Annual Report - Financial Statements
T. Rowe Price
Tax-Exempt
Money Fund
February 28, 1999
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Portfolio Highlights
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SECTOR DIVERSIFICATION
Percent of Percent of
Net Assets Net Assets
8/31/98 2/28/99
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Hospital Revenue 30% 30%
General Obligation - Local 20 19
General Obligation - State 17 15
Educational Revenue 11 11
Prerefunded Bonds 5 7
Industrial and Pollution Control Revenue 3 5
Nuclear Revenue 2 3
Electric Revenue 1 2
Dedicated Tax Revenue 2 2
Miscellaneous Revenue 1 2
All Other 8 4
Other Assets Less Liabilities -- --
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Total 100% 100%
T. Rowe Price Tax-Exempt Money Fund
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Financial Highlights For a share outstanding throughout each period
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Tax-
Tax- Exempt
Exempt Shares
Shares PLUS
Year 11/1/98
Ended Through
2/28/99 2/28/98 2/28/97 2/29/96 2/28/95 2/28/99
NET ASSET VALUE
Beginning of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Investment activities
Net investment
income 0.029 0.032 0.030 0.033 0.026 0.007*
Distributions
Net investment
income (0.029) (0.032) (0.030) (0.033) (0.026) (0.007)
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# 2.97% 3.24% 3.05% 3.38% 2.63% 0.74%*
Ratio of total
expenses to
average net assets 0.52% 0.52% 0.55% 0.56% 0.58% 0.99%*!
Ratio of net
investment income
to average
net assets 2.93% 3.20% 3.00% 3.33% 2.59% 2.01%*!
Net assets,
end of period
(in thousands) $710,569 $740,757 $678,135 $679,143 $687,022 $ 4,208
# 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.
* Excludes expenses in excess of a 1.00% voluntary expense limitation in
effect through 4/30/99.
! Annualized.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Exempt Money Fund
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February 28, 1999
Statement of Net Assets Par Value
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In thousands
ALABAMA 3.4%
Birmingham, GO, VRDN
(Currently 2.95%) $ 4,950 $ 4,950
Jefferson County, GO, VRDN
(Currently 3.00%) 18,500 18,500
Univ. of Alabama, 6 90%, 10/1/99 1,000 1,021
Total Alabama (Cost $24,471) 24,471
ALASKA 0.0%
Valdez Alaska Marine, VRDN
(Currently 3.15%) 200 200
Total Alaska (Cost $200) 200
ARIZONA 0.1%
Salt River Agricultural Improvement
and Power Dist.
TECP, 2.70%, 4/6/99 1,000 1,000
Total Arizona (Cost $1,000) 1,000
CALIFORNIA 1.7%
Alameda County, GO, TAN,
4.50%, 7/7/99 3,000 3,009
Los Angeles County Metropolitan
Transportation Auth. VRDN
(Currently 2.95%) (AMBAC Insured) 8,960 8,960
Total California (Cost $11,969) 11,969
COLORADO 1.3%
Colorado, GO, TRAN
4.00%, 6/25/99 3,500 3,505
4.25%, 6/25/99 3,500 3,507
Denver, IDR, W. W. Grainger,
VRDN (Currently 3.05%) 2,190 2,190
Total Colorado (Cost $9,202) 9,202
CONNECTICUT 0.1%
Connecticut, GO, 6.70%, 8/1/99 500 507
Total Connecticut (Cost $507) 507
DELAWARE 0.5%
Delaware, GO
4.90%, 7/1/99 $ 500 $ 503
5.00%, 5/1/99 3,345 3,352
Total Delaware (Cost $3,855) 3,855
DISTRICT OF COLUMBIA 3.2%
Dist. of Columbia
American Univ., VRDN
(Currently 2.95%) 18,835 18,835
TECP, 2.60%, 3/18/99 4,000 4,000
Total District of Columbia (Cost $22,835) 22,835
FLORIDA 0.6%
Florida Board of Ed.
5.00%, 6/1/99 700 702
6.70%, 6/1/03 (Prerefunded 6/1/99!) 1,000 1,028
Jacksonville HFA, Genesis Rehabilitation Hosp.
VRDN (Currently 3.20%) 1,000 1,000
Orange County IDA, W. W. Grainger
VRDN (Currently 3.05%) 1,185 1,185
Total Florida (Cost $3,915) 3,915
GEORGIA 8.5%
DeKalb Private Hosp. Auth.
Childrens Health, VRDN
(Currently 2.95%) 10,000 10,000
Eagleston Children's Hosp.
VRDN (Currently 2.95%) 13,400 13,400
RAC, VRDN (Currently 2.95%) 1,500 1,500
Downtown Savannah Auth., GO, Public Ed.
VRDN (Currently 3.00%) 5,000 5,000
Georgia, GO
VRDN (Currently 3.07%) 4,995 4,995
4.25%, 7/1/99 4,880 4,890
5.80%, 3/1/99 1,400 1,400
7.40%, 8/1/99 2,100 2,140
Georgia Municipal Gas Auth., VRDN
(Currently 2.95%) 485 485
Gwinnett County
Hosp. Auth.
VRDN (Currently 2.95%)
(MBIA Insured) $ 8,000 $ 8,000
School Dist., 4.40%, 2/1/00 7,045 7,126
Metropolitan Atlanta Rapid Transit Auth.
7.10%, 7/1/04 (Prerefunded 7/1/99!) 780 804
7.20%, 7/1/10 (Prerefunded 7/1/99!) 1,000 1,032
Total Georgia (Cost $60,772) 60,772
IDAHO 0.6%
Idaho, GO, TAN, 4.50%, 6/30/99 4,000 4,012
Total Idaho (Cost $4,012) 4,012
ILLINOIS 13.1%
Chicago Water, 5.00%, 11/1/99
(FGIC Insured) 1,200 1,215
Chicago Metropolitan Water Reclamation Dist.,
4.70%, 12/1/99 375 379
Illinois, GO
4.00%, 5/1/99 500 500
5.25%, 4/1/99 750 752
5.60%, 10/1/99 1,000 1,015
6.30%, 8/1/99 2,000 2,026
Anti Pollution, 9.50%, 11/1/99 1,000 1,042
Illinois Dev. Fin. Auth., Palos Community Hosp.
VRDN (Currently 2.95%) 26,900 26,900
Illinois EFA
Hosp. Sisters Services, 3.70%, 6/1/99 1,185 1,185
Northwestern Univ.,
VRDN (Currently 2.90%) 14,750 14,750
Illinois HFA
Advocate Health Care Network
VRDN (Currently 3.05%) 10,000 10,000
Children's Memorial Hosp.
VRDN (Currently 2.85%) 4,800 4,800
Little County of Mary Hosp.
VRDN (Currently 3.00%) (MBIA Insured) 12,955 12,955
Masonic Medical Center, 7.70%, 10/1/99 1,000 1,044
Illinois HFA
Resurrection Health Care Systems
VRDN (Currently 3.25%) $ 7,300 $ 7,300
Univ. of Chicago Hosp.
