Semiannual Report - Financial Statements
T. Rowe Price
Tax-Exempt
Money Fund
August 31, 1998
Portfolio Highlights
SECTOR DIVERSIFICATION
Percent of Percent of
Net Assets Net Assets
2/28/98 8/31/98
- --------------------------------------------------------------------------------
Hospital Revenue 34% 30%
General Obligation - Local 16 20
General Obligation - State 13 17
Educational Revenue 10 11
Prerefunded Bonds 6 5
Water and Sewer Revenue 4 4
Industrial and Pollution Control Revenue 6 3
Nuclear Revenue 2 2
Lease Revenue 3 2
Dedicated Tax Revenue -- 2
All Others 9 4
Other Assets Less Liabilities - 3 --
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Total 100% 100%
T. Rowe Price Tax-Exempt Money 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 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Investment activities
Net investment
income 0.016 0.032 0.030 0.033 0.026 0.020
Distributions
Net investment
income (0.016) (0.032) (0.030) (0.033) (0.026) (0.020)
NET ASSET VALUE
End of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
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Ratios/Supplemental Data
Total return(C) 1.57% 3.24% 3.05% 3.38% 2.63% 2.05%
Ratio of expenses to
average net assets 0.52%! 0.52% 0.55% 0.56% 0.58% 0.59%
Ratio of net investment
income to average
net assets 3.11%! 3.20% 3.00% 3.33% 2.59% 2.04%
Net assets, end of period
(in thousands) $756,434 $740,757 $678,135 $679,143 $687,022 $732,900
(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-Exempt Money Fund
- --------------------------------------------------------------------------------
Unaudited August 31, 1998
Statement of Net Assets
Par Value
- --------------------------------------------------------------------------------
In thousands
ALABAMA 2.2%
Birmingham, GO, VRDN
(Currently 3.25%) $ 5,650 $ 5,650
Huntsville, GO, 6.80%, 2/1/99
(Escrowed to Maturity) 1,000 1,013
Jefferson County, GO, VRDN
(Currently 3.35%) 10,000 10,000
Total Alabama (Cost $16,663) 16,663
ARIZONA 0.1%
Salt River Agricultural
Improvement, Power District, TECP
3.65%, 11/10/98 1,000 1,000
Total Arizona (Cost $1,000) 1,000
CALIFORNIA 1.8%
Alameda County, GO, TAN,
4.50%, 7/7/99 3,000 3,022
Los Angeles County Metropolitan
Transportation Auth.
VRDN (Currently 3.55%) (AMBAC Insured) 8,960 8,960
Los Angeles County Unified
School Dist., GO, TRAN
4.50%, 7/1/99 1,300 1,309
Total California (Cost $13,291) 13,291
COLORADO 1.2%
Colorado, GO, TRAN
4.00%, 6/25/99 3,500 3,511
4.25%, 6/25/99 3,500 3,519
Denver, IDR, W. W. Grainger,
VRDN (Currently 3.30%) 2,190 2,190
Total Colorado (Cost $9,220) 9,220
CONNECTICUT 0.1%
Connecticut Health and Ed. Fac.,
Yale Univ. VRDN (Currently 3.00%) 500 500
Total Connecticut (Cost $500) 500
DELAWARE 0.8%
Delaware, GO
5.00%, 1/1/99 $ 2,815 $ 2,826
5.00%, 5/1/99 3,345 3,373
Total Delaware (Cost $6,199) 6,199
DISTRICT OF COLUMBIA 1.5%
Dist. of Columbia, American Univ.
VRDN (Currently 3.40%) 11,630 11,630
Total District of Columbia (Cost $11,630) 11,630
FLORIDA 2.1% Florida Board of Ed.
5.00%, 6/1/99 700 707
6.70%, 6/1/03 (Prerefunded 6/1/99!) 1,000 1,042
Capital Outlay
VRDN (Currently 3.40%) 1,500 1,500
VRDN (Currently 3.45%) 7,100 7,100
Hillsborough County IDA, PCR,
Tampa Electric
VRDN (Currently 3.20%) 400 400
Jacksonville Electric Auth.,
4.00%, 10/1 4,170 4,171
Orange County IDA, W. W. Grainger
VRDN (Currently 3.30%) 1,185 1,185
Total Florida (Cost $16,105) 16,105
GEORGIA 5.6%
Burke County Dev. Auth., PCR,
Oglethorpe Power
VRDN (Currently 3.15%) (FGIC Insured) 1,150 1,150
Cobb County and Marietta Water Auth.,
Improvement Series
7.375%, 11/1/05 (Prerefunded 11/1/98!) 3,100 3,180
DeKalb Private Hosp. Auth.,
Egleston Children's Hosp.
