Annual Report - Financial Statements
T. Rowe Price
Tax-free Short-
Intermediate Fund
February 28, 1998
Portfolio Highlights
SECTOR Diversification
Percent of Percent of
Net Assets Net Assets
8/31/97 2/28/98
______________________________________________________________
___
Prerefunded Bonds 22% 23%
General Obligation - Local 10 11
Dedicated Tax Revenue 12 9
Hospital Revenue 7 8
Air and Sea Transportation Revenue 8 7
Nuclear Revenue 5 7
General Obligation - State 11 7
Lease Revenue 7 6
Solid Waste Revenue 5 5
Electric Revenue 3 4
Educational Revenue 5 4
Escrowed to Maturity - 3
Industrial and Pollution
Control Revenue 3 2
All Others 4 5
Other Assets Less Liabilities -2 -1
_________________________________________________________________
Total 100% 100%
T. Rowe Price Tax-Free Short-Intermediate Fund
For a share outstanding throughout each period
Financial Highlights
Year
Ended
2/28/98 2/28/97 2/29/96 2/28/95 2/28/94
NET ASSET VALUE
Beginning of
period $ 5.35 $ 5.37 $ 5.25 $ 5.32 $ 5.36
Investment
activities
Net investment
income 0.22 0.23 0.23 0.22 0.22
Net realized
and unrealized
gain (loss) 0.05 (0.02) 0.12 (0.07) (0.04)
Total from
investment
activities 0.27 0.21 0.35 0.15 0.18
Distributions
Net investment
income (0.22) (0.23) (0.23) (0.22) (0.22)
Net realized
gain (0.03) - - - -
Total distri-
butions (0.25) (0.23) (0.23) (0.22) (0.22)
NET ASSET VALUE
End of period $ 5.37 $ 5.35 $ 5.37 $ 5.25 $ 5.32
__________________________________________________
Ratios/Supplemental Data
Total return 5.28% 4.02% 6.87% 2.91% 3.49%
Ratio of expenses to
average net assets 0.54% 0.56% 0.57% 0.59% 0.60%
Ratio of net
investment
income to average
net assets 4.23% 4.30% 4.39% 4.19% 4.18%
Portfolio turnover
rate 76.8% 84.3% 69.9% 93.1% 51.1%
Net assets, end
of period
(in thousands) $438,951 $443,631 $445,228$454,084 $540,728
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free Short-Intermediate Fund
February 28, 1998
Statement of Net Assets
Par Value
In thousands
ALABAMA 1.9%
Alabama Docks Dept. Fac., 5.50%,
10/1/02 (MBIA Insured) $ 1,000 $ 1,052
Alabama Municipal Electric Auth.
5.75%, 9/1/01 (MBIA Insured) 3,000 3,157
Marshall County Health Care Auth.
Guntersville-Arab Medical Center
10.25%, 10/1/13 3,830 4,066
Total Alabama (Cost $8,223) 8,275
ARIZONA 1.8%
Arizona Transportation Board
6.35%, 7/1/05 (Prerefunded
7/1/01!) 6,400 6,952
Phoenix, Street and Highway User
7.30%, 7/1/98 (Escrowed to
Maturity) 900 912
Total Arizona (Cost $7,516) 7,864
CALIFORNIA 0.1%
California Housing Fin. Agency,
Multi-Unit Rental Housing
5.75%, 8/1/98 500 504
Total California (Cost $499) 504
COLORADO 3.3%
Denver City and County Airport
6.00%, 11/15/03 (MBIA Insured) * 3,965 4,305
7.00%, 11/15/25 * 4,750 5,112
7.30%, 11/15/00 * 4,750 5,124
Total Colorado (Cost $14,305) 14,541
CONNECTICUT 2.0%
Connecticut Special Assessment
Unemployment Compensation
5.50%, 5/15/00 (AMBAC Insured) 8,300 8,595
Total Connecticut (Cost $8,467) 8,595
DISTRICT OF COLUMBIA 0.4%
Metropolitan Washington D.C.
Airports Auth.
6.00%, 10/1/00 (MBIA Insured) * $ 1,500 $ 1,574
Total District of Columbia (Cost $1,545) 1,574
FLORIDA 5.8%
Dade County, Resource Recovery Fac.
6.00%, 10/1/99 (AMBAC Insured) * 10,740 11,112
Dunedin Utility Systems
6.00%, 10/1/14 (FGIC Insured)
(Prerefunded 10/1/99!) 3,000 3,105
Florida Inland Protection Fin.