VRDN (Currently 3.00%) (MBIA Insured) 1,000 1,000
Illinois Sales Tax
6.70%, 6/15/99 (Escrowed to Maturity) 2,000 2,017
6.80%, 6/15/99 500 515
7.00%, 6/15/99 1,000 1,012
7.10%, 6/15/99 500 516
7.25%, 6/15/99 1,615 1,667
Niles Village, IDR, W. W. Grainger,
VRDN (Currently 3.05%) 1,000 1,000
Total Illinois (Cost $93,590) 93,590
INDIANA 0.2%
Gary, IDR, W. W. Grainger,
VRDN (Currently 3.05%) 730 730
Indiana HFA, Charity Obligation Group
VRDN (Currently 2.95%) 800 800
Total Indiana (Cost $1,530) 1,530
IOWA 1.6%
Iowa Fin. Auth., Iowa Health System
VRDN (Currently 3.00%) (AMBAC Insured) 8,300 8,300
Sheldon, Sioux Valley Hosp.,
VRDN (Currently 3.20%) 3,330 3,330
Total Iowa (Cost $11,630) 11,630
KANSAS 0.1%
Kansas DOT, 3.65%, 9/1/99 1,000 1,000
Total Kansas (Cost $1,000) 1,000
KENTUCKY 0.9%
Jefferson County, TECP, 3.05%, 3/8/99 2,000 2,000
Kentucky Economic Dev. Fin. Auth.,
Health Alliance
VRDN (Currently 2.90%) (MBIA Insured) 1,160 1,160
Univ. of Kentucky, Community Colleges
7.20%, 5/1/07 (Prerefunded 5/1/99!) $ 1,415 $ 1,453
7.20%, 5/1/08 (Prerefunded 5/1/99!) 1,500 1,540
Total Kentucky (Cost $6,153) 6,153
LOUISIANA 4.2%
Jefferson Sales Tax, 8.00%, 7/1/99 1,985 2,017
Louisiana Offshore Terminal Auth., VRDN
(Currently 3.20%) 2,500 2,500
Louisiana PFA
Sisters of Charity, VRDN (Currently 2.95%) 1,000 1,000
Willis Knighton Medical Center
VRDN (Currently 3.10%) (AMBAC Insured) 16,200 16,200
TECP, 3.00 - 3.05%, 4/6 - 6/16/99 6,400 6,400
New Orleans Aviation Board
VRDN (Currently 3.00%) (MBIA Insured) 1,900 1,900
Total Louisiana (Cost $30,017) 30,017
MAINE 0.2%
Maine, GO, 6.10%, 7/1/99 1,500 1,512
Total Maine (Cost $1,512) 1,512
MARYLAND 12.3%
Baltimore County, GO
4.50%, 7/1/99 4,000 4,010
5.00%, 6/1/99 1,145 1,151
BAN, TECP, 2.90%, 3/4/99 11,100 11,100
Gaithersburg Economic Dev., Asbury Methodist
VRDN (Currently 3.00%) (MBIA Insured) 8,200 8,200
Howard County, GO,
Consolidated Public Improvement
6.90%, 5/15/99 1,000 1,007
Maryland, GO
6.40%, 7/1/99 2,000 2,018
6.40%, 7/15/99 500 506
6.50%, 3/1/99 7,750 7,750
6.50%, 7/15/01 (Prerefunded 7/15/99!) 3,000 3,056
Maryland DOT
6.50%, 11/1/99 $ 2,750 $ 2,814
6.60%, 11/1/00 (Prerefunded 11/1/99!) 2,500 2,576
6.625%, 8/15/03 (Prerefunded 8/15/99!) 500 516
6.70%, 8/15/05 (Prerefunded 8/15/99!) 1,000 1,034
Maryland Economic Dev., Chesapeake Bay Foundation
VRDN (Currently 2.90%) 700 700
Maryland HHEFA
Charlestown Community
VRDN (Currently 2.95%) 475 475
Johns Hopkins Univ., 6.20%, 7/1/99 10,255 10,255
Pooled Loan Program
VRDN (Currently 2.95%) 4,000 4,000
Maryland Water Quality, 6.50%, 9/1/99 1,110 1,130
Maryland-National Capital Park
and Planning Commission, GO
Prince George's County, 5.50%, 1/15/00 1,000 1,021
Montgomery County, GO
6.25%, 6/15/99 1,000 1,009
Consolidated Public Improvement
6.80%, 11/1/05 (Prerefunded 11/1/99!) 1,500 1,567
6.80%, 11/1/07 (Prerefunded 11/1/99!) 1,000 1,045
6.80%, 11/1/08 (Prerefunded 11/1/99!) 1,000 1,042
Montgomery County Economic Dev. Auth.
Howard Hughes Medical Fac.
VRDN (Currently 2.95%) 8,400 8,400
Prince George's County IDA,
Upper Marlboro Justice Center
7.00%, 6/30/19 (MBIA Insured)
(Prerefunded 6/30/99!) 2,000 2,063
Univ. of Maryland
Auxiliary Fac. and Tuition
7.00%, 10/1/05 (Prerefunded 10/1/99!) 500 520
Equipment Loan Program
VRDN (Currently 2.90%) 5,000 5,000
Washington Suburban Sanitary Dist., GO
4.00%, 6/1/99 1,000 1,003
Washington Suburban Sanitary Dist., GO
5.35%, 6/1/99 $ 500 $ 503
6.75%, 12/1/99 2,025 2,120
Total Maryland (Cost $87,591) 87,591
MASSACHUSETTS 1.6%
Massachusetts, GO
5.50%, 7/1/99 9,940 10,004
6.10%, 8/1/99 1,000 1,010
Consolidated Loan, 6.25%, 7/1/99 500 506
Total Massachusetts (Cost $11,520) 11,520
MICHIGAN 1.0%
Detroit City School Dist., RAN,
4.50%, 7/1/99 3,000 3,008
Univ. of Michigan, VRDN
(Currently 2.90%) 1,000 1,000
Univ. of Michigan Hosp., VRDN
(Currently 3.20%) 1,400 1,400
Univ. of Michigan Medical Service Plan
VRDN (Currently 3.20%) 1,425 1,425
Total Michigan (Cost $6,833) 6,833
MINNESOTA 1.8%
Cottage Grove, PCR,
Minnesota Mining and Mfg.
