<PAGE>
- --------------------------------------------------------------------------------
Annual Report - Financial Statements
- --------------------------------------------------------------------------------
T. ROWE PRICE
TAX-EXEMPT
MONEY FUND
-----------------
FEBRUARY 28, 1998
-----------------
- --------------------
PORTFOLIO HIGHLIGHTS
- --------------------
SECTOR DIVERSIFICATION
Percent of Percent of
Net Assets Net Assets
8/31/97 2/28/98
-----------------------------------------------------------------------------
Hospital Revenue 40% 34%
.............................................................................
General Obligation - Local 14 16
.............................................................................
General Obligation - State 9 13
.............................................................................
Educational Revenue 10 10
.............................................................................
Prerefunded Bonds 8 6
.............................................................................
Industrial and Pollution Control Revenue 4 6
.............................................................................
Water and Sewer Revenue 3 4
.............................................................................
Lease Revenue 1 3
.............................................................................
Ground Transportation Revenue 3 2
.............................................................................
Housing Finance Revenue 3 2
.............................................................................
Nuclear Revenue 1 2
.............................................................................
LifeCare/Nursing Home Revenue 0 2
.............................................................................
All Others 5 3
.............................................................................
Other Assets Less Liabilities -1 -3
-----------------------------------------------------------------------------
Total 100% 100%
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T. ROWE PRICE TAX-EXEMPT MONEY FUND
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- --------------------
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
- --------------------------------------------------------------------------------
Year
Ended
2/28/98 2/28/97 2/29/96 2/28/95 2/28/94
NET ASSET VALUE
Beginning of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Investment activities
Net investment income 0.032 0.030 0.033 0.026 0.020
Distributions
Net investment income (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
-------------------------------------------------
Ratios/Supplemental Data
Total return 3.24% 3.05% 3.38% 2.63% 2.05%
................................................................................
Ratio of expenses to
average net assets 0.52% 0.55% 0.56% 0.58% 0.59%
................................................................................
Ratio of net investment
income to average
net assets 3.20% 3.00% 3.33% 2.59% 2.04%
................................................................................
Net assets, end of period
(in thousands) $740,757 $678,135 $679,143 $687,022 $732,900
................................................................................
The accompanying notes are an integral part of these financial statements.
2
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February 28, 1998
- -----------------------
STATEMENT OF NET ASSETS Par Value
- --------------------------------------------------------------------------------
In thousands
ALABAMA 3.7%
Birmingham, GO
VRDN (Currently 3.375%) $ 11,230 $ 11,230
.............................................................................
Huntsville, GO, 6.80%, 2/1/99 (Escrowed to Maturity) 1,000 1,028
.............................................................................
Huntsville Health Care Auth.
VRDN (Currently 3.35%) (MBIA Insured) 5,000 5,000
.............................................................................
Jefferson County, GO, VRDN (Currently 3.50%) 10,000 10,000
.............................................................................
Total Alabama (Cost $27,258) 27,258
............
ALASKA 1.3%
Valdez Marine Terminal
Exxon Pipeline, VRDN (Currently 3.65%) 7,400 7,400
..........................................................................
Mobil Alaska Pipeline, VRDN (Currently 3.45%) 2,000 2,000
.............................................................................
Total Alaska (Cost $9,400) 9,400
............
ARIZONA 0.2%
Arizona Transportation Board, Maricopa County
Registered Area Road Fund
7.60%, 7/1/04 (FGIC Insured)
(Prerefunded 7/1/98+) 500 516
.............................................................................
Mesa, GO, 6.75%, 7/1/98 (AMBAC Insured) 1,300 1,312
.............................................................................
Total Arizona (Cost $1,828) 1,828
............
CALIFORNIA 1.3%
California, GO, RAN, 4.50%, 6/30/98 4,000 4,008
.............................................................................
Los Angeles County Unified School Dist., GO, TRAN
4.50%, 7/1/98 3,400 3,407
.............................................................................
Riverside County, GO, TRAN, 4.50%, 6/30/98 2,000 2,004
.............................................................................
Total California (Cost $9,419) 9,419
............
COLORADO 1.4%
Colorado, GO, TRAN, 4.50%, 6/26/98 1,000 1,002
.............................................................................
Colorado HFA, Catholic Health, VRDN (Currently 3.45%) 7,000 7,000
.............................................................................
Denver IDR, W. W. Grainger, VRDN (Currently 3.45%) 2,190 2,190
.............................................................................
Total Colorado (Cost $10,192) 10,192
............
3
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Par Value
- --------------------------------------------------------------------------------
In thousands
CONNECTICUT 0.1%
Connecticut Health and Ed. Fac., Yale Univ.
VRDN (Currently 3.50%) $ 1,000 $ 1,000
...............................................................................
Total Connecticut (Cost $1,000) 1,000
..............
DELAWARE 0.3%
Delaware, GO, 5.00%, 5/1/98 2,375 2,379
...............................................................................
Total Delaware (Cost $2,379) 2,379
..............
DISTRICT OF COLUMBIA 1.6%
Dist. of Columbia, American Univ., VRDN
(Currently 3.60%) 11,630 11,630
...............................................................................
Total District of Columbia (Cost $11,630) 11,630
..............
FLORIDA 3.5%
Alachua County HFA, Shands Teaching Hosp.
VRDN (Currently 3.50%) (MBIA Insured) 13,400 13,400
...............................................................................
Florida Board of Ed., GO, Capital Outlay
VRDN (Currently 3.51%) 1,500 1,500
...............................................................................
Florida Pollution Control, 7.60%, 7/1/08
(Prerefunded 7/1/98+) 3,000 3,098
...............................................................................
Hillsborough County IDA, PCR, Tampa Electric
VRDN (Currently 3.65%) 800 800
...............................................................................
Jacksonville HFA, Genesis Rehabilitation Hosp.
VRDN (Currently 3.70%) 5,600 5,600
...............................................................................
Orange County IDA, W. W. Grainger
VRDN (Currently 3.45%) 1,185 1,185
...............................................................................
Total Florida (Cost $25,583) 25,583
..............
GEORGIA 6.1%
Cobb County, Water and Sewer
7.50%, 7/1/04 (Prerefunded 7/1/98+) 2,400 2,476
...............................................................................
DeKalb Private Hosp. Auth., Egleston Childrens Hosp.
VRDN (Currently 3.40%) 13,000 13,000
...............................................................................
Downtown Savannah Auth., GO, Public Ed.
VRDN (Currently 3.40%) 5,000 5,000
...............................................................................
4
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Par Value
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In thousands
Georgia, GO
4.00%, 7/1/98 $ 1,895 $ 1,896
..........................................................................
6.50%, 8/1/98 1,000 1,011
..........................................................................
6.50%, 12/1/98 1,000 1,021
..........................................................................
7.00%, 6/1/08 (Prerefunded 6/1/98+) 1,200 1,233
..........................................................................