5.00%, 7/1/00 (FSA Insured) 3,665 3,761
Florida Municipal Power Agency, Stanton
II Project
6.50%, 10/1/20 (AMBAC Insured)
(Prerefunded 10/1/02!) 250 279
Reedy Creek Improvement Dist., Florida
Utilities
5.00%, 10/1/02 (AMBAC Insured) 6,000 6,247
Tampa Health Systems, Catholic Health East
5.50%, 11/15/02 (MBIA Insured) 1,000 1,061
Total Florida (Cost $25,266) 25,565
GEORGIA 3.5%
Atlanta Airport Fac., 5.50%, 1/1/01
(AMBAC Insured) 5,000 5,202
Municipal Electric Auth. of Georgia
5.00%, 1/1/02 (MBIA Insured) 10,000 10,335
Total Georgia (Cost $15,246) 15,537
HAWAII 0.9%
Hawaii, GO, 6.25%, 3/1/02 (FGIC Insured) 3,800 4,105
Total Hawaii (Cost $3,991) 4,105
ILLINOIS 0.5%
Chicago - O' Hare Int'l. Airport,
Int'l Terminal
7.25%, 1/1/00 (MBIA Insured) * 2,000 2,117
Total Illinois (Cost $2,083) 2,117
INDIANA 4.3%
Indiana HFFA
Clarion Health Partners
6.00%, 2/15/00 $ 5,330 $ 5,529
6.00%, 2/15/01 5,600 5,885
Indianapolis, Public Improvement
6.70%, 1/1/17 (Prerefunded 1/1/02!) 6,550 7,267
Total Indiana (Cost $18,313) 18,681
LOUISIANA 2.1%
Louisiana, GO, 6.00%, 8/1/00 (FGIC Insured) 7,250 7,601
Louisiana PFA, Student Loan, 6.10%, 9/1/00 1,180 1,231
Plaquemines Parish, British Petroleum
VRDN (Currently 3.70%) * 500 500
Total Louisiana (Cost $9,168) 9,332
MARYLAND 4.8%
Maryland DOT, 6.50%, 11/1/99 3,895 4,072
Maryland Energy Fin. Administration
Wheelabrator
5.30%, 12/1/00 * 825 849
5.45%, 12/1/01 * 1,185 1,233
Maryland HHEFA, Francis Scott Key
Medical Center
6.75%, 7/1/23 (FGIC Insured)
(Prerefunded 7/1/00!) 5,560 6,019
Peninsula Regional Medical Center
4.60%, 7/1/02 955 970
Montgomery County, GO, Consolidated
Public Improvement
6.80%, 11/1/00 (Prerefunded 11/1/99!) 3,315 3,541
Northeast Maryland Waste Disposal Auth.
Southwest Resource Recovery Fac.
7.00%, 1/1/01 (MBIA Insured) 1,000 1,077
7.05%, 1/1/02 (MBIA Insured) 2,430 2,677
Washington Suburban Sanitary Dist.,
GO, 5.00%, 6/1/00 800 821
Total Maryland (Cost $20,646) 21,259
MASSACHUSETTS 6.7%
Massachusetts, GO
5.50%, 7/1/00 $ 12,000 $ 12,431
7.625%, 6/1/08 (Prerefunded
6/1/01!) 4,000 4,504
Massachusetts Health and Ed. Fac. Auth.
Brigham and Womens Hosp.
6.75%, 7/1/24 (Prerefunded 7/1/01!) 1,400 1,541
Massachusetts Turnpike Auth., BAN
5.00%, 6/1/99 (Escrowed to
Maturity) 10,590 10,761
Total Massachusetts (Cost $28,676) 29,237
MICHIGAN 5.9%
Detroit Sewage Disposal, 5.00%, 7/1/02
(FGIC Insured) 7,400 7,656
Dickinson County Economic Dev.
Solid Waste Disposal, 6.55%, 3/1/07 7,210 7,683
Michigan Building Auth., Fac. Program,
5.00%, 10/15/00 5,000 5,134
Michigan Hosp. Fin. Auth.
Mercy Health
5.25%, 8/15/01 715 741
5.25%, 8/15/02 555 578
6.00%, 8/15/01 2,450 2,596
6.00%, 8/15/02 1,595 1,710
Total Michigan (Cost $25,844) 26,098
MISSISSIPPI 4.0%
Adams County, Jefferson Davis Memorial Hosp.
