<PAGE>
- --------------------------------------------------------------------------------
T. Rowe Price
- --------------------------------------------------------------------------------
Tax-Free Short-Intermediate Fund
February 29, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Sector Diversification
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of
Net Assets
----------
<S> <C>
Prerefunded Bonds 40%
General Obligation - Local 9
General Obligation - State 9
Dedicated Tax Revenue 7
Educational Revenue 6
Hospital Revenue 5
Housing Finance Revenue 5
Lease Revenue 4
Industrial and Pollution
Control Revenue 4
<CAPTION>
Percent of
Net Assets
----------
<S> <C>
Electric Revenue 2%
Air and Sea Transportation
Revenue 1
Water and Sewer Revenue 1
Nuclear Revenue 1
Miscellaneous Revenue 1
Solid Waste Revenue 1
Escrowed to Maturity 1
Other Assets Less Liabilities 3
</TABLE>
- --------------------------------------------------------------------------------
Portfolio of Investments
T. Rowe Price Tax-Free Short-Intermediate Fund / February 29, 1996
- --------------------------------------------------------------------------------
(amounts in thousands)
<TABLE>
<CAPTION>
Amount Value
------ -----
<S> <C> <C>
ALABAMA -- 1.8%
Jefferson County, Capital Appreciation Warrants, GO, (MBIA Insured),
Zero Coupon, 4/1/98................................................ $3,545 $3,263
Marshall County Health Care Auth., Guntersville-Arab Medical Center,
10.25%, 10/1/13.................................................... 4,000 4,610
- ----------------------------------------------------------------------------------------------
ARIZONA -- 5.4%
Arizona, COP, (AMBAC Insured), 5.40%, 9/1/98........................... 1,000 1,036
Arizona Transportation Board, 6.35%, 7/1/05 (Prerefunded 7/1/01+)...... 6,400 7,106
6.50%, 7/1/11 (Prerefunded 7/1/01+)................................ 4,475 5,000
Maricopa County, Kyrene Elementary School Dist., GO, (FGIC Insured),
Zero Coupon, 7/1/96................................................ 1,500 1,482
Mesa Unified School Dist. No. 4, GO, (FGIC Insured),
Zero Coupon, 7/1/98................................................ 2,675 2,436
Mesa, GO, (AMBAC Insured), 6.75%, 7/1/98............................... 5,800 6,183
Phoenix, Street and Highway User, 7.30%, 7/1/98 (Escrowed to Maturity). 900 957
- ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount Value
------ -----
<S> <C> <C>
CALIFORNIA -- 7.2%
California Housing Fin. Agency, 5.75%, 8/1/98.......................... $ 500 $ 512
Los Angeles County Metropolitan Transportation Auth., Sales Tax,
6.90%, 7/1/21 (Prerefunded 7/1/01+)................................ 5,000 5,719
(FGIC Insured), 6.75%, 7/1/18 (Prerefunded 7/1/01+)................ 12,500 14,210
Univ. of California, Multi-Purpose, (AMBAC Insured),
6.75%, 9/1/23 (Prerefunded 9/1/99+)................................ 7,225 8,000
Upland, San Antonio Community Hosp., 5.00%, 1/1/01 COP................. 1,785 1,814
5.25%, 1/1/02 COP.................................................. 1,870 1,920
- ----------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA -- 0.2%
Metropolitan Washington D.C. Airports Auth., (FGIC Insured),
6.80%, 10/1/98*.................................................... 750 800
- ----------------------------------------------------------------------------------------------
FLORIDA -- 1.4%
Jacksonville, Excise Tax, (MBIA Insured), 6.90%, 10/1/98............... 3,610 3,890
Jacksonville Hosp. Auth., Methodist Hosp., 10.50%, 10/1/15
(Prerefunded 10/1/97+)............................................. 2,000 2,248
- ----------------------------------------------------------------------------------------------
GEORGIA -- 7.0%
DeKalb Hosp. Auth., Emory Univ., 5.25%, 11/1/02........................ 10,000 10,534
Fulton County School Dist., 7.625%, 5/1/17 (Prerefunded 5/1/97+)....... 9,400 10,126
Georgia, GO, 7.00%, 11/1/97............................................ 1,000 1,056
Metropolitan Atlanta Rapid Transit Auth., Sales Tax, 5.90%, 7/1/99..... 1,850 1,950
(MBIA Insured), 5.90%, 7/1/99...................................... 2,700 2,854
Municipal Electric Auth. of Georgia, 7.20%, 1/1/97..................... 3,000 3,068
7.40%, 1/1/98...................................................... 1,500 1,534
- ----------------------------------------------------------------------------------------------
ILLINOIS -- 3.3%
Chicago - O' Hare Int'l. Airport, Int'l Terminal, (MBIA Insured),
7.25%, 1/1/00*..................................................... 2,000 2,201
Chicago Park Dist., GO, TAW, 5.00%, 10/30/96........................... 2,480 2,506
Chicago Public Building Commission, Chicago Board of Ed.,
(FGIC Insured), 7.50%, 1/1/98 (Escrowed to Maturity)............... 1,000 1,066
Cook County, GO, (MBIA Insured), 7.375%, 11/1/08
(Prerefunded 11/1/99+)............................................. 5,500 6,213
Kane, Cook and DuPage County School Dist., GO, (FGIC Insured),
9.00%, 1/1/98...................................................... 1,350 1,472
Metropolitan Water Dist. of Greater Chicago, 7.50%, 1/1/98............. 1,000 1,065
- ----------------------------------------------------------------------------------------------
INDIANA -- 2.1%
Indiana Office Building Commission, Capital Complex,
8.40%, 7/1/03 (Prerefunded 7/1/97+)................................ 2,570 2,781
Indiana State Univ., Student Fees, 7.50%, 8/1/08 (Prerefunded 8/1/99+). 6,000 6,760
- ----------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount Value
------ -----
<S> <C> <C>
KENTUCKY -- 0.6%
Kentucky Turnpike Auth., Economic Dev., Road Revitalization,
8.25%, 7/1/07 (Prerefunded 7/1/97+)................................ $ 2,460 $ 2,657
- ----------------------------------------------------------------------------------------------
LOUISIANA -- 5.2%
East Baton Rouge Sewage Commission, 9.125%, 9/1/06
(Prerefunded 9/1/97+).............................................. 6,000 6,658
Louisiana, GO, (MBIA Insured), 8.00%, 5/1/98........................... 2,000 2,173
Louisiana Offshore Terminal Auth., 6.95%, 9/1/96....................... 1,050 1,065
LOOP, 5.40%, 9/1/98.................................................. 10,000 10,292