7.70%, 4/1/98 2,000 2,006
................................................................................
Georgia Municipal Gas Auth., VRDN (Currently 3.35%) 500 500
................................................................................
Gwinnett County Hospital Auth.
VRDN (Currently 3.50%) (MBIA Insured) 7,000 7,000
................................................................................
Gwinnett County Water and Sewerage Auth.,
GO, COP 8.05%, 8/1/98 1,200 1,221
................................................................................
Metropolitan Atlanta Rapid Transit Auth.,
Sales Tax 8.00%, 7/1/18 (FGIC Insured)
(Prerefunded 7/1/98+) 8,430 8,711
................................................................................
Total Georgia (Cost $45,075) 45,075
..............
HAWAII 1.3%
Hawaii, GO
4.75%, 11/1/98 5,000 5,031
..........................................................................
5.50%, 10/1/98 1,650 1,668
................................................................................
Honolulu City and County, GO
6.90%, 10/1/01 (Prerefunded 10/1/98+) 3,000 3,096
................................................................................
Total Hawaii (Cost $9,795) 9,795
..............
IDAHO 0.6%
Idaho HFA
Holy Cross Hosp., VRDN (Currently 3.40%) 1,200 1,200
.............................................................................
St. Lukes Regional Med. Center, VRDN
(Currently 3.70%) 3,500 3,500
.............................................................................
Total Idaho (Cost $4,700) 4,700
..............
ILLINOIS 11.0%
Chicago, GO
3.55%, 10/29/98 3,300 3,300
..........................................................................
3.55%, 2/4/99 5,000 5,000
................................................................................
Chicago Metropolitan Water District, GO
7.25%, 1/1/99 (Escrowed to Maturity) 1,000 1,027
................................................................................
5
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Par Value
- ------------------------------------------------------------------
In thousands
Illinois, GO
3.90%, 12/1/98 $ 1,950 $ 1,951
............................................................
4.50%, 6/1/98 1,500 1,503
............................................................
5.125%, 12/1/98 (FGIC Insured) 1,000 1,012
..................................................................
Illinois Dev. Fin. Auth., Palos Community
Hosp. VRDN (Currently 3.40%) 23,000 23,000
..................................................................
Illinois EFA, Northwestern Univ., VRDN
(Currently 3.40%) 14,800 14,800
..................................................................
Illinois HFA, Advocate Health Care Network
VRDN (Currently 3.45%) 10,800 10,800
............................................................
Children's Memorial Hosp., VRDN
(Currently 3.35%) 4,900 4,900
...............................................................
Little Co. of Mary Hosp.
VRDN (Currently 3.45%) (MBIA Insured) 12,070 12,070
............................................................
Univ. of Chicago Hosp.
VRDN (Currently 3.40%) (MBIA Insured) 1,000 1,000
..................................................................
Niles Village, IDR, W. W. Grainger, VRDN
(Currently 3.45%) 1,000 1,000
..................................................................
Total Illinois (Cost $81,363) 81,363
...........
INDIANA 0.6%
Gary, IDR, W. W. Grainger, VRDN (Currently
3.45%) 730 730
..................................................................
Indianapolis Public Improvement, RAN, 4.25%,
7/9/98 3,750 3,756
..................................................................
Total Indiana (Cost $4,486) 4,486
...........
IOWA 0.5%
Sheldon, Sioux Valley Hosp., VRDN
(Currently 3.45%) 3,455 3,455
..................................................................
Total Iowa (Cost $3,455) 3,455
...........
KANSAS 0.1%
Kansas Highway, 9.00%, 7/1/98 (Escrowed
to Maturity) 1,000 1,017
..................................................................
Total Kansas (Cost $1,017) 1,017
...........
KENTUCKY 2.9%
Kentucky, GO, TECP, 3.55%, 6/4/98 3,000 3,000
..................................................................
Kentucky Economic Dev. Fin. Auth.,
Health Alliance VRDN (Currently 3.50%)
(MBIA Insured) 7,400 7,400
..................................................................
6
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T. ROWE PRICE TAX-EXEMPT MONEY FUND
..................................................................
Par Value
- ------------------------------------------------------------------
In thousands
Kentucky Turnpike Auth., Revitalization
Project 4.60%, 7/1/98 (AMBAC
Insured) $ 1,000 $ 1,002
..................................................................
Trimble County, PCR, Louisville Gas and
Electric, TECP 3.80%, 3/6/98 9,735 9,735
..................................................................
Total Kentucky (Cost $21,137) 21,137
...........
LOUISIANA 3.9%
Iberville Parish Consolidated School Dist.
8.00%, 10/1/04 (Prerefunded 10/1/98+) 5,750 6,009
..................................................................
Louisiana, GO, 4.625%, 8/1/98 (MBIA Insured) 500 502
..................................................................
Louisiana Offshore Terminal Auth., VRDN
(Currently 3.65%) 700 700
..................................................................
Louisiana PFA
Sisters of Charity, VRDN (Currently
3.50%) 10,000 10,000
...............................................................
Willis Knighton Medical Center
VRDN (Currently 3.45%) (AMBAC Insured) 5,000 5,000
............................................................
VRDN (Currently 3.50%) (AMBAC Insured) 4,900 4,900
..................................................................
New Orleans Aviation Board
VRDN (Currently 3.30%) (MBIA Insured) 1,900 1,900
..................................................................
Total Louisiana (Cost $29,011) 29,011
...........
MARYLAND 9.0%
Anne Arundel County, GO
6.50%, 6/1/98 1,000 1,006
............................................................
6.80%, 6/1/04 (Prerefunded 6/1/98+) 1,470 1,511
............................................................
TECP, 3.50%, 4/7/98 4,000 4,000
..................................................................
Baltimore County, GO
Consolidated Public Improvement, 3.40%,
8/1/98 435 434
...............................................................
Metropolitan Dist., 3.40%, 8/1/98 300 300
..................................................................
Carroll County, GO, Consolidated Public
Improvement 4.00%, 12/1/98 860 861
..................................................................
Gaithersburg Economic Dev., Asbury Methodist
VRDN (Currently 3.45%) (MBIA Insured) 10,000 10,000
..................................................................
Maryland, GO
VRDN (Currently 3.46%) 4,995 4,995
6.60%, 10/15/98 1,000 1,018
7
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Par Value
- ------------------------------------------------------------------
In thousands
Maryland DOT
6.375%, 11/1/98 $ 1,470 $ 1,495
............................................................
6.50%, 7/15/04 (Prerefunded 7/15/98+) 1,000 1,029
..................................................................
Maryland HHEFA
Charlestown Community, VRDN (Currently
3.45%) 2,000 2,000
...............................................................
Daughters of Charity Group, VRDN
(Currently 3.35%) 1,000 1,000
...............................................................
Helix Health System, VRDN (Currently
3.45%) 1,900 1,900
...............................................................