8.00%, 10/1/16 (Prerefunded
10/1/01!) 3,805 4,358
Jackson County Industrial Sewage
Fac., Chevron
VRDN (Currently 3.70%) * 1,800 1,800
Mississippi Higher Ed. Assistance
Student Loan
6.00%, 7/1/00 5,000 5,158
6.10%, 1/1/01 5,000 5,196
Mississippi Hosp. Equipment and Fac. Auth.
Rush Medical Foundation, 5.40%, 1/1/07 1,205 1,234
Total Mississippi (Cost $17,566) 17,746
MISSOURI 1.5%
St. Louis
Lambert Int'l. Airport
6.00%, 7/1/02 (FGIC Insured) * $ 2,770 $ 2,975
6.00%, 7/1/03 (FGIC Insured) * 3,465 3,757
Total Missouri (Cost $6,472) 6,732
NEVADA 1.6%
Clark County School Dist., GO, 6.00%,
6/15/02 (FGIC Insured) 6,570 7,054
Total Nevada (Cost $6,851) 7,054
NEW JERSEY 1.2%
New Jersey Transportation Trust Fund Auth.,
6.00%, 6/15/00 5,000 5,234
Total New Jersey (Cost $5,156) 5,234
NEW YORK 15.7%
Dormitory Auth. of the State of New York
City Univ., 9.25%, 7/1/00 5,180 5,765
Interfaith Medical Center, 5.00%, 2/15/032,210 2,263
Mental Health Services Fac.,
6.00%, 8/15/03 10,905 11,799
Wyckoff Heights Hosp., 5.50%, 2/15/03 4,095 4,283
Metropolitan Transportation Auth.,
Commuter Fac.
5.00%, 7/1/04 (AMBAC Insured) 5,375 5,603
Nassau County, GO, 6.30%, 11/1/02 (FGIC
Insured) 3,295 3,607
New York City, GO
5.25%, 8/1/00 5,900 6,058
5.25%, 8/1/03 12,040 12,517
6.00%, 10/15/06 5,855 6,530
6.75%, 8/1/04 4,300 4,827
New York City Municipal Water Fin. Auth.
Water and Sewer
6.50%, 6/15/20 (Prerefunded
6/15/02!) 5,000 5,523
Total New York (Cost $67,138) 68,775
OHIO 1.8%
Cuyahoga County
Univ. Hosp.
6.00%, 1/15/01 (MBIA Insured) 2,120 2,230
Cuyahoga County
Univ. Hosp.
6.00%, 1/15/02 (MBIA Insured) $ 2,340 $ 2,496
Ohio Building Auth., Adult Correctional
Fac.
5.75%, 4/1/01 (AMBAC Insured) 2,920 3,066
Total Ohio (Cost $7,635) 7,792
PENNSYLVANIA 8.5%
Pennsylvania, GO, 5.125%, 9/15/03
(AMBAC Insured) 5,000 5,245
Pennsylvania Intergovernmental
Cooperative Auth. Philadelphia
Funding Program
5.75%, 6/15/99 (FGIC Insured) 5,000 5,128
5.75%, 6/15/00 (FGIC Insured) 5,000 5,202
6.00%, 6/15/02 (FGIC Insured) 5,000 5,371
Philadelphia, Water and Sewer
7.50%, 8/1/10 (Prerefunded 8/1/01!) 10,000 11,271
Pittsburgh, Water and Sewer
6.50%, 9/1/14 (FGIC Insured)
(Prerefunded 9/1/01!) 4,500 4,940
Total Pennsylvania (Cost $36,308) 37,157
RHODE ISLAND 0.5%
Rhode Island Student Loan, 6.20%, 12/1/98 2,000 2,030
Total Rhode Island (Cost $2,000) 2,030
SOUTH CAROLINA 5.5%
South Carolina Public Service Auth.
Santee Cooper
6.25%, 1/1/00 (AMBAC Insured) 3,000 3,127
6.25%, 1/1/01 (AMBAC Insured) 2,000 2,118
6.50%, 7/1/24 (AMBAC Insured)
(Prerefunded 7/1/02!) 10,000 11,126
7.10%, 7/1/21 (Prerefunded 7/1/01!) 7,125 7,927
Total South Carolina (Cost $23,354) 24,298
TEXAS 4.5%
Austin Utilities, 5.75%, 11/15/03
(FSA Insured) 5,000 5,358
Fort Worth, GO, 6.00%, 3/1/01 5,000 5,285
Goose Creek Independent School Dist., GO
Zero Coupon, 2/15/99 $ 1,200 $ 1,156
Houston, GO, 4.375%, 3/1/99 650 655
San Antonio Electric and Gas
5.75%, 2/1/11 (Prerefunded 2/1/02!) 4,365 4,664
Texas Housing Agency
6.25%, 3/1/98 300 300
6.25%, 9/1/98 240 243
Tyler Health Fac. Dev.
