Based on an April 1998 survey for representative-assisted stock trades.
Services vary by firm, and commissions may vary by size of order.
** Discount applies to our current commission schedule. All trades subject to
a $35 minimum commission except equity trades placed through
Internet-Trader, which are subject to a $29.95 minimum commission.
For yield, price, last transaction,
current balance, or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access(registered trademark):
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 Funds.
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
Invest With Confidence(registered trademark)
T. Rowe Price Investment Services, Inc., Distributor. C03-051 8/31/98