Louisiana PFA, Student Loan, 6.10%, 9/1/00............................. 1,425 1,509
Saint Charles Parish, PCR, Shell Oil, VRDN (Currently 3.55%)*.......... 1,300 1,300
- ----------------------------------------------------------------------------------------------
MARYLAND -- 7.2%
Baltimore City IDA, Days Inn, 12.625%, 12/1/04 (Prerefunded 12/1/97+).. 6,800 7,823
Maryland DOT, 6.50%, 11/1/99........................................... 3,895 4,228
Maryland HHEFA, Francis Scott Key Medical Center, (FGIC Insured),
6.75%, 7/1/23 (Prerefunded 7/1/00+)................................ 5,560 6,217
Howard County General Hosp., 8.25%, 7/1/18 (Prerefunded 7/1/98+)..... 2,600 2,905
Peninsula Regional Medical Center, 4.375%, 7/1/00.................... 245 245
4.50%, 7/1/01...................................................... 1,200 1,201
4.60%, 7/1/02...................................................... 1,175 1,178
4.70%, 7/1/03...................................................... 650 650
Montgomery County, Consolidated Public Improvement, GO,
6.80%, 11/1/00 (Prerefunded 11/1/99+).............................. 3,315 3,680
Northeast Maryland Waste Disposal Auth., Southwest Resource
Recovery Fac., (MBIA Insured), 7.00%, 1/1/01......................... 1,000 1,110
7.05%, 1/1/02...................................................... 2,430 2,744
- ----------------------------------------------------------------------------------------------
MASSACHUSETTS -- 6.9%
Massachusetts, GO, 5.50%, 7/1/00....................................... 12,865 13,506
7.25%, 7/1/05 (Prerefunded 7/1/98+)................................ 2,175 2,372
7.625%, 6/1/08 (Prerefunded 6/1/01+)............................... 4,000 4,689
Massachusetts Turnpike Auth., GO, BAN, 5.00%, 6/1/99................... 10,000 10,283
- ----------------------------------------------------------------------------------------------
MINNESOTA -- 0.5%
Minnesota PFA, Water Pollution Control, 5.70%, 3/1/99.................. 2,000 2,099
- ----------------------------------------------------------------------------------------------
MISSISSIPPI -- 2.3%
Mississippi Higher Ed. Assistance Corp., Student Loan, 6.00%, 7/1/00... 5,000 5,204
6.10%, 1/1/01...................................................... 5,000 5,216
- ----------------------------------------------------------------------------------------------
MISSOURI -- 0.8%
Missouri Economic Dev., Export & Infrastructure Board, 6.75%, 9/1/96... 835 841
Missouri Higher Ed. Loan Auth., Student Loan, 5.375%, 2/15/99.......... 2,600 2,661
- ----------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount Value
------ -----
<S> <C> <C>
NEW JERSEY -- 1.3%
New Jersey Transportation Trust Fund Auth., 5.40%, 6/15/97............. $2,000 $2,048
5.00%, 6/15/99..................................................... 3,500 3,602
- ----------------------------------------------------------------------------------------------
NEW MEXICO -- 0.8%
Gallup, PCR, Plains Electric Generation and Transmission Coop.,
(MBIA Insured), 5.50%, 8/15/98..................................... 1,390 1,440
New Mexico, Severance Tax, 5.30%, 7/1/97............................... 800 818
New Mexico Mortgage Fin. Auth., 5.90%, 1/1/99.......................... 1,395 1,430
- ----------------------------------------------------------------------------------------------
NEW YORK -- 10.5%
Dormitory Auth. of the State of New York, City Univ., 9.25%, 7/1/00.... 5,180 6,079
State Ed. Fac., 7.20%, 5/15/99....................................... 3,000 3,242
7.25%, 5/15/99..................................................... 3,580 3,874
Metropolitan Transportation Auth., Service Contract, Transport Fac.,
7.125%, 7/1/15 (Prerefunded 7/1/01+)............................... 3,500 4,039
7.50%, 7/1/16 (Prerefunded 7/1/00+)................................ 8,480 9,753
Nassau County, GO, (FGIC Insured), 6.30%, 11/1/02...................... 3,295 3,657
6.30%, 11/1/03..................................................... 2,800 3,128
New York State Thruway Auth., Highway and Bridge Trust,
(AMBAC Insured), 6.00%, 4/1/00..................................... 500 535
(MBIA Insured), 5.00%, 4/1/99...................................... 6,060 6,225
New York State Urban Dev. Corp., COP, 7.75%, 1/1/14
(Prerefunded 1/1/00+).............................................. 4,000 4,583
Port Auth. of New York and New Jersey, 4.90%, 9/1/97*.................. 1,500 1,502
- ----------------------------------------------------------------------------------------------
NORTH CAROLINA -- 1.7%
Mecklenburg County, Public Improvement, GO, 4.70%, 3/1/01.............. 7,375 7,573
- ----------------------------------------------------------------------------------------------
OHIO -- 0.3%
Butler County Hosp. Fac., Middletown Regional Hosp., (FGIC Insured),
6.00%, 11/15/97.................................................... 1,260 1,306
- ----------------------------------------------------------------------------------------------
PENNSYLVANIA -- 3.8%
Bethlehem Water Auth., (MBIA Insured), 6.25%, 11/15/21
(Prerefunded 11/15/01+)............................................ 2,500 2,748
Coatesville Area School Dist., (AMBAC Insured), 6.70%, 1/15/12
(Prerefunded 3/1/01+).............................................. 5,200 5,764
New Castle Area Hosp. Auth., St. Frances Hosp., Zero Coupon, 11/15/97.. 2,535 2,357
Pennsylvania IDA, (AMBAC Insured), 6.00%, 1/1/99....................... 3,000 3,159
Pittsburgh, Water and Sewer Systems, (FGIC Insured),
6.50%, 9/1/14 (Prerefunded 9/1/01+)................................ 2,500 2,811
- ----------------------------------------------------------------------------------------------
PUERTO RICO -- 2.1%
Puerto Rico Commonwealth, GO, (MBIA Insured), 5.50%, 7/1/01............ 9,000 9,563
- ----------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount Value
------ -----
<S> <C> <C>
RHODE ISLAND -- 0.5%
Rhode Island Student Loan, 6.20%, 12/1/98.............................. $ 2,000 $ 2,062
- ----------------------------------------------------------------------------------------------
SOUTH CAROLINA -- 3.9%
Charleston Waterworks and Sewer System, 7.75%, 1/1/18
(Prerefunded 1/1/98+).............................................. 1,440 1,569