Mother Frances Hosp.
5.25%, 7/1/01 700 714
5.25%, 7/1/02 1,200 1,227
Total Texas (Cost $19,242) 19,602
UTAH 0.1%
Utah Housing Fin. Agency, 6.00%, 1/1/99 210 213
Total Utah (Cost $210) 213
VIRGINIA 3.4%
Fairfax County Economic Dev. Auth.,
Ogden Martin
7.75%, 2/1/11 * 5,445 5,773
Hampton Roads Medical College, 6.30%,
11/15/02 1,000 1,082
Virginia HDA, 5.90%, 1/1/00 * 1,865 1,909
Virginia Polytechnic Institute and State Univ.
5.375%, 6/1/00 1,000 1,033
5.375%, 6/1/01 750 781
Virginia Public School Auth., School Fin.,
5.50%, 8/1/02 4,150 4,391
Total Virginia (Cost $14,698) 14,969
WASHINGTON 4.8%
Chelan County Public Utility Dist., Zero
Coupon, 7/1/62 * 6,515 7,202
Washington Public Power
Nuclear Project
5.50%, 7/1/02 5,000 5,243
6.30%, 7/1/01 (FSA Insured) 2,000 2,135
7.25%, 7/1/00 2,000 2,140
7.625%, 7/1/10 (Prerefunded 1/1/01!) 4,000 4,448
Total Washington (Cost $20,802) 21,168
WISCONSIN 3.9%
Wisconsin, GO, 6.30%, 5/1/11
(Prerefunded 5/1/02!) $ 9,000 $ 9,760
Wisconsin Public Power Agency
7.50%, 7/1/10 (AMBAC Insured)
(Prerefunded 7/1/00!) 4,800 5,273
Wisconsin Transportation, 5.40%, 7/1/04 2,000 2,089
Total Wisconsin (Cost $16,727) 17,122
WYOMING 0.0%
Sublette County, PCR, Exxon, VRDN
(Currently 3.70%) * 200 200
Total Wyoming (Cost $200) 200
Total Investments in Securities
101.0% of Net Assets (Cost $434,147) $ 443,376
Other Assets Less Liabilities (4,425)
NET ASSETS $ 438,951
___________
Net Assets Consist of:
Accumulated net investment income - net
of distributions $ 17
Accumulated net realized gain/loss - net
of distributions (199)
Net unrealized gain (loss) 9,229
Paid-in-capital applicable to 81,762,074
shares of $0.01 par value capital
stock outstanding; 1,000,000,000
shares authorized 429,904
NET ASSETS $ 438,951
___________
NET ASSET VALUE PER SHARE $ 5.37
___________
* Interest subject to alternative minimum tax
! Used in determining portfolio maturity
AMBAC AMBAC Indemnity Corp.
BAN Bond Anticipation Note
DOT Department of Transportation
FGIC Financial Guaranty Insurance Company
FSA Financial Security Assurance Corp.
GO General Obligation
HDA Housing Development Authority
HFFA Health Facility Financing Authority
HHEFA Health & Higher Educational Facility Authority
MBIA Municipal Bond Investors Assurance Corp.