Howard County General Hosp.
8.25%, 7/1/18 (Prerefunded 7/1/98+) 1,100 1,138
............................................................
Johns Hopkins Univ., 6.20%, 7/1/98 10,255 10,255
...............................................................
Univ. of Maryland Medical System
VRDN (Currently 3.45%) 2,000 2,000
..................................................................
Maryland-National Capital Park and
Planning Commission, GO BAN, Prince
George's County
VRDN (Currently 3.70%) 3,000 3,000
..................................................................
Montgomery County, GO, Consolidated Public
Improvement
6.80%, 11/1/98 2,000 2,039
............................................................
7.10%, 10/1/04 (Prerefunded 10/1/98+) 1,000 1,040
..................................................................
Montgomery County Housing Opportunities
Commission Single Family, 4.00%, 6/25/98 2,790 2,790
..................................................................
Montgomery County Economic Dev. Auth.
Howard Hughes Medical Fac.
VRDN (Currently 3.40%) 7,900 7,900
..................................................................
Univ. of Maryland, 7.00%, 10/1/98 890 906
..................................................................
Washington Suburban Sanitary Dist., GO,
6.00%, 6/1/98 3,750 3,770
..................................................................
Total Maryland (Cost $66,387) 66,387
...........
MASSACHUSETTS 0.3%
Massachusetts, GO, 7.25%, 7/1/05
(Prerefunded 7/1/98+) 2,000 2,054
..................................................................
Total Massachusetts (Cost $2,054) 2,054
...........
MICHIGAN 1.5%
Detroit City School Dist., GO, RAN, 4.50%,
5/1/98 2,500 2,502
..................................................................
Michigan, GO, 4.50%, 9/30/98 1,000 1,006
..................................................................
Univ. of Michigan, Medical Service Plan
VRDN (Currently 3.65%) 7,800 7,800
..................................................................
Total Michigan (Cost $11,308) 11,308
...........
8
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T. ROWE PRICE TAX-EXEMPT MONEY FUND
- ------------------------------------------------------------------
Par Value
- ------------------------------------------------------------------
In thousands
MINNESOTA 1.8%
Becker, PCR, Northern State Power, 3.30%,
4/17/98 $4,000 $ 4,000
..................................................................
Cottage Grove, PCR, Minnesota Mining and Mfg.
VRDN (Currently 3.51%) 1,000 1,000
..................................................................
Minnesota, GO, 4.90%, 8/1/98 500 502
..................................................................
Rochester Health Care Fac.
Mayo Foundation/Mayo Medical Center
VRDN (Currently 3.60%) 5,000 5,000
............................................................
TECP, 3.55%, 4/9/98 3,000 3,000
..................................................................
Total Minnesota (Cost $13,502) 13,502
...........
MISSISSIPPI 0.4%
Mississippi, GO, 5.00%, 9/1/98 1,280 1,288
..................................................................
Rankin County, PCR, Siemens Energy and
Automation VRDN (Currently 3.50%) 1,600 1,600
..................................................................
Total Mississippi (Cost $2,888) 2,888
...........
MISSOURI 0.4%
Univ. of Missouri, Capital Projects, RAN,
4.25%, 6/30/98 3,000 3,004
..................................................................
Total Missouri (Cost $3,004) 3,004
...........
NEW HAMPSHIRE 0.1%
New Hampshire HHEFA, St. Paul's School
VRDN (Currently 3.30%) 1,000 1,000
..................................................................
Total New Hampshire (Cost $1,000) 1,000
...........
NEW JERSEY 1.2%
New Jersey, GO, TECP, 3.75%, 3/9/98 8,700 8,700
..................................................................
Total New Jersey (Cost $8,700) 8,700
...........
NEW MEXICO 0.9%
Albuquerque, VRDN (Currently 3.40%) 1,000 1,000
..................................................................
New Mexico, GO
5.50%, 9/1/98 2,500 2,523
............................................................
RAN, 4.50%, 6/30/98 3,000 3,009
..................................................................
Total New Mexico (Cost $6,532) 6,532
...........
9
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- ------------------------------------------------------------------
Par Value
- ------------------------------------------------------------------
In thousands
NEW YORK 5.2%
Commack Union Free School Dist., GO, TAN,
4.25%, 6/29/98 $ 3,500 $ 3,504
..................................................................
Connetquot, GO, TAN, 4.25%, 6/25/98 3,000 3,003
..................................................................
Manhasset Union Free School Dist., GO, TAN,
4.25%, 6/30/98 3,000 3,004
..................................................................
Mount Vernon, PCR, General Electric, TECP,
3.60%, 5/22/98 2,900 2,900
..................................................................
New York City, GO, RAN, 4.50%, 6/30/98 3,000 3,006
..................................................................
New York City Municipal Water Fin. Auth.
VRDN (Currently 3.65%) 11,000 11,000
..................................................................
New York State Medical Care Fac. Fin. Agency
Buffalo General Hosp., 7.70%, 2/15/22
(FHA Insured) (Prerefunded 8/15/98+) 6,200 6,428
..................................................................
New York State Thruway Auth., VRDN
(Currently 4.05%) 700 700
..................................................................
South Huntington Union Free School Dist.,
GO, TAN 4.10%, 6/30/98 5,000 5,005
..................................................................
Total New York (Cost $38,550) 38,550
...........
NORTH CAROLINA 3.6%
Charlotte Mecklenberg Hosp. Auth.
North Carolina Health Care
VRDN (Currently 3.35%) 8,000 8,000
............................................................
VRDN (Currently 3.70%) 6,000 6,000
..................................................................
Durham County, COP, 4.00%, 5/1/98 1,100 1,100
..................................................................
North Carolina Eastern Municipal Power Agency
7.25%, 1/1/23 (Prerefunded 1/1/99+) 1,250 1,309
..................................................................
North Carolina EFA, Bowman Gray School of
Medicine VRDN (Currently 3.40%) 950 950
..................................................................
Winston Salem, GO, COP
VRDN (Currently 3.40%) 9,400 9,400
..................................................................
Total North Carolina (Cost $26,759) 26,759
...........
OHIO 6.5%
Clermont County, Mercy Health System
VRDN (Currently 3.40%) 2,200 2,200
..................................................................
Cuyahoga County Hosp.
Cleveland Clinic Foundation
VRDN (Currently 3.40%) (AMBAC Insured) 1,000 1,000
............................................................
VRDN (Currently 3.40%) 11,000 11,000
............................................................
10
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- ------------------------------------------------------------------
Par Value
- ------------------------------------------------------------------
In thousands
Dublin City School Dist., GO, 4.33%,
5/13/98 $ 5,000 $ 5,003
..................................................................
Franklin County Hosp.
Holy Cross Health Systems, VRDN
(Currently 3.40%) 4,500 4,500
...............................................................
U.S. Health, VRDN (Currently 3.40%) 12,100 12,100
..................................................................