VRDN (Currently 2.916%) 1,000 1,000
Minnesota, GO
VRDN (Currently 3.07%) 2,700 2,700
6.60%, 8/1/02 (Prerefunded 8/1/99!) 1,225 1,240
6.625%, 8/1/04 (Prerefunded 8/1/99!) 500 507
Rochester Healthcare Fac., Mayo Foundation
TECP, 2.45%, 3/11/99 5,000 5,000
Minnesota PFA, Water Pollution
VRDN (Currently 3.07%) 2,300 2,300
Total Minnesota (Cost $12,747) 12,747
MISSISSIPPI 1.7%
Jackson County, Refunding Water Systems,
4.20%, 8/1/99 4,200 4,200
Mississippi, GO
5.00%, 7/1/99 $ 3,780 $ 3,796
Capital Improvement, 6.70%, 10/1/99 1,000 1,021
Community & Junior College, 6.25%, 5/1/99 1,160 1,166
Rankin County, PCR, Siemens
Energy and Automation
VRDN (Currently 3.00%) 1,600 1,600
Total Mississippi (Cost $11,783) 11,783
MISSOURI 1.7%
Missouri HEFA
Sisters of Mercy Health Systems, 4.25%, 12/1/99 1,000 1,008
St. Anthony's Medical Center
VRDN (Currently 2.95%) 11,300 11,300
Total Missouri (Cost $12,308) 12,308
NEW MEXICO 1.5%
Albuquerque, GO, 4.60%, 7/1/99 500 503
Albuquerque, Sales Tax, 5.75%, 7/1/99
(Escrowed to Maturity) 500 504
New Mexico, GO, TRAN
3.75%, 6/30/99 5,000 5,013
4.25%, 6/30/99 5,000 5,010
Total New Mexico (Cost $11,030) 11,030
NEW YORK 1.2%
City of Rochester, TECP,
2.45%, 3/11/99 5,000 5,000
New York City, VRDN (Currently 3.01%)
(MBIA Insured) 3,700 3,700
Total New York (Cost $8,700) 8,700
NORTH CAROLINA 3.2%
Charlotte Mecklenburg Hosp. Auth.
North Carolina Health Care
VRDN (Currently 2.85%) 4,740 4,740
VRDN (Currently 2.95%) 1,600 1,600
North Carolina, GO, Public Improvement,
5.50%, 8/1/99 1,000 1,011
North Carolina EFA,
Bowman Gray School of Medicine
VRDN (Currently 2.90%) 950 950
Raleigh, Equipment Acquisition Project, COP,
3.00%, 12/1/99 500 500
Winston Salem, GO
VRDN (Currently 2.90%) $ 10,800 $ 10,800
COP, VRDN (Currently 2.90%) 3,450 3,450
Total North Carolina (Cost $23,051) 23,051
OHIO 2.1%
Clermont County, Mercy Health System
VRDN (Currently 2.95%) 2,900 2,900
Cuyahoga County Hosp.,
Cleveland Clinic Foundation
VRDN (Currently 2.90%) (AMBAC Insured) 965 965
Franklin County Hosp., U.S. Health,
VRDN (Currently 2.95%) 1,945 1,945
Hamilton County Hosp. Fac., Health Alliance
VRDN (Currently 2.90%) 2,000 2,000
Lorain County Hosp., Catholic Partners
VRDN (Currently 2.95%) 2,600 2,600
Ohio Public Fac., Higher Ed.,
4.75%, 5/1/99 3,000 3,005
Univ. of Cincinnati, 7.10%, 6/1/10
(Prerefunded 6/1/99!) 1,750 1,801
Total Ohio (Cost $15,216) 15,216
OREGON 0.1%
Oregon, GO, 5.90%, 2/1/00 500 512
Total Oregon (Cost $512) 512
PENNSYLVANIA 2.7%
Doylestown Hosp. Auth.
VRDN (Currently 2.95%) (AMBAC Insured) 2,000 2,000
Geisinger Auth., 6.50%, 7/1/07
(Prerefunded 7/1/99!) 1,695 1,713
Montgomery County, IDA, W. W. Grainger
VRDN (Currently 3.05%) 1,230 1,230
Northampton County Higher Ed., Lafayette College
VRDN (Currently 3.00%) 6,300 6,300
Pennsylvania, GO, 6 00%, 9/15/99 1,500 1,524
Pennsylvania Turnpike Commission
7.25%, 12/1/99 1,000 1,050
7.50%, 12/1/19 (Prerefunded 12/1/99!) 500 526
Philadelphia, GO, TRAN, 4.25%, 6/30/99 $ 3,000 $ 3,006
Pittsburgh Water & Sewer Auth.,
7.40%, 9/1/99 2,000 2,043
Total Pennsylvania (Cost $19,392) 19,392
SOUTH CAROLINA 1.1%
Spartanburg County, Siemens Energy and Automation
VRDN (Currently 3.00%) 6,400 6,400
York County PCR, TECP, 3.10%, 3/18/99 1,000 1,000
Total South Carolina (Cost $7,400) 7,400
SOUTH DAKOTA 2.1%
South Dakota HEFA
Sioux Valley Hosp.
VRDN (Currently 3.00%) 5,900 5,900
VRDN (Currently 3.20%) 9,045 9,045
Total South Dakota (Cost $14,945) 14,945
TENNESSEE 1.6%
Knox County Health, Ed. and Housing Fac.
Baptist Health System, 8.60%, 4/15/99 2,005 2,059
Mercy Health, VRDN (Currently 2.95%) 3,700 3,700
Nashville and Davidson County
6.60%, 12/1/08 (Prerefunded 12/1/99!) 500 522
GO, Public Improvement, 5.50%, 5/15/99 1,130 1,134
Vanderbilt Univ., 3 10%, 1/15/00 2,500 2,500
Shelby County, 6.50%, 3/1/99 1,500 1,530
Total Tennessee (Cost $11,445) 11,445
TEXAS 10.6%
Dallas County Community College Dist.
VRDN (Currently 3.05%) 14,800 14,800
Dallas Independent School Dist.,
3.75%, 3/1/00 1,200 1,208
Gulf Coast Texas Waste Disposal Auth.,
Exxon Project
VRDN (Currently 2.95%) 8,900 8,900
Harris County, GO
VRDN (Currently 2.85%) 15,000 15,000
5.80%, 10/1/99 1,000 1,016
Harris County Health Fac. Dev.
Memorial Hosp.
VRDN (Currently 3.00%) (MBIA Insured) $ 7,200 $ 7,200
St. Luke's Episcopal Hosp.
VRDN (Currently 3.35%) 5,500 5,500
Midland, IDR, W. W. Grainger,
VRDN (Currently 3.05%) 775 775
Southwest Higher Ed. Auth.,
Southern Methodist Univ.
VRDN (Currently 3.00%) 5,900 5,900
Texas TRAN, 4.50%, 8/31/99 1,700 1,713
Texas PFA, GO
4.40%, 10/1/99 3,400 3,429
8.00%, 10/1/99 3,930 4,042
TECP, 3.00%, 5/7/99 5,000 5,000
Travis County HFA, Charity Obligation Group
VRDN (Currently 2.95%) 1,000 1,000
Total Texas (Cost $75,483) 75,483
UTAH 3.0%
Intermountain Power Agency
TECP, 2.65-3.30%, 3/5-3/25/99 4,800 4,800
VRDN (Currently 3.30%) 10,000 10,000
Utah, GO, 4.40%, 7/1/99 5,400 5,417
Utah Board of Regents, Auxiliary and Campus Fac
VRDN (Currently 3.00%) 1,400 1,400
Total Utah (Cost $21,617) 21,617
VIRGINIA 5.7%
Chesterfield County, GO
7.10%, 3/1/00 (Prerefunded 3/1/99!) 1,095 1,117
Fairfax County, 5.75%, 4/1/01
(Prerefunded 4/1/99!) 1,000 1,007
Fairfax County IDA, Fairfax Hosp. System
6.10%, 8/15/99 (Escrowed to Maturity) 1,000 1,014
Newport News, BAN, VRDN (Currently 3.05%) 10,000 10,000
Richmond, GO, BAN, VRDN (Currently 2.95%) 19,200 19,200
Roanoke IDA, Carilion Health,
VRDN (Currently 3.30%) 3,200 3,200
Rockingham County IDA, Merck and Co.