PCR Pollution Control Revenue
PFA Public Facility Authority
VRDN Variable Rate Demand Note
T. Rowe Price Tax-Free Short-Intermediate Fund
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free Short-Intermediate Fund
Statement of Operations
In thousands
Year
Ended
2/28/98
Investment Income
Interest income $ 20,806
Expenses
Investment management 1,856
Shareholder servicing 262
Custody and accounting 135
Registration 39
Prospectus and shareholder reports 28
Legal and audit 11
Directors 7
Miscellaneous 7
Total expenses 2,345
Net investment income 18,461
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 1,329
Futures (224)
Net realized gain (loss) 1,105
Change in net unrealized gain or loss on securities 2,661
Net realized and unrealized gain (loss) 3,766
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 22,227
___________
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free Short-Intermediate Fund
Statement of Changes in Net Assets
In thousands
Year
Ended
2/28/98 2/28/97
Increase (Decrease) in Net Assets
Operations
Net investment income $ 18,461 $ 18,881
Net realized gain (loss) 1,105 2,473
Change in net unrealized gain or loss 2,661 (3,995)
Increase (decrease) in net assets
from operations 22,227 17,359
Distributions to shareholders
Net investment income (18,461) (18,881)
Net realized gain (2,474) -
Decrease in net assets from
distributions (20,935) (18,881)
Capital share transactions*
Shares sold 101,122 82,162
Distributions reinvested 16,613 15,046
Shares redeemed (123,707) (97,283)
Increase (decrease) in net assets
from capital share transactions (5,972) (75)
Net Assets
Increase (decrease) during period (4,680) (1,597)
Beginning of period 443,631 445,228
End of period $ 438,951 $ 443,631
_______________________
*Share information
Shares sold 18,953 15,440
Distributions reinvested 3,115 2,826
Shares redeemed (23,189) (18,288)
Increase (decrease) in shares
outstanding (1,121) (22)
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free Short-Intermediate Fund
February 28, 1998
Notes to Financial Statements
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 and commenced operations on
December 23, 1983.
The accompanying financial statements are prepared in accordance with
generally accepted accounting principles for the investment company
industry; these principles may require the use of estimates by fund
management.
Valuation Debt securities are generally traded in the over-the-counter
market. Investments in securities are stated at fair value as furnished by
dealers who make markets in such securities or by an independent pricing
service, which considers yield or price of bonds of comparable quality,
coupon, maturity, and type, as well as prices quoted by dealers who make
markets in such securities.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair
value as determined in good faith by or under the supervision of the
officers of the fund, as authorized by the Board of Directors.
Premiums and Discounts Premiums and original issue discounts on municipal
securities are amortized for both financial reporting and tax purposes.
Market discounts are recognized upon disposition of the security as gain
or loss for financial reporting purposes and as ordinary income for tax
purposes.
Other Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and
losses are reported on the identified cost basis. Distributions to
shareholders are recorded by the fund on the ex-dividend date. Income and
capital gain distributions are determined in accordance with federal
income tax regulations and may differ from those determined in accordance
with generally accepted accounting principles.
Note 2 - Investment Transactions
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $349,089,000 and $331,263,000, respectively, for
the year ended February 28, 1998.
Note 3 - Federal Income Taxes
No provision for federal income taxes is required since the fund intends
to continue to qualify as a regulated investment company and distribute
all of its income.
At February 28, 1998, the aggregate cost of investments for federal income
tax and financial reporting purposes was $434,147,000, and net unrealized
gain aggregated $9,229,000, of which $9,285,000 related to appreciated
investments and $56,000 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 $142,000 was payable at February 28, 1998. The
fee is computed daily and paid monthly, and consists of an individual fund
fee equal to 0.10% of average daily net assets and a group fee. The group
fee is based on the combined assets of certain mutual funds sponsored by
the manager or Rowe Price-Fleming International, Inc. (the group). The
group fee rate ranges from 0.48% for the first $1 billion of assets to
0.30% for assets in excess of $80 billion. At February 28, 1998, and for
the year then ended, the effective annual group fee rate was 0.32%. The
fund pays a pro-rata share of the group fee based on the ratio of its net
assets to those of the group.
In addition, the fund has entered into agreements with the manager and a
wholly owned subsidiary of the manager, pursuant to which the fund
receives certain other services. The manager computes the daily share
price and maintains the financial records of the fund. T. Rowe Price
Services, Inc., is the fund's transfer and dividend disbursing agent and
provides shareholder and administrative services to the fund. The fund
incurred expenses pursuant to these related party agreements totaling
approximately $291,000 for the year ended February 28, 1998, of which
$27,000 was payable at period-end.
Tax Information (Unaudited) for the Tax Year Ended 2/28/98
We are providing this information as required by the Internal Revenue
Code. The amounts shown may differ from those elsewhere in this report
because of differences between tax and financial reporting requirements.
The fund's distributions to shareholders included:
o $2,474,000 from long-term capital gains; of which $818,000 was subject
to the 20% rate gains category.
o $18,442,000 which qualified as exempt-interest dividends.