Ohio Public Fac., Higher Education, 4.25%,
12/1/98 12,000 12,054
..................................................................
Ohio State Highway, GO, 5.70%, 5/15/98 250 251
..................................................................
Total Ohio (Cost $48,108) 48,108
...........
OREGON 1.8%
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 2,979
..................................................................
Portland, Sewer, 7.00%, 3/1/03 (Prerefunded
3/1/98+) 500 500
..................................................................
Total Oregon (Cost $13,479) 13,479
...........
PENNSYLVANIA 2.7%
Doylestown Hosp. Auth.
VRDN (Currently 3.55%) (AMBAC Insured) 13,000 13,000
..................................................................
Geisinger Auth. Health System
Geisinger Medical Center, 5.25%, 7/1/98 1,000 1,005
..................................................................
Montgomery County, IDA, W. W. Grainger
VRDN (Currently 3.45%) 1,230 1,230
..................................................................
Pennsylvania, GO, 6.00%, 11/1/98 (MBIA
Insured) 3,000 3,043
..................................................................
Philadelphia, GO, TRAN, 4.50%, 6/30/98 2,000 2,003
..................................................................
Total Pennsylvania (Cost $20,281) 20,281
...........
SOUTH CAROLINA 2.6%
Rock Hill Utility Systems
VRDN (Currently 3.35%) (AMBAC Insured) 5,050 5,050
..................................................................
South Carolina, GO, Capital Improvement,
4.50%, 10/1/98 1,275 1,280
..................................................................
Spartanburg County, Siemens Energy and
Automation VRDN (Currently 3.40%) 6,400 6,400
..................................................................
York County, PCR, Duke Power, TECP
3.45 - 3.70%, 3/5 - 6/9/98 6,900 6,900
..................................................................
Total South Carolina (Cost $19,630) 19,630
...........
11
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T. ROWE PRICE TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
SOUTH DAKOTA 2.2%
South Dakota HEFA, Sioux Valley Hosp.
VRDN (Currently 3.45%) $ 16,045 $ 16,045
................................................................................
Total South Dakota (Cost $16,045) 16,045
.............
TENNESSEE 0.4%
Knox County Health Ed. and Housing Fac. Board
Mercy Health, VRDN (Currently 3.40%) 2,900 2,900
................................................................................
Total Tennessee (Cost $2,900) 2,900
.............
TEXAS 9.7%
Dallas County, GO, 7.625%, 8/15/98 1,000 1,017
................................................................................
Dallas County Community College Dist.
VRDN (Currently 3.50%) 16,400 16,400
................................................................................
Dallas Fort Worth Regional Airport
4.30%, 11/1/98 (MBIA Insured) 2,200 2,211
................................................................................
Harris County, GO, Toll Road
8.10%, 8/1/08 (Prerefunded 8/1/98+) 1,000 1,037
................................................................................
Harris County HFA, Sisters of Charity, TECP,
3.60%, 6/8/98 1,200 1,200
................................................................................
Hockley County IDC, PCR, Amoco Oil
3.75%, 3/1/98 2,500 2,500
..........................................................................
3.75%, 5/1/98 7,940 7,940
................................................................................
Houston Water and Sewer Systems, VRDN
(Currently 3.55%) 13,000 13,000
................................................................................
Midland, IDR, W. W. Grainger, VRDN
(Currently 3.45%) 775 775
................................................................................
North Texas Municipal Water Dist., Upper E Fork
7.60%, 6/1/01 (AMBAC Insured)
(Prerefunded 6/1/98+) 1,000 1,009
................................................................................
Red River Auth., PCR, Southwestern Public Service
VRDN (Currently 3.55%) 700 700
................................................................................
San Antonio Electric and Gas
7.00%, 2/1/00 (Prerefunded 2/1/99+) 500 522
................................................................................
Texas, GO
7.50%, 10/1/98 1,600 1,634
..........................................................................
TRAN, 4.75%, 8/31/98 15,000 15,083
................................................................................
Texas PFA, Building, 5.00%, 8/1/98 (AMBAC Insured) 1,025 1,030
................................................................................
12
<PAGE>
T. ROWE PRICE TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
Travis County HFA, Hosp. Charity Obligation Group
VRDN (Currently 3.35%) $ 1,000 $ 1,000
................................................................................
Waco Health Fac. Dev., Charity Obligation
VRDN (Currently 3.35%) 2,000 2,000
................................................................................
Weslaco Health Fac. Dev., Knapp Medical Center
10.375%, 6/1/16 (Prerefunded 6/1/98+) 2,500 2,564
................................................................................
Total Texas (Cost $71,622) 71,622
..........
UTAH 1.3%
Univ. of Utah, Campus Fac., VRDN (Currently 3.50%) 10,000 10,000
................................................................................
Total Utah (Cost $10,000) 10,000
..........
VIRGINIA 6.0%
Fairfax County IDA, Inova Health System, TECP
3.50%, 4/7/98 1,000 1,000
................................................................................
Manassas, GO, 6.00%, 1/1/99 1,000 1,018
................................................................................
Richmond, GO, BAN, VRDN (Currently 3.45%) 15,800 15,800
................................................................................
Roanoke, GO, Public Improvement, 4.00%, 8/1/98 2,845 2,847
................................................................................
Roanoke IDA, Roanoke Memorial Hosp.
Carilion Health System, VRDN (Currently 3.35%) 6,645 6,645
................................................................................
Rockingham County IDA, Merck and Company
VRDN (Currently 3.60%) 2,400 2,400
................................................................................
Univ. of Virginia, VRDN (Currently 3.40%) 500 500
................................................................................
Virginia College Building Auth.
Equipment Leasing, 4.25%, 8/1/98 1,100 1,102
.............................................................................
Univ. of Richmond, VRDN (Currently 3.40%) 1,650 1,650
................................................................................
Virginia Commonwealth Transportation Board
Oak Grove Connector, 5.00%, 5/15/98 1,450 1,453
................................................................................
Virginia Housing Dev. Auth., 3.80%, 6/10/98 10,000 9,993
................................................................................
Total Virginia (Cost $44,408) 44,408
..........
13
<PAGE>
T. ROWE PRICE TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
WASHINGTON 2.5%
Port of Seattle, GO, VRDN (Currently 3.45%) $ 2,000 $ 2,000
................................................................................
Washington, GO
VRDN (Currently 3.35%) 5,000 5,000
..........................................................................
4.20%, 8/1/98 1,000 1,002
..........................................................................
4.50%, 1/1/99 1,790 1,800
..........................................................................
5.20%, 6/1/98 1,000 1,004
..........................................................................
7.00%, 9/1/98 1,500 1,523
..........................................................................
7.30%, 6/1/00 (Prerefunded 6/1/98+) 2,000 2,017
................................................................................
Washington Housing Finance Commission,
3.85%, 12/15/98 1,970 1,970
................................................................................