Piedmont Municipal Power Agency, (AMBAC Insured),
7.50%, 1/1/07 (Prerefunded 1/1/98+)................................ 2,335 2,533
South Carolina, Capital Improvement, GO, 5.70%, 2/1/98................. 2,400 2,468
South Carolina Public Service Auth., (AMBAC Insured), 6.25%, 1/1/00.... 3,000 3,221
6.25%, 1/1/01...................................................... 2,000 2,169
Santee Cooper, (AMBAC Insured), 6.50%, 7/1/24
(Prerefunded 7/1/02+).............................................. 5,000 5,660
- ----------------------------------------------------------------------------------------------
SOUTH DAKOTA -- 2.3%
South Dakota HDA, Homeownership Mortgage, 7.10%, 5/1/96................ 390 392
4.25%, 5/1/28 (Mandatory Tender 5/1/97+)*.......................... 10,000 10,102
- ----------------------------------------------------------------------------------------------
TENNESSEE -- 0.6%
Shelby County Health Ed. and Housing Fac., Le Bonheur Children's
Medical Center, 9.625%, 7/1/15 (Prerefunded 7/1/97+)................. 2,400 2,588
- ----------------------------------------------------------------------------------------------
TEXAS -- 6.5%
Anderson County, Coffield State Prison, (AMBAC Insured), 6.50%, 3/15/98 2,000 2,107
Dallas-Fort Worth Regional Airport, 5.50%, 11/1/98..................... 2,000 2,076
Goose Creek Consolidated Independent School Dist., GO,
Zero Coupon, 2/15/98............................................... 1,200 1,109
Zero Coupon, 2/15/99............................................... 1,200 1,058
Harris County, Toll Road, (FGIC Insured), 6.625%, 8/15/11
(Prerefunded 8/15/97+)............................................... 2,350 2,497
GO, 6.30%, 8/1/99..................................................... 1,725 1,851
Harris County Health Fac. Dev. Corp., Methodist Hosp.,
VRDN (Currently 3.45%)............................................. 1,200 1,200
St. Luke's Episcopal Hosp., 6.20%, 2/15/98........................... 1,420 1,481
Hays Consolidated Independent School Dist., GO, Zero Coupon, 2/15/98... 1,050 971
Lower Colorado River Auth., (MBIA Insured), 7.625%, 1/1/16
(Prerefunded 1/1/98+).............................................. 2,645 2,875
Lubbock, Waterworks System, GO, 8.75%, 2/15/98......................... 510 557
Port of Houston Auth., Zero Coupon, 10/1/96............................ 2,360 2,310
Zero Coupon, 10/1/97............................................... 2,660 2,501
San Antonio, GO, 8.625%, 8/1/97........................................ 1,200 1,283
Water Systems, (FGIC Insured), 6.30%, 5/15/04........................ 3,000 3,325
Texas Housing Agency, 6.15%, 3/1/97.................................... 1,005 1,019
6.80%, 7/1/97...................................................... 130 133
6.25%, 3/1/98...................................................... 310 317
6.25%, 9/1/98...................................................... 260 267
- ----------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount Value
------ -----
<S> <C> <C>
UTAH -- 1.6%
Intermountain Power Agency, Utah Power Supply, 8.50%, 7/1/07
(Prerefunded 7/1/97+).............................................. $3,610 $3,911
8.625%, 7/1/21 (Prerefunded 7/1/97+)............................... 840 911
Univ. of Utah Board of Regents, Univ. Hosp., 5.50%, 5/15/97............ 1,860 1,902
Utah Housing Fin. Agency, 6.00%, 1/1/99................................ 365 375
- ----------------------------------------------------------------------------------------------
VIRGINIA -- 6.9%
Chesapeake, Public Improvement, GO, 6.75%, 7/1/98...................... 1,000 1,067
Fairfax County, Sewer, (AMBAC Insured), 7.00%, 11/15/16
(Prerefunded 11/15/99+)............................................ 2,820 3,152
Fairfax County Water Auth., 7.25%, 1/1/27 (Prerefunded 1/1/00+)........ 3,250 3,659
Hampton Roads Medical College, 6.30%, 11/15/02......................... 1,000 1,080
Hampton Roads Sanitation Dist., 7.20%, 7/1/09 (Prerefunded 7/1/99+).... 1,800 2,007
Newport News, GO, 7.25%, 1/1/98........................................ 1,300 1,381
Prince William County, Water and Sewer, (FGIC Insured),
6.70%, 7/1/11 (Prerefunded 7/1/01+)................................ 1,800 2,035
6.50%, 7/1/21 (Prerefunded 7/1/01+)................................ 1,210 1,357
Virginia HDA, 4.50%, 11/1/98........................................... 3,000 3,023
5.75%, 1/1/99*..................................................... 1,390 1,423
5.90%, 1/1/00*..................................................... 1,865 1,913
Virginia Public Building Auth., 5.625%, 8/1/97......................... 2,295 2,362
Virginia Public School Auth., 5.60%, 1/1/99............................ 4,000 4,180
Winchester IDA, Winchester Medical Center, (AMBAC Insured),
7.25%, 1/1/15 (Prerefunded 1/1/00+)................................ 2,050 2,297
- ----------------------------------------------------------------------------------------------
WASHINGTON -- 0.6%
Tacoma Electric System, (AMBAC Insured), 8.00%, 1/1/08
(Prerefunded 1/1/98+).............................................. 1,440 1,575
Washington HFA, Virginia Mason Medical Center, (MBIA Insured),
7.20%, 7/1/98...................................................... 1,000 1,061
- ----------------------------------------------------------------------------------------------
WISCONSIN -- 1.2%
Wisconsin, GO, 6.90%, 5/1/99 (Prerefunded 5/1/98+)..................... 5,000 5,324
- ----------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
-----
<S> <C>
- ----------------------------------------------------------------------------------------------
Total Investments in Securities -- 96.5% of Net Assets (Cost $419,247) $429,810
- ----------------------------------------------------------------------------------------------
Other Assets Less Liabilities............................................ 15,418
--------
NET ASSETS............................................................... $445,228
========
NET ASSET VALUE PER SHARE................................................ $5.37
=====
- ----------------------------------------------------------------------------------------------
</TABLE>
* Interest subject to alternative minimum tax
+ Used in determining portfolio maturity
AMBAC AMBAC Indemnity Corp.