T. Rowe Price Tax-Free Short-Intermediate Fund
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 net assets of T. Rowe Price
Tax-Free Short-Intermediate Fund, Inc. as of February 28, 1998, and the
related statement of operations for the year then ended, statement of
changes in net assets for each of the two years in the period then ended,
and financial highlights for each of the three years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on
our audits. The 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of investments owned as of February 28, 1998, by
correspondence with the custodian and the brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of T. Rowe Price Tax-Free Short-Intermediate Fund, Inc. as of February 28,
1998, the results of its operations, the changes in its net assets, and
financial highlights for each of the respective periods stated in the
first paragraph, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
March 18, 1998
For yield, price, last transaction,
current balance, or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access(registered trademark):
1-800-638-2587 toll free
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
410-625-6500 Baltimore area
To open a Discount Brokerage
account or obtain information,
call: 1-800-638-5660 toll free
Internet address:
www.troweprice.com
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus of the
T. Rowe Price Tax-Free Short-
Intermediate Fund(registered trademark).
Investor Centers:
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
Invest With Confidence(registered trademark)
T. Rowe Price
T. Rowe Price Investment Services, Inc., Distributor.
F56-050 2/28/98
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, 1998
T. Rowe Price
Report Highlights
Tax-Free Funds
o All five funds posted better returns than their peer
group averages for the 6- and 12-month periods ended
February 28, 1998.
o Municipal bonds performed well during both periods,
buoyed by subdued inflation and a flight to the quality
of U.S. bonds following the Asian financial crisis.
o Municipal credit ratings improved significantly due to
continuing economic growth. Yield spreads between higher-
and lower-quality bonds narrowed to record lows,
providing an extra boost to the high-yield sector.
o We expect slower economic growth and continued low
inflation in 1998, which bodes well for municipal bond
investors.
Fellow Shareholders
The bond market and your funds enjoyed good returns during the
past 6- and 12-month periods, fueled by low inflation and
credit upgrades due to strong economic growth. In the
aftermath of the currency crises in Southeast Asia, domestic
bonds, including municipals, benefited from a flight to the
relative stability of U.S. fixed income markets.
MARKET ENVIRONMENT
During the six months ended February 28, 1998, municipal bond
prices rose and yields declined, with yields on long-term
AAA-rated bonds falling about 27 basis points (100 basis
points equal one percent) from the end of August. Intermediate
yields fell in tandem with long-term rates, but short-term
rates fell less sharply. As a result, the yield curve
flattened throughout most of the past six months, causing
long-term bonds to outperform shorter maturities.
Municipal Bond and Note Yields
1-Year Moody's
30-Year AAA 5-Year AAA Investment Grade
General Obligation General Obligation 1 Note
2/28/97 5.5 4.4 3.7
5.75 4.75 3.9
5.6 4.8 3.95
5/97 5.5 4.55 3.9
5.45 4.4 3.85
5.15 4.15 3.85
8/97 5.35 4.35 3.85
5.25 4.2 3.8
5.23 4.15 3.8
11/97 5.18 4.2 3.85
5.03 4.1 3.85
5 4 3.65
2/28/98 5.08 4.05 3.6
The major influence on rates was (and continues to be) moderate inflation
in the U.S. Consumer prices increased only slightly, and producer prices
actually declined over the last 12 months. The Federal Reserve has left
short-term interest rates unchanged since March 1997 despite strong
economic growth. Shortly after the hike in the federal funds rate last
spring, yields had risen in anticipation of further Fed tightening, but
low inflation and the events in Asia have put the Fed on hold.
The municipal market also benefited from the positive impact of subdued
inflation on all fixed income investments. However, municipals
underperformed Treasuries as issuers rushed to the market to take
advantage of low borrowing costs, driving up supply. Issuance rose 20% in
1997, and supply so far in 1998 is the highest ever for the first two
months of the year. Strong economic growth boosted the financial condition
of municipal governments, resulting in improving municipal credits. Rating
upgrades exceeded downgrades by a seven-to-one margin. The difference
between the yields of higher- and lower-quality bonds narrowed,
contributing to good returns from lower-quality bonds.
TAX-EXEMPT MONEY FUND
Our longer-maturity strategy resulted in relatively good returns and
enabled your fund to outperform its peer group during both the 6- and
12-month periods ended February 28, 1998.
Performance Comparison
Periods Ended 2/28/98 6 Months 12 Months
__________________________________________________________________
Tax-Exempt Money Fund 1.60% 3.24%
Lipper Tax-Exempt Money
Market Funds Average 1.52 3.09
The fund ended its fiscal year with a weighted average maturity of 59
days, close to where it was at the end of February and August of 1997.