RAC, VRDN (Currently 3.20%) 12,500 12,500
Downtown Savannah Auth., GO, Public Ed.
VRDN (Currently 3.20%) 5,000 5,000
Georgia, GO
VRDN (Currently 3.46%) $ 4,995 $ 4,995
4.25%, 7/1/99 4,880 4,905
7.25%, 4/1/03 (Prerefunded 4/1/99!) 1,000 1,041
Georgia Municipal Gas Auth., VRDN
(Currently 3.15%) 500 500
Gwinnett County Hospital Auth.
VRDN (Currently 3.30%) (MBIA Insured) 7,000 7,000
Metropolitan Atlanta Rapid Transit Auth.
7.10%, 7/1/04 (Prerefunded 7/1/99!) 780 817
7.20%, 7/1/10 (Prerefunded 7/1/99!) 1,000 1,049
Total Georgia (Cost $42,137) 42,137
HAWAII 1.8%
Hawaii, GO
4.75%, 11/1/98 5,000 5,008
5.50%, 10/1/98 1,650 1,652
Honolulu City and County, GO
4.90%, 1/1/99 (Escrowed to Maturity) 1,800 1,807
6.90%, 10/1/98 (Escrowed to Maturity) 2,170 2,176
6.90%, 10/1/01 (Prerefunded 10/1/98!) 3,000 3,052
Total Hawaii (Cost $13,695) 13,695
IDAHO 0.5%
Idaho, GO, TAN, 4.50%, 6/30/99 4,000 4,029
Total Idaho (Cost $4,029) 4,029
ILLINOIS 14.7%
Chicago, GO
3.55%, 10/29/98 3,300 3,300
3.55%, 2/4/99 5,000 5,000
3.65%, 10/31/98 10,000 10,000
Chicago Metropolitan Water
Reclaimation Dist., GO
4.50%, 12/1/98 1,000 1,002
7.25%, 1/1/99 (Escrowed to Maturity) 1,000 1,011
Illinois, GO
4.00%, 5/1/99 500 500
Illinois, GO
5.125%, 12/1/98 (FGIC Insured) $ 1,000 $ 1,004
6.70%, 6/15/99 (Escrowed to Maturity) 2,000 2,046
Illinois Dev. Fin. Auth.
Provena Health
VRDN (Currently 3.45%) (MBIA Insured) 5,000 5,000
Palos Community Hosp.
VRDN (Currently 3.25%) 28,000 28,000
Illinois EFA, Northwestern Univ.,
VRDN (Currently 3.30%) 14,750 14,750
Illinois HFA
Advocate Health Care Network
VRDN (Currently 3.25%) 20,565 20,565
Children's Memorial Hosp.
VRDN (Currently 3.25%) 4,900 4,900
Little County of Mary Hosp.
VRDN (Currently 3.30%) (MBIA Insured) 12,070 12,070
Univ. of Chicago Hosp.
VRDN (Currently 3.30%) (MBIA Insured) 1,000 1,000
Niles Village, IDR, W. W. Grainger,
VRDN (Currently 3.30%) 1,000 1,000
Total Illinois (Cost $111,148) 111,148
INDIANA 0.5%
Gary, IDR, W. W. Grainger,
VRDN (Currently 3.30%) 730 730
Indianapolis Public Improvement,
GO, RAN, 4.25%, 1/11/99 2,900 2,906
Total Indiana (Cost $3,636) 3,636
IOWA 1.4%
Iowa Fin. Auth., Iowa Health System
VRDN (Currently 3.25%) (AMBAC Insured) 7,300 7,300
Sheldon, Sioux Valley Hosp.,
VRDN (Currently 3.30%) 3,455 3,455
Total Iowa (Cost $10,755) 10,755
KANSAS 0.1%
Kansas Dept. of Transportation,
3.65%, 9/1/99 $ 1,000 $ 1,000
Total Kansas (Cost $1,000) 1,000
KENTUCKY 0.9%
Kentucky Economic Dev. Fin. Auth.