BAN Bond Anticipation Note
COP Certificates of Participation
DOT Department of Transportation
FGIC Financial Guaranty Insurance Company
GO General Obligation
HDA Housing Development Authority
HFA Health Facility Authority
HHEFA Health & Higher Educational Facility Authority
IDA Industrial Development Authority
MBIA Municipal Bond Investors Assurance Corp.
PCR Pollution Control Revenue
PFA Public Facility Authority
TAW Tax Anticipation Warrant
VRDN Variable Rate Demand Note
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
T. Rowe Price Tax-Free Short-Intermediate Fund / February 29, 1996
(in thousands)
<TABLE>
<S> <C>
ASSETS
Total investments in securities, at value (cost $ 419,247)............................... $429,810
Other assets............................................................................. 25,180
--------
Total assets............................................................................. 454,990
LIABILITIES
Total liabilities........................................................................ 9,762
--------
NET ASSETS............................................................................... $445,228
========
Net Assets Consist of:
Accumulated net investment income - net of distributions................................. $ 13
Accumulated net realized gain/loss - net of distributions................................ (1,275)
Net unrealized gain (loss)............................................................... 10,563
Paid-in-capital applicable to 82,904,786 shares of $0.01 par
value capital stock outstanding; 1,000,000,000 shares authorized..................... 435,927
--------
NET ASSETS............................................................................... $445,228
========
NET ASSET VALUE PER SHARE................................................................ $5.37
=====
- --------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations
- --------------------------------------------------------------------------------
T. Rowe Price Tax-Free Short-Intermediate Fund / Year Ended February 29, 1996
(in thousands)
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest income........................................................................ $22,330
-------
Expenses
Investment management.............................................................. 1,975
Shareholder servicing.............................................................. 307
Custody and accounting............................................................. 168
Prospectus and shareholder reports................................................. 46
Registration....................................................................... 31
Legal and audit.................................................................... 24
Directors.......................................................................... 10
Miscellaneous...................................................................... 10
-------
Total expenses..................................................................... 2,571
-------
Net investment income.................................................................. 19,759
-------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Securities......................................................................... 4,058
Futures............................................................................ (50)
-------
Net realized gain (loss)........................................................... 4,008
Change in net unrealized gain or loss on securities.................................... 6,603
-------
Net realized and unrealized gain (loss)................................................ 10,611
-------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS...................................... $30,370
=======
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
T. Rowe Price Tax-Free Short-Intermediate Fund
(in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended
Feb. 29, 1996 Feb. 28, 1995
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income...................................................... $ 19,759 $ 20,503
Net realized gain (loss)................................................... 4,008 (3,632)
Change in net unrealized gain or loss...................................... 6,603 (4,859)
--------- ---------
Increase (decrease) in net assets from operations.......................... 30,370 12,012
--------- ---------
Distributions to shareholders
Net investment income...................................................... (19,759) (20,503)
--------- ---------
Capital share transactions*
Shares sold................................................................ 85,130 147,931
Distributions reinvested................................................... 15,624 16,060
Shares redeemed............................................................ (120,221) (242,144)
--------- ---------
Increase (decrease) in net assets from capital share transactions.......... (19,467) (78,153)
--------- ---------
Increase (decrease) in net assets.............................................. (8,856) (86,644)
NET ASSETS
Beginning of period............................................................ 454,084 540,728
--------- ---------
End of period.................................................................. $ 445,228 $ 454,084
========= =========
- --------------------------------------------------------------------------------------------------------------------
*Share information
Shares sold................................................................ 15,992 28,235
Distributions reinvested................................................... 2,933 3,070
Shares redeemed............................................................ (22,579) (46,303)
--------- ---------
Increase (decrease) in shares outstanding.................................. (3,654) (14,998)
========= =========
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
Notes To Financial Statements
- --------------------------------------------------------------------------------
T. Rowe Price Tax-Free Short-Intermediate Fund / February 29, 1996
Note 1 - Significant Accounting Policies
T. Rowe Price Tax-Free Short-Intermediate Fund, Inc. (the fund) is registered
under the Investment Company Act of 1940 as a diversified, open-end management
investment company.
A) Valuation - Debt securities are generally traded in the over-the-counter
market. Investments in securities originally issued with maturities of one year
or more are stated at fair value as furnished by dealers who make markets in
such securities or by an independent pricing service, which considers yield or
price of bonds of comparable quality, coupon, maturity, and type, as well as
prices quoted by dealers who make markets in such securities. Securities with
maturities when issued of less than one year are stated at fair value, which is
determined by using a matrix system that establishes a value for each security
based on money market yields.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair value
as determined in good faith by or under the supervision of the officers of the
fund, as authorized by the Board of Directors.
B) 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.
C) Other - Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses are
reported on the identified cost basis. Distributions to shareholders are
recorded by the fund on the ex-dividend date. Income and capital gain
distributions are determined in accordance with federal income tax regulations
and may differ from those determined in accordance with generally accepted
accounting principles.
Note 2 - Investment Transactions
Purchases and sales of portfolio securities, other than short-term securities,
aggregated $310,588,000 and $303,078,000, respectively, for the year ended
February 29, 1996.
Note 3 - Federal Income Taxes
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of its
income. The fund has unused realized capital loss carryforwards for federal
income tax purposes of $1,106,000, which expires in 2003. Capital loss
carryforwards utilized in fiscal 1996 amounted to $1,576,000. The fund intends
to retain gains realized in future periods that may be offset by available
capital loss carryforwards.
In order for the fund's capital accounts and distributions to shareholders
to reflect the tax character of certain transactions, $4,000 of undistributed
net investment income was reclassified as a decrease to undistributed net
realized gains during the year ended February 29, 1996. The results of
operations and net assets were not affected by the reclassifications.