VRDN (Currently 3.15%) $ 2,400 $ 2,400
Virginia, GO, 6.50%, 6/1/06
(Prerefunded 6/1/99!) 1,000 1,027
Virginia Beach, Refunding &
Public Improvement
4.50%, 8/1/99 1,000 1,006
Virginia Public Building Auth.,
4.75%, 8/1/99 400 403
Virginia Transportation Board,
5.00%, 5/15/99 555 557
Total Virginia (Cost $40,931) 40,931
WASHINGTON 2.7%
Washington GO
5.00%, 5/1/99 2,000 2,006
6.00%, 9/1/99 (Escrowed to Maturity) 645 654
6.50%, 8/1/99 2,900 2,941
6.70%, 10/1/99 3,000 3,056
Washington Public Power Supply
VRDN (Currently 3.01%) 3,340 3,340
3.00%, 10/6/99 7,000 7,000
4.75%, 7/1/99 500 502
Total Washington (Cost $19,499) 19,499
WISCONSIN 2.0%
Milwaukee, GO
5.70%, 6/1/99 2,000 2,012
6.25%, 12/1/99 900 922
Corporation Purpose, 3.75%, 12/15/99 1,565 1,573
Wisconsin, GO
4.25%, 5/1/99 1,000 1,001
6.30%, 5/1/99 2,000 2,009
6.50%, 5/1/02 (Prerefunded 5/1/99!) 2,500 2,539
6.75%, 5/1/09 (Prerefunded 5/1/99!) 1,600 1,626
Wisconsin HEFA
St. Lukes Medical Center
7.375%, 8/15/07 (MBIA Insured)
(Prerefunded 8/15/99!) 1,250 1,295
7.40%, 8/15/19 (MBIA Insured)
(Prerefunded 8/15/99!) 1,600 1,658
Total Wisconsin (Cost $14,635) 14,635
Total Investments in Securities
100.0% of Net Assets (Cost $714,808) $ 714,808
Other Assets Less Liabilities (31)
NET ASSETS $ 714,777
----------
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ 151
Accumulated net realized gain/loss -
net of distributions 20
Paid-in-capital applicable to $0.01
par value capital stock outstanding;
5,000,000,000 shares authorized 714,606
NET ASSETS $ 714,777
----------
NET ASSET VALUE PER SHARE
TAX-EXEMPT SHARES
($710,568,778/710,600,980
SHARES OUTSTANDING) $ 1.00
----------
TAX-EXEMPT PLUS SHARES
($4,208,294/4,208,281
SHARES OUTSTANDING) $ 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
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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Statement of Operations
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In thousands
Year
Ended
2/28/99
Investment Income
Interest income $ 26,031
Expenses
Investment management 3,177
Shareholder servicing
Tax-Exempt Shares 466
Tax-Exempt PLUS Shares 4
Custody and accounting 151
Registration 46
Prospectus and shareholder reports 44
Legal and audit 15
Proxy and annual meeting 15
Directors 11
Miscellaneous 14
Total expenses 3,943
Expenses paid indirectly (3)
Net expenses 3,940
Net investment income 22,091
Realized Gain (Loss)
Net realized gain (loss) on securities 20
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 22,111
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The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Exempt Money Fund
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Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
Year
Ended
2/28/99 2/28/98
Increase (Decrease) in Net Assets
Operations
Net investment income $ 22,091 $ 22,487
Net realized gain (loss) 20 53
Increase (decrease) in net
assets from operations 22,111 22,540
Distributions to shareholders
Net investment income
Tax-Exempt shares (22,083) (22,487)
Tax-Exempt PLUS shares (8) --
Increase (decrease) in net
assets from distributions (22,091) (22,487)
Capital share transactions*
Shares sold
Tax-Exempt shares 684,304 691,676
Tax-Exempt PLUS shares 5,383 --
Increase (decrease) in net
assets from shares sold 689,687 691,676
Distributions reinvested
Tax-Exempt shares 20,754 21,239
Tax-Exempt PLUS shares 8 --
Increase (decrease) in net assets from
distributions reinvested 20,762 21,239
Shares redeemed
Tax-Exempt shares (735,267) (650,346)
Tax-Exempt PLUS shares (1,182) --
Increase (decrease) in net
assets from shares redeemed (736,449) (650,346)
Increase (decrease) in net
assets from capital
share transactions (26,000) 62,569
Net Assets
Increase (decrease) during period (25,980) 62,622
Beginning of period 740,757 678,135
End of period $ 714,777 $ 740,757
---------------------------------
* Capital share transactions at net asset value of $1.00 per share
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Exempt Money Fund
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February 28, 1999
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 fund
offers two classes of shares, Tax-Exempt and Tax-Exempt PLUS. Tax-Exempt
PLUS Shares were first offered on November 1, 1998 and provides expanded
shareholder services, the cost of which is borne by the PLUS shareholders.
Each class has exclusive voting rights on matters related solely to that
class, separate voting rights on matters which relate to both classes, and,
in all other respects, the same rights and obligations as the other class.
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.
Class Accounting Shareholder servicing expenses are charged directly to
the class to which they relate. Expenses common to both classes, investment
income, and realized gains and losses are allocated to the classes based
upon the relative daily net assets of each class. Income distributions are
declared by each class on a daily basis, and paid monthly. Capital gain
distributions, if any, are declared by the fund on an annual basis.
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. Expenses paid indirectly are
custody fees paid with credits earned on daily residual cash balances at
the custodian, used to reduce the fund's custody charges.
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.
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, 1999. The
results of operations and net assets were not affected by the
increases/(decreases) to these accounts.
---------------------------------------------------------------------------
Undistributed net investment income $ 9,000
Paid-in-capital (9,000)
At February 28, 1999, the cost of investments for federal income tax
purposes was substantially the same as for financial reporting and totaled
$714,808,000.
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 $244,000 was payable at February 28, 1999. 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, 1999, 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.
The manager has agreed to bear any expenses through April 30, 1999, which
would cause Tax-Exempt PLUS' ratio of expenses to average net assets to
exceed 1.00%. Thereafter, through April 30, 2000, Tax-Exempt PLUS is
required to reimburse the manager for these expenses, provided that its
average net assets have grown or expenses have declined sufficiently to
allow reimbursement without causing its ratio of expenses to average net
assets to exceed 1.00%.
T. Rowe Price Tax-Exempt Money Fund
- --------------------------------------------------------------------------------
In addition, the fund has entered into agreements with the manager and a
wholly owned subsidiary of the manager, pursuant to which the fund receives
certain other services. The manager computes the daily share price and
maintains the financial records of the fund. T. Rowe Price Services, Inc.,
is the fund's transfer and dividend disbursing agent and provides
shareholder and administrative services to the fund. The fund incurred
expenses pursuant to these related party agreements totaling approximately
$428,000 for the year ended February 28, 1999, of which $30,000 was payable
at period end.