Health Alliance
VRDN (Currently 3.25%) (MBIA Insured) 1,200 1,200
VRDN (Currently 3.30%) (MBIA Insured) 5,400 5,400
Total Kentucky (Cost $6,600) 6,600
LOUISIANA 3.2%
Iberville Parish Consolidated School Dist.
8.00%, 10/1/02 (Prerefunded 10/1/98!) 5,750 5,885
Louisiana PFA
Sisters of Charity, VRDN (Currently 3.30 1,000 1,000
Willis Knighton Medical Center
VRDN (Currently 3.30%) (AMBAC Insured) 15,500 15,500
New Orleans Aviation Board
VRDN (Currently 3.30%) (MBIA Insured) 1,900 1,900
Total Louisiana (Cost $24,285) 24,285
MAINE 0.2%
Maine, GO, 6.10%, 7/1/99 1,500 1,528
Total Maine (Cost $1,528) 1,528
MARYLAND 14.5%
Anne Arundel County, GO, TECP
3.55%, 12/8/98 5,000 5,000
3.60%, 9/9/98 10,000 10,000
Baltimore County, GO
4.50%, 7/1/99 4,000 4,024
Baltimore County, GO, TECP, BAN
3.50%, 11/3/98 $ 11,100 $ 11,100
3.55%, 11/30/98 6,000 6,000
Carroll County, GO,
Consolidated Public Improvement
4.00%, 12/1/98 860 861
Howard County, GO,
Consolidated Public Improvement
6.90%, 5/15/99 1,000 1,023
Maryland, GO
4.50%, 10/15/98 1,000 1,001
6.40%, 7/1/99 2,000 2,045
Maryland HHEFA
Catholic Health Service,
VRDN (Currently 4,000 4,000
Deaton Hosp., VRDN (Currently 3.30%) 1,000 1,000
Helix Health System,
VRDN (Currently 3.25%) 8,300 8,300
Johns Hopkins Hosp.,
VRDN (Currently 3.20%) 1,400 1,400
Johns Hopkins Univ., 6.20%, 7/1/99 10,255 10,255
Pooled Loan Program,
VRDN (Currently 3.25%) 21,600 21,600
Univ. of Maryland Medical System
VRDN (Currently 3.30%) 1,000 1,000
Maryland-National Capital Park
and Planning Commission, GO
BAN, Prince George's County
VRDN (Currently 3.30%) 8,550 8,550
Montgomery County, GO,
Consolidated Public Improvement
5.80%, 10/1/98 900 901
6.80%, 11/1/98 2,000 2,010
Montgomery County Economic Dev. Auth.
Howard Hughes Medical Fac.
VRDN (Currently 3.25%) 8,400 8,400
Univ. of Maryland
VRDN (Currently 3.20%) 400 400
7.00%, 10/1/98 890 892
Total Maryland (Cost $109,762) 109,762
MASSACHUSETTS 1.9%
Massachusetts, GO
5.50%, 7/1/99 8,690 8,824
6.10%, 8/1/99 1,000 1,022
Massachusetts HEFA
Harvard Univ.
VRDN (Currently 3.10%) $ 3,700 $ 3,700
6.00%, 12/1/98 800 805
Total Massachusetts (Cost $14,351) 14,351
MICHIGAN 2.3%
Detroit City School Dist.,
School Aid, RAN, 4.50%, 7/1/99 3,000 3,021
Michigan, GO, 4.50%, 9/30/98 1,000 1,001
Royal Oak HFA
William Beaumont Hosp.
7.25%, 1/1/09 (Prerefunded 1/1/99!) 2,500 2,579
7.375%, 1/1/20 (Prerefunded 1/1/99!) 3,750 3,869
Univ. of Michigan, VRDN
(Currently 3.20%) 6,000 6,000
Univ. of Michigan Hosp.,
VRDN (Currently 3.30%) 900 900
Total Michigan (Cost $17,370) 17,370
MINNESOTA 1.2%
Becker, PCR, Northern States
Power, 3.60%, 10/8/98 2,000 2,000
Cottage Grove, PCR,
Minnesota Mining and Mfg.