At February 29, 1996, the aggregate cost of investments for federal income
tax and financial reporting purposes was $419,247,000 and net unrealized gain
aggregated $10,563,000, of which $10,578,000 related to appreciated investments
and $15,000 to depreciated investments.
Note 4 - Related Party Transactions
The investment management agreement between the fund and T. Rowe Price
Associates, Inc. (the Manager) provides for an annual investment management fee,
of which $154,000 was payable at February 29, 1996. 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
11
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
International, Inc. (the Group). The Group Fee rate ranges from 0.48% for the
first $1 billion of assets to 0.31% for assets in excess of $34 billion. At
February 29, 1996, and for the year then ended, the effective annual Group Fee
rate was 0.33% and 0.34%, respectively. 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 $336,000 for the year
ended February 29, 1996, of which $32,000 was payable at period-end.
12
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
T. Rowe Price Tax-Free Short-Intermediate Fund
<TABLE>
<CAPTION>
For a share outstanding throughout each period
----------------------------------------------------------
Year Ended
----------------------------------------------------------
Feb. 29, Feb. 28, Feb. 28, Feb. 28, Feb. 29,
1996 1995 1994 1993 1992
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................ $5.25 $5.32 $5.36 $5.22 $5.15
Investment activities
Net investment income........................... 0.23 0.22 0.22 0.24 0.28
Net realized and unrealized gain (loss)......... 0.12 (0.07) (0.04) 0.14 0.07
Total from investment activities................ 0.35 0.15 0.18 0.38 0.35
Distributions
Net investment income........................... (0.23) (0.22) (0.22) (0.24) (0.28)
NET ASSET VALUE, END OF PERIOD...................... $5.37 $5.25 $5.32 $5.36 $5.22
- -----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Total return........................................ 6.87% 2.91% 3.49% 7.51% 6.94%
Ratio of expenses to average net assets............. 0.57% 0.59% 0.60% 0.63% 0.67%
Ratio of net investment income
to average net assets........................... 4.39% 4.19% 4.18% 4.61% 5.34%
Portfolio turnover rate............................. 69.9% 93.1% 51.1% 38.5% 81.3%
Net assets, end of period (in thousands)............ $445,228 $454,084 $540,728 $454,162 $328,312
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors
of T. Rowe Price Tax-Free Short-Intermediate Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
T. Rowe Price Tax-Free Short-Intermediate Fund, Inc. as of February 29, 1996,
and the related statement of operations, statement of changes in net assets, and
financial highlights for the year 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 audit. The statement of changes in net assets
and financial highlights for each of the preceding years presented were audited
by other auditors, whose report, dated March 17, 1995, expressed an unqualified
opinion thereon.
We conducted our audit 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 29, 1996, by correspondence with the custodian and 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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
T. Rowe Price Tax-Free Short-Intermediate Fund, Inc. as of February 29, 1996,
the results of its operations, the changes in its net assets, and financial
highlights for the year then ended, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
March 19, 1996
During fiscal 1996, Coopers & Lybrand, L.L.P. succeeded Price Waterhouse LLP as
independent accountants for the T. Rowe Price Tax-Free Short-Intermediate Fund,
a decision that was approved by the fund's Board of Directors. During the last
two fiscal years, the fund has received unqualified opinions and has had no
disagreements with Price Waterhouse LLP or reportable events that caused the
change.
14
<PAGE>
- --------------------------------------------------------------------------------
Shareholder Services
- --------------------------------------------------------------------------------
To help shareholders monitor their current investments and make decisions that
accurately reflect their financial goals, T. Rowe Price offers a wide variety of
information and services--at no extra cost.
Knowledgeable Service Representatives
By Phone--Shareholders service representatives are available from 8 a.m. to
10 p.m. Monday-Friday, and weekends from 8:30 a.m. to 5 p.m. ET. 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. While there,
you can drop off applications or obtain prospectuses and other literature.
Automated 24-Hour Services
Tele*Access/R/ (1-800-638-2587) provides information such as account
balance, date and amount of your last transaction, latest dividend payment, and
fund prices and yields. Additionally, you have the ability to request
prospectuses, statements, account and tax forms; reorder checks; and initiate
purchase, redemption, and exchange orders for identically registered accounts.
PC*Access/R/ provides the same information as Tele*Access, but on a personal
computer via dial-up modem.
Account Services
Checking--Write checks for $500 or more on any money market and most bond
fund accounts (except the High Yield Fund and Emerging Markets Bond Fund).
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 low, $50
minimum makes it easy to get started.
Automatic Withdrawal--If you need money from your fund account on a regular
basis, you can establish scheduled, automatic redemptions.
Dividend and Capital Gains Payment Options--Reinvest all or some of your
distributions, or take them in cash. We give you maximum flexibility and
convenience.
Investment Information
Combined Statement--A comprehensive overview of your T. Rowe Price accounts.
The summary page gives your 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.
Shareholders Reports--Portfolio managers review the performance of the funds
in plain language and discuss T. Rowe Price's economic outlook.
The T. Rowe Price Report--A quarterly newsletter with relevant articles on
market trends, personal financial planning, and T. Rowe Price's economic
perspective.
Performance Update--A quarterly report reviewing recent market developments
and providing comprehensive performance information for every T. Rowe Price
fund.
Insights--A library of information that includes reports on mutual fund tax
issues, investment strategies, and financial markets.
Detailed Investment Guides--Our widely acclaimed Asset Mix Worksheet,
College Planning Kit, Retirees Financial Guide, Retirement Planning Kit (also
available on disk for PC use), and Guide to Risk-Adjusted Performance can help
you determine and reach your investment goals.
Discount Brokerage
You can trade stocks, bonds, options, precious metals, and other securities at a
substantial savings over regular commission rates. Call a shareholder service
representative for more information.