Tax Information (Unaudited) for the Tax Year Ended 2/28/99
- --------------------------------------------------------------------------------
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 $22,347,000 which qualified as exempt-
interest dividends.
- --------------------------------------------------------------------------------
T. Rowe Price Tax-Exempt Money Fund
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
T. Rowe Price Tax-Exempt Money Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position
of T. Rowe Price Tax-Exempt Money Fund, Inc. (the "Fund") at February 28,
1999, and the results of its operations, the changes in its net assets and
the financial highlights for each of the fiscal periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at February 28, 1999 by correspondence
with the custodian, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
March 17, 1999
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
BROKERAGE SERVICES*
Individual Investments Stocks, bonds, options, precious metals, and other
securities at a savings over full-service 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.
* T. Rowe Price Brokerage is 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 Growth & Income
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 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 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
* Closed to new investors. ** Formerly named Florida Insured Intermediate
Tax-Free. *** Formerly named Tax-Free Insured Intermediate Bond.
! Formerly named Global Government Bond. !! Investments in the funds are not
insured or guaranteed by the FDIC or any other government agency. Although
the funds seek to preserve the value of your investment at $1.00 per share, it
is possible to lose money by investing in the funds.
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.
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 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
4200 West Cypress St.
10th Floor
Tampa, FL 33607
Invest With Confidence(registered trademark)
T. Rowe Price Investment Services, Inc., Distributor. F52-050 2/28/99
THE SHAREHOLDER LETTER AND REPORT FOR THE COMBINED TAX-FREE FUNDS ARE ATTACHED
HERE BY ACCESSING THE FOLLOWING:
Annual Report
Tax-Free
Funds
February 28, 1999
T. Rowe Price
Report Highlights
- --------------------------------------------------------------------------------
Tax-Free Funds
o Municipal bonds were relatively unscathed by the turmoil in other fixed
income markets and were less volatile than Treasuries.
o The Tax-Exempt Money, Tax-Free Short-Intermediate, Tax-Free Intermediate
Bond, Tax-Free Income, and Tax-Free High Yield Funds outpaced their
respective Lipper benchmarks for both the 6- and 12-month periods.
o The funds' good performances were due primarily to management decisions and
low fund expenses.
o All funds benefited from their longer relative maturities and durations
when interest rates fell, and also from careful credit selection.
o We expect continued low inflation and slowing economic growth to benefit
municipal securities, which still carry attractive yields relative to other
fixed income investments.
Fellow Shareholders
The fixed income markets and your funds generated good returns for the 6- and
12-month periods ended February 28, 1999. The Tax-Exempt Money, Tax-Free
Short-Intermediate, Tax-Free Intermediate Bond, Tax-Free Income, and Tax-Free
High Yield Funds surpassed their respective benchmarks in both periods, a
reflection of our management decisions and below-average expenses.
Municipal bonds moved through the past year relatively unscathed by the turmoil
that hit other fixed income markets. The municipal market was far less volatile
than the Treasury market, which benefited from a massive flight to quality that
drove 30-year yields to a record low of 4.72% in October from 5.92% last
February. Municipal yields also fell, but the decline was more muted as
long-term rates dropped to 4.64% in October from 5.08% last February. As a
result, municipal yields approached parity with Treasury yields especially in
longer maturities, an unusual event in a year when major tax reform was not
under discussion.
MARKET ENVIRONMENT
Municipal Bond and Note Yields
- --------------------------------------------------------------------------------
30-Year AAA 5-Year AAA 1-Year Moody's
General General Investment
Obligation Obligation Grade 1Note
2/28/98 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
4.82 3.70 3.30
4.92 3.70 2.95
11/98 4.89 3.75 3.05
4.94 3.75 3.05
4.87 3.65 2.95
2/99 4.99 3.78 3.00
Source: T. Rowe Price Associates
Major economic developments here and overseas during the fiscal year affected
the fixed income markets. In the first half, many economists expected the global
turmoil to have a negative impact on the U.S. economy, causing interest rates to
fall. Russia's debt default last summer created havoc in many markets, leading
to a global liquidity crisis that contributed to the flight to U.S. Treasuries.
In response, the Federal Reserve cut short-term rates three times last fall to
cushion the domestic economy from weakness abroad and restore investor
confidence. In December, yields began to move up following signs of
stronger-than-expected U.S. growth and a growing sense that the global liquidity
crisis had abated. Robust GDP growth of 6.1% in the fourth quarter added fuel to
the fire, and by the end of February 30-year Treasury yields were nearly 100
basis points (one percentage point) higher than in October. Municipal yields
also rose but, once again, they were far less volatile.
Lower-quality municipal bonds also escaped major damage. In response to the
liquidity crisis, the taxable markets-including corporate, mortgage, and
emerging market bonds-came under severe pressure in the third quarter, and
differences in yield between high- and low-quality bonds (yield spreads) widened
abruptly. Lower-quality, high-yield municipals experienced only a modest
widening in yield spreads, mainly because of limited supply in this area of the
market and less sensitivity to global events. While high-yield returns suffered
modestly, this followed several years of above-average returns.
Overall, municipal yields did not change significantly from February 1998 to
February 1999 except for one-year rates, as can be seen in the chart on page 1.
In the money market area, solid cash flow and the lowest level of new issuance
in nine years led to lower yields. A steeper yield curve resulted as money
market and short-term bonds reacted to the Federal Reserve's rate cuts and to
strong demand, while long-term rates were more affected by heavy bond sales.
During the past six months, intermediate-term bonds turned in the best
performance. For the calendar year, new bond issuance reached $284 billion, up
29% from 1997, a level surpassed only in 1993.
High Ratings for Risk-Adjusted Returns
- --------------------------------------------------------------------------------
The four bond funds received a high Morningstar Rating(trademark) for their
risk-adjusted performance, which reflects the degree of volatility experienced
in earning a particular return. (Money funds are not rated.) As of February 28,
1999, the Tax-Free High Yield Fund had five stars overall, and the Tax- Free
Short-Intermediate Fund, Tax-Free Intermediate Bond Fund, and Tax-Free Income
Fund all received four stars. The top 10% of the funds in each investment
category receive five stars, the next 22.5% receive four stars, and the next 35%
receive three stars. The funds were rated among 1,576, 1,109, and 369 municipal
fixed income funds for the 3-, 5-, and 10-year periods ended February 28, 1999,
respectively. Of course, past trends may not continue.
Morningstar proprietary ratings reflect historical risk-adjusted performance as
of 2/28/99 and may change monthly. Ratings are calculated from the funds' 3-,
5-, and 10-year average annual returns in excess of 90-day Treasury bill returns
with appropriate fee adjustments and a risk factor that reflects fund
performance below 90-day Treasury bill returns. The Tax-Free High Yield Fund
received 5 stars for the 3-, 5-, and 10-year periods; Tax-Free Income 4 stars
for the 3- and 5- year periods and 3 stars for the 10-year period; Tax-Free
Intermediate Bond 3 and 4 stars for the 3- and 5-year periods; and Tax-Free
Short-Intermediate 4, 5, and 4 stars for the 3-, 5-, and 10-year periods,
respectively.