VRDN (Currently 3.704%) 1,000 1,000
Minnesota, 6.60%, 8/1/02
(Prerefunded 8/1/99!) 1,225 1,258
Rochester Healthcare Fac.,
Mayo Foundation, 3.55%, 2/10/99 5,000 5,000
Total Minnesota (Cost $9,258) 9,258
MISSISSIPPI 0.9%
Mississippi, GO
5.00%, 9/1/98 1,280 1,280
5.00%, 7/1/99 3,780 3,821
Rankin County, PCR, Siemens
Energy and Automation
VRDN (Currently 3.35%) 1,600 1,600
Total Mississippi (Cost $6,701) 6,701
MISSOURI 0.3%
Missouri HEFA, Sisters of Mercy Health
VRDN (Currently 3.25%) 1,990 1,990
Total Missouri (Cost $1,990) 1,990
NEW MEXICO 1.1%
Albuquerque, VRDN (Currently 3.25%) $ 1,000 $ 1,000
New Mexico, GO
5.50%, 9/1/98 2,500 2,500
TAN, 4.25%, 6/30/99 5,000 5,026
Total New Mexico (Cost $8,526) 8,526
NEW YORK 4.7%
Dormitory Auth. of the
State of New York, Cornell Univ.
VRDN (Currently 3.20%) 7,600 7,600
Long Island Power Auth., Electric System
VRDN (Currently 2.90%) 10,000 10,000
New York City, VRDN
(Currently 3.46%) (MBIA Insured) 3,700 3,700
New York City Municipal Water Fin. Auth.
VRDN (Currently 3.46%) 10,200 10,200
Water and Sewer Systems
VRDN (Currently 3.25%) (FGIC Insured) 1,400 1,400
VRDN (Currently 3.46%) (MBIA Insured) 1,400 1,400
New York State Thruway Auth.,
VRDN (Currently 3.40%) 1,100 1,100
Total New York (Cost $35,400) 35,400
NORTH CAROLINA 5.1%
Charlotte, GO, 3.45%, 9/3/98 3,650 3,650
Charlotte Mecklenburg Hosp. Auth.,
Health Care Revenue
VRDN (Currently 3.15%) 5,000 5,000
North Carolina, GO
VRDN (Currently 3.45%) 10,000 10,000
VRDN (Currently 3.46%) 7,385 7,385
North Carolina Eastern
Municipal Power Agency
7.25%, 1/1/23 (Prerefunded 1/1/99!) 1,250 1,289
North Carolina EFA,
Bowman Gray School of Medicine
VRDN (Currently 3.22%) 950 950
Winston Salem, GO
VRDN (Currently 3.25%) 10,350 10,350
Total North Carolina (Cost $38,624) 38,624
OHIO 4.6%
Clermont County, Mercy Health System
VRDN (Currently 3.25%) $ 3,000 $ 3,000
Cleveland Water and Sewer
4.45%, 1/1/99 (MBIA Insured) 1,000 1,002
Cuyahoga County Hosp.,
Cleveland Clinic Foundation
VRDN (Currently 3.30%)
(AMBAC Insured) 1,000 1,000
Franklin County Hosp Rev.
Holy Cross Health System,
VRDN (Currently 3.35%) 4,500 4,500
U.S. Health, VRDN (Currently 3.30%) 2,000 2,000
Hamilton County Hosp. Fac.,
Health Alliance
VRDN (Currently 3.25%) 1,700 1,700
Lorain County Hosp., Catholic Partners
VRDN (Currently 3.55%) 5,400 5,400
Ohio Public Fac.