15
<PAGE>
- --------------------------------------------------------------------------------
T. Rowe Price No-Load Mutual Funds
- --------------------------------------------------------------------------------
STABILITY
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
California Tax-Free Money
New York Tax-Free Money
Summit Municipal Money
Market
Tax-Exempt Money
CONSERVATIVE INCOME
Short-Term Bond
Short-Term Global Income
Short-Term U.S. Government
Summit Limited-Term Bond
U.S. Treasury Intermediate
Florida Insured Intermediate
Tax-Free
Maryland Short-Term
Tax-Free Bond
Summit Municipal
Intermediate
Tax-Free Insured
Intermediate Bond
Tax-Free Short-Intermediate
Virginia Short-Term
Tax-Free Bond
INCOME
Global Government Bond
GNMA
New Income
Spectrum Income
Summit GNMA
U.S. Treasury Long-Term
California Tax-Free Bond
Georgia Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Tax-Free Income
Virginia Tax-Free Bond
AGGRESSIVE INCOME
Corporate Income
Emerging Markets Bond
High Yield
International Bond
Tax-Free High Yield
CONSERVATIVE
GROWTH
Balanced
Capital Appreciation
Dividend Growth
Equity Income
Equity Index
Global Stock
Growth & Income
Spectrum Growth
Value
GROWTH
Blue Chip Growth
European Stock
Growth Stock
International Stock
Japan
Mid-Cap Growth
New Era
OTC
Small-Cap Value
AGGRESSIVE GROWTH
Capital Opportunity
Health Sciences
Emerging Markets Stock
International Discovery
Latin America
New America Growth
New Asia
New Horizons
Science & Technology
PERSONAL STRATEGY
FUNDS
Personal Strategy Income
Personal Strategy Balanced
Personal Strategy Growth
Call if you want to know about any T. Rowe Price fund. We'll send you a
prospectus with more complete information, including management fees and other
expenses. Read it carefully before you invest or send money.
T. Rowe Price Investment
Services, Inc., Distributor.
16
<PAGE>
- --------------------------------------------------------------------------------
Fellow Shareholders
- --------------------------------------------------------------------------------
The fiscal year ended February 29, 1996, was a banner year for bonds and the
funds that invest in them. Prices rose as yields fell through much of the year,
generating good returns for investors in fixed income securities. We were
pleased that all the T. Rowe Price municipal funds discussed here outperformed
their peer group averages over the entire fiscal year.
Market Environment
The economy slowed in 1995, and the rate of inflation remained moderate. After
tightening monetary policy in 1994 and early 1995, the Federal Reserve reversed
course when it became clear that the economy was running out of steam. Since
July, the Fed has lowered the key federal funds rate three times, from 6% to
5.25% at the end of the fiscal year.
Against a background of slower growth, moderate inflation, and apparent
progress on reducing the federal budget deficit, bond yields tumbled. The
30-year Treasury yield, nearly 7.5% a year ago, fell briefly below 6% in late
December. At fiscal year-end, the long bond yield had edged back up to 6.5%, as
efforts to come up with deficit reduction
- --------------------------------------------------------------------------------
Municipal Bond and Note Yields
- --------------------------------------------------------------------------------
[GRAPH APPEARS HERE]
- --------------------------------------------------------------------------------
Source: T. Rowe Price Associates
legislation flagged in early 1996. Signs that stronger economic growth might
resume in 1996 also contributed to recent uneasiness in the bond market.
After moving only slightly lower during the first half of the fiscal year
ended February 29, long-term municipal yields fell further in the second half.
Thirty-year prime general obligation (GO) bonds yielded 5.95% on February 28,
1995, and on August 31 were only 10 basis points lower (100 basis points equal
one percent). During the most recent six months, prices rose further as yields
dropped an additional 45 basis points to 5.40%.
Municipal bonds with short maturities followed a different pattern as their
yields fell more in the first half of the year than in the second. After falling
70 basis points to 4.30% on August 31, the yield of five-year prime GO bonds
fell only 10 basis points more by February 29, 1996. The net result was a lower
and steeper yield curve that led to significant price appreciation from 1994's
lows.
New issuance of municipal bonds hit a five-year low in 1995 -- 3% below 1994's
levels. Light supply for the second year in a row would have been more of a
problem if demand had not also been soft due to strong stock market returns and
tax reform discussions. Although new supply declined overall, the use of bond
insurance grew, and insured bonds constituted 43% of newly issued securities.
Bond insurers were willing to insure new issues as well as bonds in the
secondary market at a fairly low cost.
Tax-Exempt Money Fund
Short-term rates fell during the past year, with six-month to one-year yields
declining further than yields on shorter maturities. Compared with year-ago
levels, one- to seven-day yields were 50 to 70 basis points lower, while the
longer yields were 100 to 130 basis points lower. This led to a flattening in
the money
<PAGE>
market yield curve, meaning that longer maturities did not offer significantly
higher yields than short maturities (occasionally, long yields were actually
lower).
In this environment, we adopted a "barbell" strategy, concentrating
investments at both ends of the money market maturity range. The longer
maturities enabled us to lock in yields that we believed would move lower as the
Federal Reserve continued to reduce interest rates, while the short-maturity
holdings provided a high level of income considering their low level of risk.
Another indication of the remarkable shift in the yield curve was the average
spread between overnight and one-year yields -- a meager 13 basis points over
the past 12 months versus 121 basis points during the preceding 12-month period.
The yields on short-term tax-exempt issues remained relatively low compared
with the yields on their taxable counterparts, making them attractive only to
those in the highest tax brackets. Nevertheless, assets in all tax-exempt money
funds grew a robust 16% to $134 billion over the year.
Our barbell strategy, plus our lengthening weighted average maturity in recent
months, enabled your fund to outperform its peer group average during the 6- and
12-month periods ended February 29.
- --------------------------------------------------------------------------------
Performance Comparison
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Periods Ended 2/29/96
6 Months 12 Months
-------- ---------
<S> <C> <C>
Tax-Exempt Money Fund 1.62% 3.38%
IBC/Donoghue Money Fund
Report Average* 1.58 3.31
- ------------------------------------------------------------------------------
</TABLE>
*Stockholder and General Purpose Funds
Tax-Free Short-Intermediate Fund
For most of the past six months, your fund sought to maintain an aggressive
posture on weighted average maturity. The combination of a weak economic
environment and prospects for federal deficit reduction enhanced the possibility
that the Federal Reserve would loosen monetary policy by lowering the fed funds
rate.
In an effort to benefit from this anticipated move, we gradually lengthened
the fund's weighted average maturity from 3.0 years at the beginning of
September to as long as 3.8 years in January. As yields fell to extremely low
levels in January and budget negotiations stalled in Washington, we began to
shorten maturities. By fiscal year-end, the weighted average maturity declined
to 3.6 years.