Washington Public Power Supply System, 5.00%, 7/1/98 2,170 2,177
................................................................................
Total Washington (Cost $18,493) 18,493
.............
WISCONSIN 2.1%
Milwaukee, GO, 6.90%, 6/1/98 1,000 1,008
................................................................................
Oak Creek, Wisconsin Electric Power Co.
VRDN (Currently 3.45%) 500 500
................................................................................
Winconsin, Student Loan, TECP, 3.25 - 3.75%,
4/7 - 5/6/98 14,376 14,376
................................................................................
Total Wisconsin (Cost $15,884) 15,884
.............
WYOMING 0.4%
Uinta County, PCR, Amoco Oil, 3.85%, 12/1/98 3,000 3,000
................................................................................
Total Wyoming (Cost $3,000) 3,000
.............
14
<PAGE>
T. ROWE PRICE TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
Value
- --------------------------------------------------------------------------------
In thousands
Total Investments in Securities
103.0% of Net Assets (Cost $763,262) $ 763,262
Other Assets Less Liabilities (22,505)
.............
NET ASSETS $ 740,757
-------------
Net Assets Consist of:
Accumulated net investment income - net of distributions $ 142
Paid-in-capital applicable to 740,809,288 shares of $0.01 par
value capital stock outstanding; 5,000,000,000 shares
authorized 740,615
.............
NET ASSETS $ 740,757
-------------
NET ASSET VALUE PER SHARE $ 1.00
-------------
+ Used in determining portfolio maturity
AMBAC AMBAC Indemnity Corp.
BAN Bond Anticipation Note
COP Certificates of Participation
DOT Department of Transportation
EFA Educational Facility Authority
FGIC Financial Guaranty Insurance Company
FHA Federal Housing Authority
GO General Obligation
HFA Health Facility Authority
HEFA Health & Educational Facilities
HHEFA Health & Higher Educational Facility Authority
IDA Industrial Development Authority
IDC Industrial Development Corp.
IDR Industrial Development Revenue
MBIA Municipal Bond Investors Assurance Corp.
PCR Pollution Control Revenue
PFA Public Facility Authority
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.
15
<PAGE>
T. ROWE PRICE TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
- -----------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
In thousands
Year
Ended
2/28/98
Investment Income
Interest income $ 26,151
.............
Expenses
Investment management 2,989
Shareholder servicing 412
Custody and accounting 150
Prospectus and shareholder reports 40
Registration 39
Directors 14
Legal and audit 11
Miscellaneous 9
.............
Total expenses 3,664
.............
Net investment income 22,487
.............
Realized Gain (Loss)
Net realized gain (loss) on securities 53
.............
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 22,540
-------------
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
T. ROWE PRICE TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
- ----------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
In thousands
Year
Ended
2/28/98 2/28/97
Increase (Decrease) in Net Assets
Operations
Net investment income $ 22,487 $ 20,102
Net realized gain (loss) 53 18
........................
Increase (decrease) in net assets from operations 22,540 20,120
........................
Distributions to shareholders
Net investment income (22,487) (20,102)
........................
Capital share transactions*
Shares sold 691,676 628,499
Distributions reinvested 21,239 19,039
Shares redeemed (650,346) (648,564)
........................
Increase (decrease) in net assets from capital
share transactions 62,569 (1,026)
........................
Net Assets
Increase (decrease) during period 62,622 (1,008)
Beginning of period 678,135 679,143
........................
End of period $ 740,757 $ 678,135
------------------------
*Share information
Shares sold 691,676 628,499
Distributions reinvested 21,239 19,039
Shares redeemed (650,346) (648,564)
........................
Increase (decrease) in shares outstanding 62,569 (1,026)
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
T. ROWE PRICE TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
February 28, 1998
- ------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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. Capital loss carryforwards utilized in fiscal 1998 amounted to
$53,000.
In order for the fund's capital accounts and distributions to shareholders
to reflect the tax character of certain transactions, the following
reclassifications were made during the year ended February 28, 1998. The
results of operations and net assets were not affected by the
increases/(decreases) to these accounts.
18
<PAGE>
T. ROWE PRICE TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
---------------------------------------------------------------------------
Undistributed net realized gain 118,000
Paid-in-capital (118,000)
At February 28, 1998, the aggregate cost of investments for federal income
tax and financial reporting purposes was $763,262,000.
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 $238,000 was payable at February 28, 1998. The fee is
computed daily and paid monthly, and consists of an individual fund fee
equal to 0.10% 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 February 28, 1998, and for the year
then ended, the effective annual group fee rate was 0.32%. The fund pays a
pro-rata share of the group fee based on the ratio of its net assets to
those of the group.
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
$423,000 for the year ended February 28, 1998, of which $33,000 was payable
at period-end.
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED 2/28/98
- --------------------------------------------------------------------------------
We are providing this information as required by the Internal Revenue Code.
The amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The fund's dividend income included $22,322,000 which qualified as
exempt-interest dividends.
- --------------------------------------------------------------------------------
19
<PAGE>
T. ROWE PRICE TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
- ----------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
T. Rowe Price Tax-Exempt Money Fund, Inc.
We have audited the accompanying statement of net assets of T. Rowe Price
Tax-Exempt Money Fund, Inc. as of February 28, 1998, and the related
statement of operations for the year then ended, the statement of changes
in net assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
investments owned as of February 28, 1998, by correspondence with the
custodian and the brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of T. Rowe Price Tax-Exempt Money Fund, Inc. as of February 28, 1998, the
results of its operations, the changes in its net assets, and financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
March 18, 1998
20
<PAGE>
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(R) 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.
T. Rowe Price OnLine Through a personal computer via dial-up modem,
you can replicate all the services available on Tele*Access plus
conduct transactions in your Discount Brokerage and Variable Annuity
accounts.
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.
21
<PAGE>
T. ROWE PRICE SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
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, 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--stock, bond, and money market. Detail pages itemize account
transactions by fund.
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,
College Planning Kit, Diversifying Overseas: A Guide to
International Investing, Retirees Financial Guide, and Retirement
Planning Kit (also available on disk for PC use) can help you
determine and reach your investment goals.
*A division of T. Rowe Price Investment Services, Inc. Member
NASD/SIPC.
22
<PAGE>
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 Government 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 the Equity Index Fund.
** Formerly the closed-end New Age Media Fund. Converted to open-end status
on 7/28/97.
*** Closed to new investors.
+ Neither the funds nor their share prices are guaranteed by the U.S.
government.
Please call for a prospectus. Read it carefully before you invest or send money.
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.