Higher Education
4.25%, 12/1/98 12,000 12,019
4.75%, 5/1/99 3,000 3,022
Univ. of Cincinnati, 7.10%, 6/1/10
(Prerefunded 6/1/99!) 1,000 1,045
Total Ohio (Cost $34,688) 34,688
OKLAHOMA 0.2%
Oklahoma Turnpike Auth., 7.875%,
1/1/21 (Prerefunded 1/1/99!) 1,240 1,281
Total Oklahoma (Cost $1,281) 1,281
OREGON 1.7%
Oregon, GO, Veterans' Welfare,
VRDN (Currently 3.35%) 10,000 10,000
Oregon Administration Services, COP
4.00%, 11/1/98 (AMBAC Insured) 2,975 2,976
Total Oregon (Cost $12,976) 12,976
PENNSYLVANIA 2.1%
Geisinger Auth., Health Systems,
VRDN (Currently 3.35%) 1,900 1,900
Montgomery County, IDA, W. W. Grainger
VRDN (Currently 3.30%) 1,230 1,230
Northampton County Higher Ed.,
Lafayette College
VRDN (Currently 3.35%) $ 6,300 $ 6,300
Pennsylvania, GO, 6.00%,
11/1/98 (MBIA Insured) 3,000 3,010
Philadelphia, GO, TRAN,
4.25%, 6/30/99 3,000 3,015
Total Pennsylvania (Cost $15,455) 15,455
SOUTH CAROLINA 1.5%
South Carolina, GO,
Capital Improvement, 4.50%, 10/1/98 1,275 1,276
Spartanburg County,
Siemens Energy and Automation
VRDN (Currently 3.35%) 6,400 6,400
York County, PCR, Duke Power,
TECP, 3.75%, 9/9/98 3,550 3,550
Total South Carolina (Cost $11,226) 11,226
SOUTH DAKOTA 2.1%
South Dakota HEFA, Sioux Valley Hosp.
VRDN (Currently 3.30%) 16,045 16,045
Total South Dakota (Cost $16,045) 16,045
TENNESSEE 1.1%
Clarksville Public Building
Auth., Pooled Loan
VRDN (Currently 3.15%) (MBIA Insured) 2,686 2,686
Knox County Health Ed. Hosp. Fac.
Catholic Healthcare Partners,
VRDN (Currently 3.55%) 4,700 4,700
Nashville and Davidson County,
GO, Public Improvement
5.50%, 5/15/99 1,130 1,145
Total Tennessee (Cost $8,531) 8,531
TEXAS 7.6%
Dallas County Community College Dist.
VRDN (Currently 3.25%) 16,400 16,400
Dallas Fort Worth Regional Airport
4.30%, 11/1/98 (MBIA Insured) 2,200 2,203
Harris County, GO
VRDN (Currently 3.20%) $ 6,000 $ 6,000
5.75%, 10/1/98 2,500 2,504
Harris County Health Fac. Dev.
Memorial Hosp.
VRDN (Currently 3.15%) (MBIA Insured) 1,000 1,000
Methodist Hosp., VRDN (Currently 3.35%) 4,300 4,300
St. Luke's Episcopal Hosp.,
VRDN (Currently 3.375%) 2,300 2,300
Houston Water and Sewer Systems
VRDN (Currently 3.40%) 6,900 6,900
5.80%, 12/1/98 (AMBAC Insured) 5,150 5,178
Municipal Security Trust
VRDN (Currently 3.45%) (FGIC Insured) 3,300 3,300
Midland, IDR, W. W. Grainger,
VRDN (Currently 3.30%) 775 775
San Antonio Electric and Gas
7.00%, 2/1/00 (Prerefunded 2/1/99!) 500 514
Texas, GO, 7.50%, 10/1/98 1,600 1,605
Texas PFA, GO, TECP, 3.65%, 10/1/98 3,700 3,700
Travis County HFA, Hosp.
Charity Obligation Group
VRDN (Currently 3.15%) 1,000 1,000
Total Texas (Cost $57,679) 57,679
UTAH 1.6%
Davis County, GO, TRAN, 4.25%, 12/31/98 2,000 2,003
Univ. of Utah, Campus Fac.,
VRDN (Currently 3.20%) 2,450 2,450
Utah, GO
4.40%, 7/1/99 3,900 3,925
TECP, 3.50%, 12/10/98 2,000 2,000
Utah Board of Regents,
Auxiliary and Campus Fac.
VRDN (Currently 3.25%) 1,400 1,400
Total Utah (Cost $11,778) 11,778
VIRGINIA 3.1%
Manassas, GO, 6.00%, 1/1/99 1,000 1,007
Norfolk, GO, 7.00%, 10/1/08
(Prerefunded 10/1/98!) 3,740 3,825
Richmond, GO, BAN, VRDN
(Currently 3.30%) 11,800 11,800
Roanoke IDA, Carilion Health Systems
VRDN (Currently 3.35%) $ 2,000 $ 2,000
Rockingham County IDA, Merck and Co.