This strategy allowed the fund to provide solid returns and outperform its
peer group average during both the 6- and 12-month periods ended February 29.
- --------------------------------------------------------------------------------
Performance Comparison
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Periods Ended 2/29/96
6 Months 12 Months
-------- ---------
<S> <C> <C>
Tax-Free Short-Intermediate
Fund 2.95% 6.87%
Lipper Short-Intermediate
Debt Funds Average 2.67 6.79
- ------------------------------------------------------------------------------
</TABLE>
Tax-Free Insured Intermediate Bond Fund
Our strategy was similar to that of the Tax-Free Short-Intermediate Fund for the
reasons outlined there. We began the six-month period with a shorter duration (a
measure of a bond fund's price sensitivity to changes in interest rates) than
our more aggressive posture at the end of May. As we moved through the final
months of 1995, we reversed course and began to lengthen from 5.4 years at the
end of August to a high of 5.7 years in January.
Another component of our strategy entailed taking advantage of supply and
demand imbalances. Relative values in the municipal market are dictated to a
great extent by the supply of new issues. Bond values rise in states with low
supply and decline in states where supply is abundant. We adopted a strategy of
rotating out of low supply states into high supply states to take advantage of
the lower prices. For example, during the last six months, we sold bonds issued
in Florida and California and replaced them with New York
2
<PAGE>
and Georgia securities, which allowed us to increase the fund's return without
assuming additional interest rate risk.
This overall strategy resulted in strong returns that surpassed our peer group
average for both periods shown below.
- --------------------------------------------------------------------------------
Performance Comparison
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Periods Ended 2/29/96
6 Months 12 Months
-------- ---------
<S> <C> <C>
Tax-Free Insured
Intermediate Bond Fund 3.77% 9.57%
Lipper Intermediate Municipal
Debt Funds Average 3.72 8.97
- ------------------------------------------------------------------------------
</TABLE>
Tax-Free Income Fund
Given the sluggish economic environment that persisted over most of the last 12
months, we maintained a modestly aggressive posture throughout the year. Our
relatively long market profile was reflected by a duration of 7.5 years or
higher and a weighted average maturity in the range of 18 to 19 years. We also
focused on buying individual bonds with the potential for significant price
appreciation. Our sizable positions in noncallable and discount bonds, typically
the best performing structures in falling rate environments, contributed to our
aggressive posture.
From the credit perspective, our strategy focused on minimizing exposure to
areas our analysts perceived as vulnerable. For example, we identified the
electric utility sector as one that would be susceptible to proposed legislative
and regulatory changes. This proved to be the case, as many credits were
downgraded by the rating agencies. Insured bonds also played an important role
in our portfolio last year. The heavy issuance of insured bonds, discussed
earlier, provided an opportunity to pick up additional safety at relatively low
cost.
The fund provided excellent returns over the last six months and the fiscal
year, outperforming the average for similar funds by about the same margin in
each period.
- --------------------------------------------------------------------------------
Performance Comparison
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Periods Ended 2/29/96
6 Months 12 Months
-------- ---------
<S> <C> <C>
Tax-Free Income Fund 5.44% 10.31%
Lipper General Municipal
Debt Funds Average 4.99 9.87
- ------------------------------------------------------------------------------
</TABLE>
The fund is still positioned somewhat aggressively, but we are looking for
opportunities to reduce its duration and weighted average maturity. A more
positive outlook on the economy and continued prospects of anemic cash flows to
bond funds merit a neutral to slightly defensive posture. Additionally, we plan
to sell some of the noncallable and discount bonds that performed so well last
year and replace them with bonds whose income we expect to be the dominant
component of returns.
Tax-Free High Yield Fund
The municipal high yield market enjoyed a solid comeback last year, recovering
nicely from the beating it took in 1994. Your fund began the year with a neutral
market stance and a relatively low concentration in below investment-grade
securities. Over the following months, and particularly in the first half of the
year, we lengthened duration slightly. For much of calendar 1995, the fund
maintained a duration of 7.2 to 7.5 years and a weighted average maturity of
about 20 years. Cash reserves averaged between 4% and 6% of assets. Late in the
year, duration drifted to a more neutral stance of 7.0 to 7.2 years, ending the
fiscal year at 7.2 years.
Additionally, the bond market decline of 1994 increased the yield spread
between higher- and lower-quality securities, providing us with an opportunity
to increase your fund's below investment-grade holdings from 24% to 27% of net
assets. Much of this move occurred during the first half of the year. We believe
this worked out well for three reasons. First, it provided the opportunity to
lock in attractive yields while taking reasonable credit risk.
3
<PAGE>
Second, credit quality spreads narrowed significantly as the market rallied
through the year. This meant that, on average, lower-quality bonds enjoyed
larger relative price gains. Third, the move entailed only a slight diminution
of your fund's overall credit quality. As always, we sought to maximize
diversification when buying lower-quality bonds.
Your fund outperformed its peer group over the fiscal year and slightly lagged
it during the most recent six-month period. The fund has exceeded the average
performance of other tax-free high yield funds, measured by the benchmark shown
below, for the past eight fiscal years and for nine of its 11 complete fiscal
years.
- --------------------------------------------------------------------------------
Performance Comparison
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Periods Ended 2/29/96
6 Months 12 Months
-------- ---------
<S> <C> <C>
Tax-Free High Yield Fund 4.98% 10.62%
Lipper High Yield Municipal
Debt Funds Average 5.15 10.18
- ------------------------------------------------------------------------------
</TABLE>
At this time we have adopted a more cautious stance for the fund amid signs
that economic growth could be picking up. We scaled back our purchases of
lower-quality bonds, as mentioned. Credit quality spreads have narrowed
significantly, particularly during the second half of 1995, due to modest
issuance and continued strong demand. At present, the fund's average credit
quality stands at BBB+ with no material change currently anticipated.
Outlook
The municipal market paid substantial attention to the topic of tax reform last
year. Concerns that proposed revisions to the tax code would be detrimental to
municipal bonds kept municipal securities from performing quite as well as
taxable alternatives. As we anticipated, these fears have lessened somewhat as
tax reform discussions have faded from prominence. Municipals have already
recaptured some of the ground lost to taxable bonds, which we attribute to
reduced worries about the impact of tax reform.