This maturity was significantly longer than the peer group average of 43
days, and it ranged from 10 to 20 days longer than the competition
throughout the last six months. Our longer maturity posture was warranted
by both a stable U.S. monetary policy and strong cash flows into the
short-term tax-exempt sector. Your fund's increased holdings in six-month
to one-year maturities provided an additional average yield of 10 to 20
basis points.
Short-term tax-exempt yields closed the fiscal year at 3.50% for six-month
and 3.60% for one-year maturities. These yields were 20 and 25 basis
points lower, respectively, than the yields that prevailed on August 31,
but only five to 10 basis points lower than a year ago. All in all, the
rate environment has been remarkably docile in the short end of the yield
curve, and most of the move toward lower yields took place during the
first two months of 1998.
The supply of new short-term issues increased more than 10% in 1997 to
almost $46 billion, the largest yearly volume since 1993. More important,
however, was the increase in tax-exempt money fund assets, which rose
almost $25 billion to a record $172.3 billion. As investors have become
more willing to accept a lower rate of return for stability of principal,
money funds across the board have benefited. This is best evidenced by the
assets of all money funds, both tax-exempt and taxable, which surpassed
the $l trillion milestone in 1997 and reached $1.124 trillion on February
28, 1998.
TAX-FREE SHORT-INTERMEDIATE FUND
Performance Comparison
Periods Ended 2/28/98 6 Months 12 Months
__________________________________________________________________
Tax-Free Short-
Intermediate Fund 3.08% 5.28%
Lipper Short-Intermediate
Debt Funds Average 2.91 5.14
Your fund posted solid returns and outperformed the Lipper
Short-Intermediate Debt Funds Average over both the 6- and 12-month
periods ended February 28, 1998. Returns were enhanced by an extension of
duration, a low expense ratio, and a narrowing of yields between higher-
and lower-quality bonds. (Duration is a measure of a bond fund's
sensitivity to interest rates. For example, a fund with a duration of
three years would fall or rise about 3% in price in response to a
one-percentage-point rise or fall in interest rates.)
At the end of August the fund's duration was 2.8 years, which we
considered a neutral posture. In September, Treasury yields began to fall
and new issuance of municipal bonds increased. This additional supply kept
municipal yields from falling as fast as Treasury yields and improved the
relative attractiveness of tax-exempt bonds. At that time, we considered
municipal yields appealing enough to extend duration to a more aggressive
3.1 years. When municipal yields continued to drop into January, we
shortened the fund's duration slightly to 3.0 years, where it stood at the
end of the reporting period.
Also helping performance was the improving credit quality of many
municipal issuers. As a result, more than 10% of fund holdings enjoyed
credit upgrades during the past 12 months.
TAX-FREE INSURED INTERMEDIATE BOND FUND
Intermediate-term bonds generated strong returns over the last 12 months,
a combination of good capital appreciation and coupon income. Fund results
were ahead of the Lipper Intermediate Municipal Debt Funds Average for
both the 6- and 12-month periods ended February 28, 1998. The fund's
superior performance relative to its peers occurred in the second half of
the fiscal year as we extended duration. (For an explanation of duration,
see the report for the Tax-Free Short-Intermediate Fund.) Also
contributing to the strong results was the fund's low expense ratio.
Performance Comparison
Periods Ended 2/28/98 6 Months 12 Months
__________________________________________________________________
Tax-Free Insured
Intermediate Bond Fund 4.39% 7.31%
Lipper Intermediate
Municipal Debt Funds Average 4.07 7.10
During the first six months, we had adopted a slightly defensive duration
posture that caused us to lag our peer group. When bond prices fell and
yields moved higher in August and September, we took advantage of the
opportunity to move from a defensive to a neutral posture. The heavy
supply of new municipal bond issuance caused Treasuries to outperform
municipals in late 1997, resulting in narrower spreads between tax-exempt
and taxable yields. Municipal bonds grew more attractive relative to
taxable securities, and we extended duration further. As prices continued
to rally into January, we trimmed duration once again to 5.5 years at the
end of February. The continuing growth of insured bonds added to the
municipal market's appeal, as insured securities approached 50% of all new
issues in 1997.
We also adopted a "barbell" structure for part of the portfolio, which
consists of shorter- and longer-term securities together producing an
intermediate duration with a higher yield. The combination of the two
securities appreciates in value faster than a single bond with an
intermediate-term duration.