As mentioned, each fund was in the lowest expense quartile (25%) of its Lipper
category as of February 28. For a discussion of the new Tax-Exempt Money Fund
PLUS Class shares, see the shaded box on page 4.
TAX-EXEMPT MONEY FUND AND PLUS SHARES
Performance Comparison
- --------------------------------------------------------------------------------
Since Inception*
Periods Ended 2/28/99 6 Months 12 Months (PLUS Shares)
- --------------------------------------------------------------------------------
Tax-Exempt Money Fund 1.38% 2.97% -
Tax-Exempt Money Fund
PLUS Class - - 0.74%
Lipper Tax-Exempt Money
Market Funds Average 1.31 2.81 0.82
*11/1/98
The Tax-Exempt Money Fund posted good results relative to its peer group average
for both the 6- and 12-month periods ended February 28. Since its inception on
November 1, 1998, the Tax-Exempt Money Fund PLUS shares returned 0.74%, behind
the return of the Lipper average due to the higher expenses that accompany their
additional services.
Three consecutive easings in the fall by the Federal Reserve, amounting to a
total of 75 basis points, set the tone for the short-term tax-exempt market. At
the end of the fiscal year, the one-year yield was 60 basis points lower than it
was a year earlier, with most of the move occurring in the last six months.
Tax-Exempt Money Fund PLUS Class
- --------------------------------------------------------------------------------
Starting November 1, 1998, we created a new class of shares called The Tax-
Exempt Money - PLUS Class. The share class is offered as part of our new Asset
Manager Account, which incorporates a number of additional services, such as
unlimited checkwriting and a debit card. Both the Tax-Exempt Money Fund and
Tax-Exempt Money - PLUS are based on the same portfolio, and as such will be
reported on together in future annual and semiannual reports. However,
performance will differ because the classes of shares have different expense
ratios. Tax-Exempt Money - PLUS will have no impact on the expenses, share
price, or yield of the original Tax-Exempt Money Fund.
Note: To request a prospectus for any T. Rowe Price fund, please call 1-800-
638-5660. Read the prospectus carefully before investing.
Money market funds benefited from the volatility in other markets. As investors
shifted assets to safer havens, total money fund assets ballooned to a record
$1.4 trillion, an increase of 26% during the fiscal year. However, tax-exempt
money funds expanded at half the rate of the total industry-a result of reduced
demand due to lower tax-exempt money yields versus comparable taxable yields.
The improved financial condition of many municipalities, along with low
long-term rates, drastically reduced the short-term borrowing needs of issuers.
Annual municipal note issuance dipped to its lowest level since 1989. Reduced
supply and steady demand kept rates low versus taxable alternatives, which meant
that the tax-exempt money market appealed mostly to investors in high tax
brackets.
Throughout the fiscal year, we maintained a fairly long weighted average
maturity-53 days at the end of February, which was 11 days longer than our peer
group average. We continue to believe that the imbalance between supply and
demand in our specific market, combined with a stable monetary policy and
possible further easing by the Fed if economic growth slows later in the year,
supports our more aggressive stance.
TAX-FREE SHORT-INTERMEDIATE FUND
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 2/28/99 6 Months 12 Months
- --------------------------------------------------------------------------------
Tax-Free Short-Intermediate Fund 2.39% 4.90%
Lipper Short-Intermediate
Municipal Debt Funds Average 2.08 4.43
Your fund posted solid results that surpassed the Lipper Short-Intermediate
Municipal Debt Funds Average for both the 6- and 12-month periods ended February
28, 1999. Maintaining a slightly longer duration and a low expense ratio
enhanced returns. (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.)
Our duration strategy reflected several factors: the absence of any inflationary
pressures, the global demand for U.S. Treasuries resulting from problems
overseas, and the exceptional value offered in the municipal market due to
imbalances in supply and demand. Our long position was rewarded in the fall when
the Federal Reserve cut short-term interest rates. As economic growth in the
fourth quarter exceeded expectations and global turmoil subsided, Treasury
yields began to rise. Maturities within five years, which had been yielding less
than the federal funds rate, rose above the fed funds rate and resulted in a
positively sloped yield curve. This shift reflected the change in investor focus
from the global crisis to an accommodative Fed and a potential pickup in
inflation.
Nevertheless, we maintained our relatively long duration even as Treasury yields
were rising from their October lows. Municipal yields had not fallen as far and
looked exceptionally attractive. In addition, we anticipated increasing demand
for municipals and a drop in supply over the holiday season; supply has remained
below expectations during the first two months of 1999.
Recently, relative yields have moved closer to historic averages as municipals
outperformed Treasuries. While we had a fairly long duration at the end of the
period, we have since been reducing it. However, we expect to take advantage of
any increase in yields to extend it again, since we anticipate continued low
inflation and interest rates in the months ahead.
TAX-FREE INTERMEDIATE BOND FUND
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 2/28/99 6 Months 12 Months
- --------------------------------------------------------------------------------
Tax-Free Intermediate Bond Fund 2.26% 5.37%
Lipper Intermediate
Municipal Debt Funds Average 2.15 5.05
Your fund posted good returns and outperformed the Lipper Intermediate Municipal
Debt Funds Average for both the 6- and 12-month periods. Our duration strategy
over the past six months was similar to that of the Tax-Free Short-Intermediate
Fund (see report on that fund for an explanation). As short-term rates fell more
than long-term rates, short bonds appreciated while longer bonds actually
depreciated, but the changes were modest. Five-year general obligation (GO)
yields were down seven basis points while 30-year GO yields rose six, which
meant that a fund's return was largely determined by its position along the
yield curve. In our case, we favored five-year bonds because we thought 10-year
maturities were overvalued, and the steepening yield curve was beneficial to
five-year maturities. Since the yield curve has recently begun to steepen even
further, we anticipate buying bonds with longer maturities and have begun to
favor 10-year bonds.
At the annual shareholders meeting in October, we received approval to remove
the insurance requirement for the fund and changed the fund's name to reflect
the new policy. We will continue to hold 95% of assets rated AAA or AA by at
least one national rating organization (Standard & Poor's, Moody's, or a similar
service), and up to 5% may be rated A at the time of purchase. We believe this
will allow for more prudent diversification among a variety of high-quality
issuers.
Our current strategy is to reduce exposure to insured bonds over time in a
manner that neither reduces income nor results in significant realized capital
gains. We sold three insured credits-hospital, solid-waste facility, and
start-up toll road securities-primarily because they allowed us to reach our
duration goals and we considered them overvalued compared with other bonds.
TAX-FREE INCOME FUND
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 2/28/99 6 Months 12 Months
- --------------------------------------------------------------------------------
Tax-Free Income Fund 1.91% 5.48%
Lipper General Municipal
Debt Funds Average 1.76 4.88
The fund had several goals for the past year: managing exposure to interest
rates with steady, gradual shifts in duration; preserving tax-free income as
lower rates and maturing older, higher-yielding bonds eroded the fund's yield;
and seeking good diversification among issuers and bond insurers in the
portfolio. The strategy along with low expenses paid off, and performance
surpassed the Lipper average for both periods shown in the table.