23
<PAGE>
For yield, price, last transaction, current balance, or to conduct transactions,
24 hours, 7 days a week, call Tele*Access(R): 1-800-638-2587 toll free
For assistance with your existing fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
410-625-6500 Baltimore area
To open a Discount Brokerage
account or obtain information,
call: 1-800-638-5660 toll free
Internet address:
www.troweprice.com
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus of the
T. Rowe Price Tax-Exempt Money Fund.
Investor Centers:
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
[LOGO OF T. ROWE PRICE APPEARS HERE]
T. Rowe Price Investment Services, Inc., Distributor. F52-050 2/28/98
Annual Report
Tax-Free
Funds
February 28, 1998
T. Rowe Price
Report Highlights
Tax-Free Funds
o All five funds posted better returns than their peer
group averages for the 6- and 12-month periods ended
February 28, 1998.
o Municipal bonds performed well during both periods,
buoyed by subdued inflation and a flight to the quality
of U.S. bonds following the Asian financial crisis.
o Municipal credit ratings improved significantly due to
continuing economic growth. Yield spreads between higher-
and lower-quality bonds narrowed to record lows,
providing an extra boost to the high-yield sector.
o We expect slower economic growth and continued low
inflation in 1998, which bodes well for municipal bond
investors.
Fellow Shareholders
The bond market and your funds enjoyed good returns during the
past 6- and 12-month periods, fueled by low inflation and
credit upgrades due to strong economic growth. In the
aftermath of the currency crises in Southeast Asia, domestic
bonds, including municipals, benefited from a flight to the
relative stability of U.S. fixed income markets.
MARKET ENVIRONMENT
During the six months ended February 28, 1998, municipal bond
prices rose and yields declined, with yields on long-term
AAA-rated bonds falling about 27 basis points (100 basis
points equal one percent) from the end of August. Intermediate
yields fell in tandem with long-term rates, but short-term
rates fell less sharply. As a result, the yield curve
flattened throughout most of the past six months, causing
long-term bonds to outperform shorter maturities.
Municipal Bond and Note Yields
1-Year Moody's
30-Year AAA 5-Year AAA Investment Grade
General Obligation General Obligation 1 Note
2/28/97 5.5 4.4 3.7
5.75 4.75 3.9
5.6 4.8 3.95
5/97 5.5 4.55 3.9
5.45 4.4 3.85
5.15 4.15 3.85
8/97 5.35 4.35 3.85
5.25 4.2 3.8
5.23 4.15 3.8
11/97 5.18 4.2 3.85
5.03 4.1 3.85
5 4 3.65
2/28/98 5.08 4.05 3.6
The major influence on rates was (and continues to be) moderate inflation
in the U.S. Consumer prices increased only slightly, and producer prices
actually declined over the last 12 months. The Federal Reserve has left
short-term interest rates unchanged since March 1997 despite strong
economic growth. Shortly after the hike in the federal funds rate last
spring, yields had risen in anticipation of further Fed tightening, but
low inflation and the events in Asia have put the Fed on hold.
The municipal market also benefited from the positive impact of subdued
inflation on all fixed income investments. However, municipals
underperformed Treasuries as issuers rushed to the market to take
advantage of low borrowing costs, driving up supply. Issuance rose 20% in
1997, and supply so far in 1998 is the highest ever for the first two
months of the year. Strong economic growth boosted the financial condition
of municipal governments, resulting in improving municipal credits. Rating
upgrades exceeded downgrades by a seven-to-one margin. The difference
between the yields of higher- and lower-quality bonds narrowed,
contributing to good returns from lower-quality bonds.
TAX-EXEMPT MONEY FUND
Our longer-maturity strategy resulted in relatively good returns and
enabled your fund to outperform its peer group during both the 6- and
12-month periods ended February 28, 1998.
Performance Comparison
Periods Ended 2/28/98 6 Months 12 Months
__________________________________________________________________
Tax-Exempt Money Fund 1.60% 3.24%
Lipper Tax-Exempt Money
Market Funds Average 1.52 3.09
The fund ended its fiscal year with a weighted average maturity of 59
days, close to where it was at the end of February and August of 1997.
This maturity was significantly longer than the peer group average of 43
days, and it ranged from 10 to 20 days longer than the competition
throughout the last six months. Our longer maturity posture was warranted
by both a stable U.S. monetary policy and strong cash flows into the
short-term tax-exempt sector. Your fund's increased holdings in six-month
to one-year maturities provided an additional average yield of 10 to 20
basis points.
Short-term tax-exempt yields closed the fiscal year at 3.50% for six-month
and 3.60% for one-year maturities. These yields were 20 and 25 basis
points lower, respectively, than the yields that prevailed on August 31,
but only five to 10 basis points lower than a year ago. All in all, the
rate environment has been remarkably docile in the short end of the yield
curve, and most of the move toward lower yields took place during the
first two months of 1998.
The supply of new short-term issues increased more than 10% in 1997 to
almost $46 billion, the largest yearly volume since 1993. More important,
however, was the increase in tax-exempt money fund assets, which rose
almost $25 billion to a record $172.3 billion. As investors have become
more willing to accept a lower rate of return for stability of principal,
money funds across the board have benefited. This is best evidenced by the
assets of all money funds, both tax-exempt and taxable, which surpassed
the $l trillion milestone in 1997 and reached $1.124 trillion on February
28, 1998.
TAX-FREE SHORT-INTERMEDIATE FUND
Performance Comparison
Periods Ended 2/28/98 6 Months 12 Months
__________________________________________________________________
Tax-Free Short-
Intermediate Fund 3.08% 5.28%
Lipper Short-Intermediate
Debt Funds Average 2.91 5.14
Your fund posted solid returns and outperformed the Lipper
Short-Intermediate Debt Funds Average over both the 6- and 12-month
periods ended February 28, 1998. Returns were enhanced by an extension of
duration, a low expense ratio, and a narrowing of yields between higher-
and lower-quality bonds. (Duration is a measure of a bond fund's
sensitivity to interest rates. For example, a fund with a duration of
three years would fall or rise about 3% in price in response to a
one-percentage-point rise or fall in interest rates.)
At the end of August the fund's duration was 2.8 years, which we
considered a neutral posture. In September, Treasury yields began to fall
and new issuance of municipal bonds increased. This additional supply kept
municipal yields from falling as fast as Treasury yields and improved the
relative attractiveness of tax-exempt bonds. At that time, we considered
municipal yields appealing enough to extend duration to a more aggressive
3.1 years. When municipal yields continued to drop into January, we
shortened the fund's duration slightly to 3.0 years, where it stood at the
end of the reporting period.
Also helping performance was the improving credit quality of many
municipal issuers. As a result, more than 10% of fund holdings enjoyed
credit upgrades during the past 12 months.
TAX-FREE INSURED INTERMEDIATE BOND FUND
Intermediate-term bonds generated strong returns over the last 12 months,
a combination of good capital appreciation and coupon income. Fund results
were ahead of the Lipper Intermediate Municipal Debt Funds Average for
both the 6- and 12-month periods ended February 28, 1998. The fund's
superior performance relative to its peers occurred in the second half of
the fiscal year as we extended duration. (For an explanation of duration,
see the report for the Tax-Free Short-Intermediate Fund.) Also
contributing to the strong results was the fund's low expense ratio.