VRDN (Currently 3.45%) 2,400 2,400
Virginia, 6.50%, 6/1/06
(Prerefunded 6/1/99!) 1,000 1,041
Virginia Public School Auth.
4.40%, 1/1/99 1,000 1,002
5.60%, 1/1/99 475 478
Total Virginia (Cost $23,553) 23,553
WASHINGTON 2.0%
Gateway Fin. Auth.
7.30%, 12/1/99 (MBIA Insured)
(Prerefunded 12/1/98!) 1,000 1,009
King County, GO, 5.25%, 1/1/99 4,000 4,022
Washington, GO
4.40%, 10/1/98 1,800 1,801
4.50%, 1/1/99 1,790 1,794
7.00%, 9/1/98 2,150 2,150
7.30%, 12/1/99 (Prerefunded 12/1/98!) 755 762
7.40%, 12/1/00 (Prerefunded 12/1/98!) 1,000 1,009
7.50%, 10/1/02 (Prerefunded 10/1/98!) 2,575 2,583
Washington Housing Fin.
Commission, 3.85%, 12/15/98 145 145
Total Washington (Cost $15,275) 15,275
WISCONSIN 1.1%
Milwaukee, GO
4.50%, 12/1/98 1,000 1,002
Corporation Purpose, 7.70%, 12/1/98 820 828
Oak Creek, Wisconsin Electric Power
VRDN (Currently 3.45%) 500 500
Wisconsin, GO
4.25%, 5/1/99 1,000 1,004
6.30%, 5/1/99 2,000 2,035
Wisconsin HEFA, St. Lukes Medical Center
7.375%, 8/15/07 (MBIA Insured)
(Prerefunded 8/15/99!) 1,250 1,317
Wisconsin HEFA, St. Lukes Medical Center
7.40%, 8/15/19 (MBIA Insured)
(Prerefunded 08/15/99!) $ 1,600 $ 1,686
Total Wisconsin (Cost $8,372) 8,372
WYOMING 0.4%
Uinta County, PCR, Amoco Oil,
3.85%, 12/1/98 3,000 3,000
Total Wyoming (Cost $3,000) 3,000
Total Investments in Securities
99.8% of Net Assets (Cost $755,262) $ 755,262
Other Assets Less Liabilities 1,172
NET ASSETS $ 756,434
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Net Assets Consist of:
Accumulated net investment income -
net of distributions $ 142
Accumulated net realized gain/loss -
net of distributions 11
Paid-in-capital applicable to 756,475,206 shares
of $0.01 par value capital stock outstanding;
5,000,000,000 shares authorized 756,281
NET ASSETS $ 756,434
----------
NET ASSET VALUE PER SHARE $ 1.00
----------
! Used in determining portfolio maturity
AMBAC AMBAC Indemnity Corp.
BAN Bond Anticipation Note
COP Certificates of Participation
EFA Educational Facility Authority
FGIC Financial Guaranty Insurance Company
GO General Obligation
HEFA Health & Educational Facility Authority
HFA Health Facility Authority
HHEFA Health & Higher Educational Facility Authority
IDA Industrial Development Authority
IDR Industrial Development Revenue
MBIA Municipal Bond Investors Assurance Corp.
PCR Pollution Control Revenue
PFA Public Facility Authority
RAC Revenue Anticipation Certificate
RAN Revenue Anticipation Note
TAN Tax Anticipation Note
TECP Tax-Exempt Commercial Paper
TRAN Tax Revenue Anticipation Note
VRDN Variable Rate Demand Note
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Exempt Money Fund
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Unaudited
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
6 Months
Ended
8/31/98
Investment Income
Interest income $ 13,465
Expenses
Investment management 1,564
Shareholder servicing 253
Custody and accounting 73
Prospectus and shareholder reports 23
Registration 20
Directors 5
Legal and audit 5
Miscellaneous 3
Total expenses 1,946
Net investment income 11,519
Realized Gain (Loss)
Net realized gain (loss) on securities 11
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 11,530
---------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Exempt Money 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 $ 11,519 $ 22,487
Net realized gain (loss) 11 53
Increase (decrease) in net
assets from operations 11,530 22,540
Distributions to shareholders
Net investment income (11,519) (22,487)
Capital share transactions*
Shares sold 320,171 691,676
Distributions reinvested 10,846 21,239
Shares redeemed (315,351) (650,346)
Increase (decrease) in net
assets from capital
share transactions 15,666 62,569
Net Assets
Increase (decrease)
during period 15,677 62,622
Beginning of period 740,757 678,135
End of period $ 756,434 $ 740,757
----------------------------------
*Share information
Shares sold 320,171 691,676
Distributions reinvested 10,846 21,239
Shares redeemed (315,351) (650,346)
Increase (decrease)
in shares outstanding 15,666 62,569
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Exempt Money Fund
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Unaudited August 31, 1998
Notes to Financial Statements
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NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Tax-Exempt Money 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 April 8, 1981.