The fund's duration (defined in the Tax-Free Short-Intermediate Fund section),
which was extended last June to a more aggressive range, was reduced to neutral
in January. Recent concerns about continued economic strength and a shift in the
Federal Reserve's position, from a bias toward easing to a neutral stance, drove
our strategy. We were also aware that, historically, the first quarter has often
not been strong for municipal bonds as supply starts to grow and demand weakens
in anticipation of tax-payment season.
The fund's credit quality remains high at an overall level of AA-. A year ago we
regretted not having more exposure to lower-quality bonds, which had performed
well in a strong economy. However, this sector did not do as well in the past
year, and we saw a modest widening of yield spreads between lower- and
higher-rated bonds. As this trend continues, we are looking for opportunities to
add some lower-rated securities to the portfolio.
During the past six months, we reduced our exposure to hospital bonds and
increased our holdings of general obligation bonds. The hospital industry is
suffering from cost recovery pressures, while tax-supported debt is benefiting
from the strong economy. As always, we are seeking good diversification among
solid credits. While the insurance industry continues to penetrate the municipal
bond market (more than 50% of new issues were insured in 1998), we are also
focused on diversifying exposure among the bond insurers.
TAX-FREE HIGH YIELD FUND
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 2/28/99 6 Months 12 Months
- --------------------------------------------------------------------------------
Tax-Free High Yield Fund 1.57% 4.80%
Lipper High Yield Municipal
Debt Funds Average 1.46 4.51
The municipal high-yield market trailed the higher-quality market from the
summer of 1998 through the end of February. Total returns were still positive,
however, unlike those of our counterparts in the corporate bond market.
Performance for the year was bolstered by our strategy of steadily increasing
duration (see the report for the Tax-Free Short-Intermediate Fund for an
explanation of duration) to benefit from the drop in interest rates, and the
fund surpassed the average performance of its Lipper peer group in both periods.
Quality Diversification
- --------------------------------------------------------------------------------
Tax-Free High Yield Fund
AAA AA A BBB BB and below
6 25 21 26 22
Based on net assets as of 2/28/99.
Moderate returns in this sector of the municipal market have presented an
opportunity for investors. Compared with our peers, we have been underweighted
in below-investment-grade bonds and can now add selectively to our favorite
issuers at a time when yield spreads are wider than they have been during the
past two to three years. Currently, these holdings represent about 22% of total
assets, and the percentage should rise gradually. We are focusing specifically
on the long-term care, education, and corporate-backed sectors for new purchases
that should benefit from a strong domestic economy.
We are closely watching developments in the hospital sector as it comes under
pressure from increased competition and general overcapacity. Our percentage of
hospital holdings is among the lowest in the fund's history, and we will look to
increase it as opportunities unfold. Our overall strategy is designed to
increase the tax-free yield of the fund in a prudent manner.
Taxable vs. Tax-Exempt Yields
- --------------------------------------------------------------------------------
As of 2/28/99
Treasury Yield Treasury Yield Tax-Exempt
After Paying After Paying AAA General
Income Taxes Income Taxes Obligation
of 31% of 36% Yield
1 Yr 3.34 3.10 2.95
5 Yr 3.59 3.33 3.78
10 Yr 3.64 3.38 4.20
30 Yr 3.85 3.57 4.99
Source: T. Rowe Price Associates
OUTLOOK
Despite the economy's strong momentum from the fourth quarter of 1998 through
the early part of this year, we expect a decline in growth toward a more modest
and sustainable level later this year. We also believe the forces sustaining low
inflation are still in place. The Federal Reserve appears to have adopted a
neutral monetary bias in the belief that the economy contains an equal measure
of upside and downside risks.
So far this year, a decreasing supply of municipal issues combined with strong
demand has helped move tax-exempt yields into more normal relationships with
taxable yields. While Treasury yields across maturities have risen 50 to 60
basis points since the beginning of 1999, municipal yields were mostly
unchanged. The chart on the previous page shows the after-tax yield on Treasury
securities as of February 28, 1999, after paying federal income taxes at various
levels. Overall, municipal securities are still appealing relative to other
fixed income securities, and we are optimistic about their outlook for the rest
of the year.
Respectfully submitted,
Mary J. Miller
Director
Municipal Bond Department
March 19, 1999
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Change in Management
C. Stephen Wolfe stepped down as manager of the Tax-Free High Yield Fund on
March 1, 1999, to devote himself full-time to research on high-yield securities.
He remains a member of the fund's Investment Advisory Committee. William F.
Snider, associate portfolio manager of this fund, has been appointed chairman of
the Tax-Free High Yield Fund's Investment Advisory Committee. He and Patricia S.
Deford will be co-managers of the fund responsible for day-to-day management of
the portfolio. Mr. Snider joined T. Rowe Price in 1991 and also serves as
portfolio manager of the New York and New Jersey Tax-Free Bond Funds. Ms.
Deford, who joined T. Rowe Price in 1990, served as research director for the
firm's municipal department and is vice president of all tax-free funds. Other
members of the fund's Investment Advisory Committee include Konstantine B.
Mallas, Mary J. Miller, William T. Reynolds, and Arthur S. Varnado.
The preceding updates the Tax-Free Funds prospectus of July 1, 1998.
T. Rowe Price Tax-Free Funds
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Portfolio Highlights
- --------------------------------------------------------------------------------
KEY STATISTICS
8/31/98 2/28/99
Tax-Exempt Money Fund
- --------------------------------------------------------------------------------
Price Per Share $ 1.00 $ 1.00
Dividends Per Share
For 6 months 0.016 0.014
For 12 months 0.032 0.029
Dividend Yield (7-Day Compound) * 2.98% 2.54%
Weighted Average Maturity (days) 59 53
Weighted Average Quality ** First Tier First Tier
Tax-Exempt Money Fund PLUS Class Shares
- --------------------------------------------------------------------------------
Price Per Share $ -- $ 1.00
Dividends Per Share
For 6 months -- 0.007!