The unusually fierce weather this winter, as well as the partial government
shutdowns, tended to delay and distort many recent economic statistics, but it
looks as though the economy is on track for a year of moderate growth. This
should be enough to keep the unemployment rate in its current zone without
significantly exacerbating inflationary pressures. This March the economic
upturn completed its fifth year, making it one of the longest peacetime
expansions on record, but still without signs of an impending recession.
Further easing by the Federal Reserve may be slow in coming, since the Fed is
concerned about the risk of fueling inflationary pressures when the economy has
only limited margins of excess capacity. The prospects for sharp deficit
reduction and the moderate inflation outlook that gave the bond market
confidence last year are not as compelling so far in 1996. Consequently, we
expect the bulk of returns this year to come from coupon income rather than
capital appreciation.
Respectfully submitted,
/s/ William T. Reynolds
William T. Reynolds
Director
Fixed Income Division
/s/ Mary J. Miller
Mary J. Miller
Director
Municipal Bond Department
March 20, 1996
4
<PAGE>
- --------------------------------------------------------------------------------
Financial Summary
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value Dividend Per Share* Dividend Yield**
Per Share 6 Months Ended 6 Months Ended
8/31/95 2/29/96 8/31/95 2/29/96 8/31/95 2/29/96
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Tax-Exempt Money $ 1.00 $ 1.00 $0.017 $0.016 3.26% 2.95%
Tax-Free Short-Intermediate 5.33 5.37 0.12 0.11 4.46 4.38
Tax-Free Insured Intermediate Bond 10.68 10.84 0.24 0.24 4.62 4.48
Tax-Free Income 9.41 9.66 0.26 0.26 5.63 5.45
Tax-Free High Yield 11.87 12.10 0.36 0.36 6.26 6.00
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Taxability of dividends: 100% of the dividends paid for the 12 months ended
2/29/96 were exempt from federal income tax.
** 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.
Tax-Exempt Money reports a seven-day compound yield.
- --------------------------------------------------------------------------------
Quality Diversification
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quality Ratings* Weighted Average Quality*
1 2 3 4 5-10 8/31/95 2/29/96
--------------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Tax-Exempt Money 13% 87% -- -- -- 1.9 1.9
Tax-Free Short-Intermediate 41 35 20% 4% -- 1.8 1.9
Tax-Free Insured Intermediate Bond 21 66 13 -- -- 1.8 1.9
Tax-Free Income 10 50 25 12 3% 2.4 2.4
Tax-Free High Yield 4 21 16 32 27 3.7 3.6
- ---------------------------------------------------------------------------------------------------
</TABLE>
* On a T. Rowe Price scale of 1 to 10, with Grade 1 representing highest
quality.
- --------------------------------------------------------------------------------
Performance Comparison -- Tax-Exempt Money Fund
- --------------------------------------------------------------------------------
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
As of
2/29/96
-----------
<S> <C>
Tax-Exempt Money Fund $14,659
Lipper Tax-Exempt Money $14,593
Market Funds Average
</TABLE>
Note: The index return does not reflect expenses, which have been deducted from
the fund's return.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
Duration and Maturity
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Weighted Average Weighted Average
Effective Duration (years) Maturity (years)
8/31/95 2/29/96 8/31/95 2/29/96
-------------------------- -------------------------
<S> <C> <C> <C> <C>
Tax-Exempt Money -- -- 55* 65*
Tax-Free Short-Intermediate 2.5 3.0 3.0 3.6
Tax-Free Insured Intermediate Bond 5.4 5.5 7.2 7.2
Tax-Free Income 7.8 8.3 18.1 18.1
Tax-Free High Yield 7.3 7.2 20.1 20.0
- ----------------------------------------------------------------------------------------------
</TABLE>
* Maturity is in days.
- --------------------------------------------------------------------------------
Average Annual Compound Total Return
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Periods Ended 2/29/96
1 Year 5 Years 10 Years or Since Inception
--------------------------------------------------
<S> <C> <C> <C> <C>
Tax-Exempt Money 3.38% 2.82% 3.90%
Tax-Free Short-Intermediate 6.87 5.52 5.27
Tax-Free Insured Intermediate Bond 9.57 -- -- 7.57% (11/92)
Tax-Free Income 10.31 8.46 7.21
Tax-Free High Yield 10.62 8.69 8.46
- -----------------------------------------------------------------------------------------
</TABLE>
Investment return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
- ------------------------------------------
Performance Comparison --
Tax-Free Insured Intermediate Bond Fund
- ------------------------------------------
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
As of
2/29/96
-----------
<S> <C>
Tax-Free Insured $12,672
Intermediate Bond Fund
Lehman 7-Year GO $12,460
Bond Index
</TABLE>
Note: The index return does not reflect
expenses, which have been deducted from
the fund's return.
- ------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
Performance Comparison -- Tax-Free Short-Intermediate Fund
- --------------------------------------------------------------------------------
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
As of
2/29/96
-----------
<S> <C>
Tax-Free Short-Intermediate Fund $17,193
Lehman 3-Year GO Bond Index $18,355
</TABLE>
Note: The index return does not reflect expenses, which have been deducted from
the fund's return.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Performance Comparison -- Tax-Free Income Fund
- --------------------------------------------------------------------------------
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
As of
2/29/96
-----------
<S> <C>
Tax-Free Income Fund $20,054
Lehman Municipal Bond Index $22,001
</TABLE>
Note: The index return does not reflect expenses, which have been deducted from
the fund's return.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Performance Comparison -- Tax-Free High Yield Fund
- --------------------------------------------------------------------------------
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
As of
2/29/96
-----------
<S> <C>
Tax-Free High Yield Fund $22,562
Lehman Revenue Bond Index $23,188
</TABLE>
Note: The index return does not reflect expenses, which have been deducted from
the fund's return.
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
Annual Report
- --------------------------------------------------------------------------------
For yield, price, last transaction, T. Rowe Price
and current balance, 24 hours, -------------
7 days a week, call:
1-800-638-2587 toll free Tax-Free Funds
625-7676 Baltimore area
For assistance with your existing
fund account, call:
Shareholder Service Center February 29, 1996
1-800-225-5132 toll free
625-6500 Baltimore area
T. Rowe Price
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.
[LOGO OF T. ROWE PRICE APPEARS HERE]
TFF RPTTFF 2/29/96