Performance Comparison
Periods Ended 2/28/98 6 Months 12 Months
__________________________________________________________________
Tax-Free Insured
Intermediate Bond Fund 4.39% 7.31%
Lipper Intermediate
Municipal Debt Funds Average 4.07 7.10
During the first six months, we had adopted a slightly defensive duration
posture that caused us to lag our peer group. When bond prices fell and
yields moved higher in August and September, we took advantage of the
opportunity to move from a defensive to a neutral posture. The heavy
supply of new municipal bond issuance caused Treasuries to outperform
municipals in late 1997, resulting in narrower spreads between tax-exempt
and taxable yields. Municipal bonds grew more attractive relative to
taxable securities, and we extended duration further. As prices continued
to rally into January, we trimmed duration once again to 5.5 years at the
end of February. The continuing growth of insured bonds added to the
municipal market's appeal, as insured securities approached 50% of all new
issues in 1997.
We also adopted a "barbell" structure for part of the portfolio, which
consists of shorter- and longer-term securities together producing an
intermediate duration with a higher yield. The combination of the two
securities appreciates in value faster than a single bond with an
intermediate-term duration.
TAX-FREE INCOME FUND
Performance Comparison
Periods Ended 2/28/98 6 Months 12 Months
___________________________________________________________________
Tax-Free Income Fund 5.18% 9.37%
Lipper General Municipal
Debt Funds Average 4.99 9.12
Long-term national municipal bond funds performed well over the past year
with total returns above 9% as long-term interest rates ended about 40
basis points lower than a year ago. This compares with an average annual
return closer to 7% for these funds over the last five years. Your fund's
results exceeded those of its Lipper peer group average for the 6- and
12-month periods ended February 28, 1998.
The Tax-Free Income Fund surpassed the average for its peers due to
several factors. First, we extended duration in the second half of the
fund's fiscal year as we put more cash to work in the long end of the
market. Second, we followed a "barbelled" maturity strategy to take
advantage of a flattening yield curve with long rates falling while
short-term rates were little changed. This meant holding fewer
intermediate-term bonds that did not appreciate as much as long-term
securities. The duration of the fund (see Tax-Free Short-Intermediate Fund
section for an explanation) was slightly shorter at the end of February as
more bonds traded to their call dates. To mitigate this effect, we
continued to overweight noncallable bonds among maturities longer than 10
years. Finally, we tried to enhance the yield by holding older premium
bonds with higher coupons, while deploying new cash into more
price-sensitive lower-coupon bonds.
While the fund's portfolio structure produced good returns, in retrospect
we should have invested in more lower-quality bonds to participate further
in the spread tightening of the past year. We were pleased that many of
our larger lower-rated positions performed well and were upgraded during
the year.
TAX-FREE HIGH YIELD FUND
Performance Comparison
Periods Ended 2/28/98 6 Months 12 Months
__________________________________________________________________
Tax-Free High Yield Fund 5.51% 10.42%
Lipper High Yield Municipal
Debt Funds Average 5.39 10.13
The high-yield sector was the best-performing part of the municipal bond
market last year, buoyed by narrowing differences in yields between
higher- and lower-quality bonds. The yield spread declined to a record low
level during the period. Within this environment, the Tax-Free High Yield
Fund generated strong returns and outperformed the average of similar
funds for both the fiscal year and most recent six months. The fund's
return over the past 10 years is also well ahead of the average for
competing funds.
The narrowing of credit quality yield spreads was the dominant theme of
the municipal high-yield market last year, since tighter spreads enhance
the price performance of lower-quality bonds versus higher-quality
securities. Much of the tightening occurred during the first half of the
year, with spreads stabilizing at the lower level over the second half. To
illustrate, consider the yield spread difference between our municipal
high-yield index with an average rating of BB+ versus one composed of
bonds with an average AA rating. Since January 1995, the spread between
these two indices has moved from 130 basis points to only 30 basis points.
The principal forces that could reverse this trend, such as a recession
and heavy high-yield issuance, do not appear likely at present. Thus, we
expect the difference between yields of lower- and higher-quality to
remain narrow.
Quality Diversification
Tax-Free High Yield Fund
AAA AA A BBB BB and Below
4% 26% 20% 27% 23%
While this compression of yield spreads has generally reduced our
enthusiasm for lower-quality bonds, we are nevertheless able to find
issues to our liking. Over the past six months, the fund's exposure to
below-investment-grade bonds rose from 19% to 23% of net assets. Our
weighting in bonds rated BBB fell from 32% to 27% due to an upgrade of the
fund's largest holding, New York City general obligation bonds.
New York City's rating upgrade illustrates a broader trend: while the
fund's average credit quality is little changed from a year ago, nearly
12% of holdings were upgraded by at least one rating agency last year.
Fund performance during the past six and 12 months benefited from its
higher noninvestment-grade exposure, low expense ratio, the ratings
upgrades discussed, and a modest extension of duration. (For an
explanation of duration, see the report for the Tax-Free
Short-Intermediate Fund.) We began the recent six-month period with a
duration of 7.0 years and ended at 7.2 years as interest rates rose in
February. The fund's weighted average maturity hovered around 19 years,
and cash levels averaged about 3%.
OUTLOOK
The problems in Asia could affect the U.S. economy and slice a bit off
1998 growth, but the so-called Asian flu does not appear serious enough to
precipitate a downturn while domestic consumer demand remains healthy. The
recent Congressional testimony of Federal Reserve officials suggests that
the Fed will leave monetary policy unchanged until it fully appraises the
impact of Asia's problems on the U.S. economy.
Municipal bonds produced good results over the last 12 months despite the
steady growth of new issuance. However, we ended the year with a slightly
more cautious view. A surge in issuance in the first quarter of 1998 meant
we were paid to be patient as yields rose from their lows in mid-January.
Municipal bonds look attractive compared with taxable alternatives, which
could represent an opportunity to buy bonds at higher yields.
We anticipate slower economic growth in 1998, continued low inflation, and
stable monetary policy, all of which should be favorable for the municipal
bond market.