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 Securities are valued at amortized cost. Assets and liabilities
for which such valuation procedures 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 - 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 $755,262,000.
NOTE 3 - 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 $266,000 was payable at August 31, 1998. The fee is computed
daily and paid monthly, and consists of an individual fund fee equal to
0.10% 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
$244,000 for the six months ended August 31, 1998, of which $47,000 was
payable at period-end.
T. Rowe Price Shareholder Services
- --------------------------------------------------------------------------------
Investment Services And Information
KNOWLEDGEABLE SERVICE REPRESENTATIVES
By Phone Shareholder service representatives are available from 8 a.m. to
10 p.m. ET Monday through Friday and from 8:30 a.m. to 5 p.m. ET on
weekends. Call 1-800-225-5132 to speak directly with a representative who
will be able to assist you with your accounts.
In Person Visit one of our investor center locations to meet with a
representative who will be able to assist you with your accounts. You can
also drop off applications or obtain prospectuses and other literature at
these centers.
AUTOMATED 24-HOUR SERVICES
Tele*Access(registered trademark) Call 1-800-638-2587 to obtain information
such as account balance, date and amount of your last transaction, latest
dividend payment, fund prices, and yields. Additionally, you have the
ability to request prospectuses, statements, and account and tax forms; to
reorder checks; and to initiate purchase, redemption, and exchange orders
for identically registered accounts.
Internet. T. Rowe Price Web site: www.troweprice.com All the information
and services available on Tele*Access are available on our Web site,
including transactions in your fund and Discount Brokerage accounts (with
preauthorized access).
ACCOUNT SERVICES
Checking Write checks for $500 or more on any money market and most bond
fund accounts (except the High Yield and Emerging Markets Bond Funds).
Automatic Investing Build your account over time by investing directly from
your bank account or paycheck with Automatic Asset Builder. Additionally,
Automatic Exchange enables you to set up systematic investments from one
fund account into another, such as from a money fund into a stock fund. A
$50 minimum makes it easy to get started.
Automatic Withdrawal If you need money from your fund account on a regular
basis, you can establish scheduled, automatic redemptions.
Dividend and Capital Gains Payment Options Reinvest all or some of your
distributions, or take them in cash. We give you maximum flexibility and
convenience.
DISCOUNT BROKERAGE*
Investments Available You can trade stocks, bonds, options, precious
metals, mutual funds, and other securities at a savings over regular
commission rates.
To Open an Account Call a shareholder service representative for more
information.
INVESTMENT INFORMATION
Combined Statement A comprehensive overview of your T. Rowe Price accounts
is provided. The summary page gives you earnings by tax category, provides
total portfolio value, and lists your investments by type. Detail pages
itemize account transactions.
Shareholder Reports Portfolio managers review the performance of the funds
in plain language and discuss T. Rowe Price's economic outlook.
T. Rowe Price Report This is a quarterly newsletter with relevant articles
on market trends, personal financial planning, and T. Rowe Price's economic
perspective.
Performance Update This quarterly report reviews recent market developments
and provides comprehensive performance information for every T. Rowe Price
fund.
Insights This library of information includes reports on mutual fund tax
issues, investment strategies, and financial markets.
Detailed Investment Guides Our widely acclaimed Asset Mix Worksheet,
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available on disk or CD-ROM for PC use) can help you determine and reach
your investment goals.
*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-Exempt Money Fund.
Investor Centers:
101 East Lombard St.
Baltimore, MD 21202
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Invest With Confidence(registered trademark)
T. Rowe Price Investment Services, Inc., Distributor. F52-051 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
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900 17th Street, N.W.
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Invest With Confidence(registered trademark)
T. Rowe Price Investment Services, Inc., Distributor. C03-051 8/31/98