For 12 months -- --
Dividend Yield (7-Day Compound) * -- 2.07%
Weighted Average Maturity (days) -- 53
Weighted Average Quality ** -- First Tier
(continued on next page)
T. Rowe Price Tax-Free Funds
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Portfolio Highlights
- --------------------------------------------------------------------------------
KEY STATISTICS
x 8/31/98 2/28/99
Tax-Free Short-Intermediate Fund
- --------------------------------------------------------------------------------
Price Per Share $ 5.39 $ 5.39
Dividends Per Share
For 6 months 0.11 0.11
For 12 months 0.22 0.22
Dividend Yield*
For 6 months 4.13% 4.07%
For 12 months 4.24 4.12
30-Day Standardized Yield 3.59 3.16
Weighted Average Maturity (years) 4.4 4.0
Weighted Average Effective Duration (years) 2.9 3.0
Weighted Average Quality *** AA AA
Tax-Free Intermediate Bond Fund
- --------------------------------------------------------------------------------
Price Per Share $ 11.13 $ 11.13
Dividends Per Share
For 6 months 0.24 0.24
For 12 months 0.48 0.48
Dividend Yield *
For 6 months 4.39% 4.39%
For 12 months 4.49 4.42
30-Day Standardized Yield 3.78 3.36
Weighted Average Maturity (years) 8.8 8.5
Weighted Average Effective Duration (years) 5.6 5.4
Weighted Average Quality *** AA AA
(continued on next page)
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
KEY STATISTICS
8/31/98 2/28/99
Tax-Free Income Fund
- --------------------------------------------------------------------------------
Price Per Share $ 10.03 $ 9.94
Dividends Per Share
For 6 months 0.25 0.25
For 12 months 0.51 0.50
Dividend Yield *
For 6 months 5.15% 5.13%
For 12 months 5.31 5.19
30-Day Standardized Yield 4.35 4.11
Weighted Average Maturity (years) 17.1 16.1
Weighted Average Effective Duration (years) 7.6 7.3
Weighted Average Quality *** AA- AA-
Tax-Free High Yield Fund
- --------------------------------------------------------------------------------
Price Per Share $ 12.72 $ 12.53
Dividends Per Share
For 6 months 0.34 0.33
For 12 months 0.68 0.66
Dividend Yield *
For 6 months 5.38% 5.34%
For 12 months 5.55 5.45
30-Day Standardized Yield 4.59 4.46
Weighted Average Maturity (years) 19.4 19.3
Weighted Average Effective Duration (years) 7.3 7.6
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.
! Dividends for the period 11/1/98 to 2/28/99.
T. Rowe Price Tax-Free Funds
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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 the fund's
return.
TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
As of 2/28/99
Lipper
Tax-Exempt
Money Market Tax-Exempt
Funds Average Money Fund
2/28/89 10,000 10,000
2/90 10,591 10,587
2/91 11,162 11,139
2/92 11,598 11,550
2/93 11,878 11,823
2/94 12,105 12,065
2/95 12,414 12,383
2/96 12,828 12,802
2/97 13,204 13,193
2/98 13,613 13,620
2/99 13,999 14,024
TAX-FREE SHORT-INTERMEDIATE FUND
- --------------------------------------------------------------------------------
As of 2/28/99
Lipper Short- Tax-Free
Lehman Intermediate Short-
3-Year Go Municipal Debt Intermediate
Bond Index Funds Average Fund
2/28/89 10,000 10,000 10,000
2/90 10,806 10,750 10,736
2/91 11,710 11,572 11,494
2/92 12,665 12,459 12,291
2/93 13,764 13,548 13,214
2/94 14,243 14,043 13,675
2/95 14,616 14,360 14,073
2/96 15,793 15,376 15,040
2/97 16,520 16,010 15,645
2/98 17,403 16,839 16,470
2/99 18,322 17,626 17,277
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Performance Comparison
- --------------------------------------------------------------------------------
TAX-FREE INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
As of 2/28/99
Lipper
Lehman Intermediate
7-Year Municipal Tax-Free
Municipal Debt Funds Intermediate
Bond Index Average Bond Fund
11/30/92 10,000 10,000 10,000
2/93 10,542 10,537 10,681
2/94 11,008 11,034 11,267
2/95 11,277 11,250 11,566
2/96 12,434 12,276 12,672
2/97 13,050 12,824 13,204
2/98 14,043 13,778 14,168
2/99 14,880 14,500 14,929
TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
As of 2/28/99
Lipper
Lehman General
Municipal Municipal Tax-Free
Bond Debt Funds Income
Index Average Fund
2/28/89 10,000 10,000 10,000
2/90 11,026 10,888 10,815
2/91 12,042 11,781 11,724
2/92 13,245 12,984 12,916
2/93 15,068 14,845 14,838
2/94 15,902 15,654 15,654
2/95 16,202 15,791 15,951
2/96 17,991 17,387 17,595
2/97 18,982 18,217 18,441
2/98 20,717 19,932 21,070
2/99 21,991 20,950 21,275
T. Rowe Price Tax-Free Funds
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Performance Comparison
- --------------------------------------------------------------------------------
TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
As of 2/28/99
Lipper
Lehman High Yield
Revenue Municipal Tax-Free
Bond Debt Funds High Yield
Index Average Fund
2/28/89 10,000 10,000 10,000
2/90 11,076 10,865 10,954
2/91 12,095 11,479 11,823
2/92 13,397 12,669 13,072
2/93 15,345 14,205 14,895
2/94 16,306 15,145 16,010
2/95 16,557 15,372 16,212
2/96 18,434 16,977 17,935
2/97 19,522 17,935 19,051
2/98 21,424 19,799 21,036
2/99 22,707 20,704 22,046
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 2/28/99 1 Year 5 Years 10 Years Inception Date
- --------------------------------------------------------------------------------
Tax-Exempt Money 2.97% 3.05% 3.44% - 4/8/81
Tax-Exempt Money PLUS - - - 0.74% 11/1/98
Tax-Free
Short-Intermediate 4.90 4.79 5.62 - 12/23/83
Tax-Free
Intermediate Bond 5.37 5.79 - 6.63 11/30/92
Tax-Free Income 5.48 6.33 7.84 - 10/26/76
Tax-Free High Yield 4.80 6.61 8.23 - 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.
Investments in the Money Fund and PLUS Class shares are not insured or
guaranteed by the FDIC or any other government agency. Although they seek to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the fund and PLUS Class shares.
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Annual Meeting Results
The Tax-Free Intermediate Bond Fund held an annual meeting on October 15, 1998,
to elect directors of the fund, to amend the fund's investment objectives, and
to ratify the Board of Directors' selection of PricewaterhouseCoopers LLP as the
fund's independent accountants.
The results of voting were as follows (by number of shares):
For nominees to the Board of
Directors for the Tax-Free
Intermediate Bond Fund:
Calvin W. Burnett
In favor: 6,264,176.601
Withheld: 107,241.379
Anthony W. Deering
In favor: 6,282,061.082
Withheld: 89,356.898
F. Pierce Linaweaver
In favor: 6,269,403.700
Withheld: 102,014.280
William T. Reynolds
In favor: 6,282,440.529
Withheld: 88,977.451
James S. Riepe
In favor: 6,280,032.546
Withheld: 91,385.434
John G. Schreiber
In favor: 6,280,776.004
Withheld: 90,641.976
M. David Testa
In favor: 6,282,440.529
Withheld: 88,977.451
For PricewaterhouseCoopers LLP
as independent accountants:
In favor: 6,209,652.143
Withheld: 63,094.092
Abstained: 98,671.745
Amendment for investment objec-
tives to remove the requirement
that total assets be invested
primarily in insured bonds:
In favor: 4,892,656.486
Against: 851,482.266
Abstained: 434,617.228
Broker Non-Votes: 192,662.000
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
BROKERAGE SERVICES*
Individual Investments Stocks, bonds, options, precious metals, and other
securities at a savings over full-service 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.
* T. Rowe Price Brokerage is a division of T. Rowe Price Investment
Services, Inc., Member NASD/SIPC.
For yield, price, last transaction,
current balance, or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access(registered trademark):
1-800-638-2587 toll free
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
410-625-6500 Baltimore area
To open a 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.
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T. Rowe Price
T. Rowe Price Investment Services, Inc., Distributor. C03-050 2/28/99