Respectfully submitted,
Mary J. Miller
Director, Municipal Bond Department
March 20, 1998
T. Rowe Price Tax-Free Funds
Portfolio Highlights
Key statistics
8/31/97 2/28/98
Tax-Exempt Money Fund
_____________________________________________________________________
Price Per Share $ 1.00 $ 1.00
Dividends Per Share
For 6 months 0.016 0.016
For 12 months 0.031 0.032
Dividend Yield (7-Day Compound) * 3.04% 3.03%
Weighted Average Maturity (days) 60 59
Weighted Average Quality ** First Tier First Tier
Tax-Free Short-Intermediate Fund
_______________________________________________________________________
Price Per Share $ 5.33 $ 5.37
Dividends Per Share
For 6 months 0.11 0.11
For 12 months 0.22 0.22
Dividend Yield *
For 6 months 4.27% 4.28%
For 12 months 4.37 4.32
Capital Gain Distribution (long
term, paid 12/30/97) - $ 0.01
Weighted Average Maturity (years) 3.8 4.1
Weighted Average Effective
Duration (years) 2.8 3.0
Weighted Average Quality *** AA- AA
T. Rowe Price Tax-Free Funds
Portfolio Highlights
Key statistics
8/31/97 2/28/98
Tax-Free Insured Intermediate Bond Fund
_______________________________________________________________________
Price Per Share $ 10.86 $ 11.06
Dividends Per Share
For 6 months 0.24 0.24
For 12 months 0.48 0.48
Dividend Yield *
For 6 months 4.44% 4.49%
For 12 months 4.56 4.52
Capital Gain Distribution (paid 12/30/97)
Short-Term - $ 0.02
Long-Term - 0.01
Weighted Average Maturity (years) 8.5 8.4
Weighted Average Effective Duration
(years) 5.4 5.5
Weighted Average Quality *** AA AA
Tax-Free Income Fund
______________________________________________________________________
Price Per Share $ 9.71 $ 9.95
Dividends Per Share
For 6 months 0.26 0.26
For 12 months 0.52 0.52
Dividend Yield *
For 6 months 5.40% 5.33%
For 12 months 5.51 5.44
Weighted Average Maturity (years) 17.4 17.1
Weighted Average Effective
Duration (years) 7.5 7.4
Weighted Average Quality *** AA- AA-
T. Rowe Price Tax-Free Funds
Portfolio Highlights
Key statistics
8/31/97 2/28/98
Tax-Free High Yield Fund
______________________________________________________________________
Price Per Share $ 12.33 $ 12.66
Dividends Per Share
For 6 months 0.35 0.34
For 12 months 0.70 0.69
Dividend Yield *
For 6 months 5.74% 5.57%
For 12 months 5.92 5.74
Weighted Average Maturity (years) 18.7 18.9
Weighted Average Effective Duration
(years) 7.0 7.2
Weighted Average Quality *** A- A-
* Dividends earned and reinvested for the periods indicated are
annualized and divided by the average daily net asset values per
share for the same period.
** All securities purchased in the money fund are rated in the two
highest categories (tiers) as established by national rating agencies
or, if unrated, are deemed of comparable quality by T. Rowe Price.
*** Based on T. Rowe Price research.
T. Rowe Price Tax-Free Funds
Average Annual Compound Total Return
This table shows how each fund would have performed each year if its
actual (or cumulative) returns for the periods shown had been earned at a
constant rate.
Periods Ended 2/28/98
SinceInception
1 Year 5 Years 10 Years Inception Date
______________________________________________________________________
Tax-Exempt Money 3.24% 2.87% 3.65% - 4/8/81
Tax-Free Short-
Intermediate 5.28 4.50 5.44 -12/23/83
Tax-Free Insured
Intermediate
Bond 7.31 5.81 - 6.87%11/30/92
Tax-Free Income 9.37 6.33 7.70 -10/26/76
Tax-Free High
Yield 10.42 7.15 8.58 - 3/1/85
Investment returns represent past performance and will vary. Shares of the
bond funds may be worth more or less at redemption than at original
purchase. The Money Fund's $1.00 share price is not guaranteed, nor is the
fund insured by the U.S. government.
Performance Comparison
These charts show the value of a hypothetical $10,000 investment in each
fund over the past 10 fiscal year periods or since inception (for funds
lacking 10-year records). The result is compared with a broad-based
average or index. The index return does not reflect expenses, which have
been deducted from each fund's return.
Tax-Exempt Money Fund
As of 2/28/98
Lipper Tax-Exempt
Money Market Tax-Exempt
Fund Index Money Fund
2/88 $10,000$ 10,000
2/89 10,500 10,508
2/90 11,120 11,125
2/91 11,719 11,705
2/92 12,176 12,138
2/93 12,470 12,424
2/94 12,707 12,679
2/95 13,030 13,012
2/96 13,464 13,453
2/97 13,858 13,864
2/98 14,296 14,312
T. Rowe Price Tax-Free Funds
Performance Comparison
Tax-Free Short-Intermediate Fund
As of 2/28/98
Lehman 3-Year Lipper Short- Tax-Free
GO Bond Intermediate Short-Intermediate
Index Debt Funds Average Fund
2/88 $10,000 $ 10,000 $10,000
2/89 10,261 10,389 10,314
2/90 11,088 11,183 11,073
2/91 12,016 12,038 11,855
2/92 12,996 12,989 12,677
2/93 14,124 14,182 13,629
2/94 14,615 14,731 14,105
2/95 14,998 15,040 14,515
2/96 16,206 16,130 15,512
2/97 16,952 16,808 16,136
2/98 17,857 17,720 16,987
Tax-Free Insured Intermediate Bond Fund
As of 2/28/98
Lehman 7-Year Lipper Intermediate Tax-Free
Municipal Municipal Debt Insured Intermediate
Bond Index Funds Average Bond Fund
11/30/92 $10,000 $ 10,000 $10,000
2/93 10,542 10,540 10,681
2/94 11,008 11,038 11,267
2/95 11,277 11,250 11,566
2/96 12,434 12,278 12,672
2/97 13,050 12,816 13,204
2/98 14,043 13,767 14,168
T. Rowe Price Tax-Free Funds
Performance Comparison
Tax-Free Income Fund
As of 2/28/98
Lehman Lipper General
Municipal Municipal Debt Tax-Free
Bond Index Funds Average Income Fund
2/88 $10,000 $10,000 $10,000
2/89 10,621 10,693 10,411
2/90 11,710 11,642 11,259
2/91 12,790 12,599 12,205
2/92 14,067 13,882 13,447
2/93 16,003 15,871 15,447
2/94 16,890 16,738 16,297
2/95 17,208 16,867 16,606
2/96 19,109 18,560 18,318
2/97 20,161 19,440 19,199
2/98 22,004 21,268 20,998
Tax-Free High Yield Fund
As of 2/28/98
Lipper High Yield Tax-Free
Lehman Revenue Municipal Debt High Yield
Bond Index Funds Average Fund
2/88 $10,000 $10,000 $10,000
2/89 10,805 10,798 10,827
2/90 11,968 11,741 11,861
2/91 13,069 12,420 12,801
2/92 14,475 13,706 14,154
2/93 16,580 15,373 16,127
2/94 17,619 16,374 17,335
2/95 17,890 16,615 17,554
2/96 19,918 18,354 19,419
2/97 21,093 19,370 20,627
2/98 23,149 21,661 22,776
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:
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T. Rowe Price
T. Rowe Price Investment Services, Inc., Distributor.
C03-050 2/28/98