TAX-FREE INCOME FUND
Performance Comparison
Periods Ended 2/28/98 6 Months 12 Months
___________________________________________________________________
Tax-Free Income Fund 5.18% 9.37%
Lipper General Municipal
Debt Funds Average 4.99 9.12
Long-term national municipal bond funds performed well over the past year
with total returns above 9% as long-term interest rates ended about 40
basis points lower than a year ago. This compares with an average annual
return closer to 7% for these funds over the last five years. Your fund's
results exceeded those of its Lipper peer group average for the 6- and
12-month periods ended February 28, 1998.
The Tax-Free Income Fund surpassed the average for its peers due to
several factors. First, we extended duration in the second half of the
fund's fiscal year as we put more cash to work in the long end of the
market. Second, we followed a "barbelled" maturity strategy to take
advantage of a flattening yield curve with long rates falling while
short-term rates were little changed. This meant holding fewer
intermediate-term bonds that did not appreciate as much as long-term
securities. The duration of the fund (see Tax-Free Short-Intermediate Fund
section for an explanation) was slightly shorter at the end of February as
more bonds traded to their call dates. To mitigate this effect, we
continued to overweight noncallable bonds among maturities longer than 10
years. Finally, we tried to enhance the yield by holding older premium
bonds with higher coupons, while deploying new cash into more
price-sensitive lower-coupon bonds.
While the fund's portfolio structure produced good returns, in retrospect
we should have invested in more lower-quality bonds to participate further
in the spread tightening of the past year. We were pleased that many of
our larger lower-rated positions performed well and were upgraded during
the year.
TAX-FREE HIGH YIELD FUND
Performance Comparison
Periods Ended 2/28/98 6 Months 12 Months
__________________________________________________________________
Tax-Free High Yield Fund 5.51% 10.42%
Lipper High Yield Municipal
Debt Funds Average 5.39 10.13
The high-yield sector was the best-performing part of the municipal bond
market last year, buoyed by narrowing differences in yields between
higher- and lower-quality bonds. The yield spread declined to a record low
level during the period. Within this environment, the Tax-Free High Yield
Fund generated strong returns and outperformed the average of similar
funds for both the fiscal year and most recent six months. The fund's
return over the past 10 years is also well ahead of the average for
competing funds.
The narrowing of credit quality yield spreads was the dominant theme of
the municipal high-yield market last year, since tighter spreads enhance
the price performance of lower-quality bonds versus higher-quality
securities. Much of the tightening occurred during the first half of the
year, with spreads stabilizing at the lower level over the second half. To
illustrate, consider the yield spread difference between our municipal
high-yield index with an average rating of BB+ versus one composed of
bonds with an average AA rating. Since January 1995, the spread between
these two indices has moved from 130 basis points to only 30 basis points.
The principal forces that could reverse this trend, such as a recession
and heavy high-yield issuance, do not appear likely at present. Thus, we
expect the difference between yields of lower- and higher-quality to
remain narrow.
Quality Diversification
Tax-Free High Yield Fund
AAA AA A BBB BB and Below
4% 26% 20% 27% 23%
While this compression of yield spreads has generally reduced our
enthusiasm for lower-quality bonds, we are nevertheless able to find
issues to our liking. Over the past six months, the fund's exposure to
below-investment-grade bonds rose from 19% to 23% of net assets. Our
weighting in bonds rated BBB fell from 32% to 27% due to an upgrade of the
fund's largest holding, New York City general obligation bonds.
New York City's rating upgrade illustrates a broader trend: while the
fund's average credit quality is little changed from a year ago, nearly
12% of holdings were upgraded by at least one rating agency last year.
Fund performance during the past six and 12 months benefited from its
higher noninvestment-grade exposure, low expense ratio, the ratings
upgrades discussed, and a modest extension of duration. (For an
explanation of duration, see the report for the Tax-Free
Short-Intermediate Fund.) We began the recent six-month period with a
duration of 7.0 years and ended at 7.2 years as interest rates rose in
February. The fund's weighted average maturity hovered around 19 years,
and cash levels averaged about 3%.
OUTLOOK
The problems in Asia could affect the U.S. economy and slice a bit off
1998 growth, but the so-called Asian flu does not appear serious enough to
precipitate a downturn while domestic consumer demand remains healthy. The
recent Congressional testimony of Federal Reserve officials suggests that
the Fed will leave monetary policy unchanged until it fully appraises the
impact of Asia's problems on the U.S. economy.
Municipal bonds produced good results over the last 12 months despite the
steady growth of new issuance. However, we ended the year with a slightly
more cautious view. A surge in issuance in the first quarter of 1998 meant
we were paid to be patient as yields rose from their lows in mid-January.
Municipal bonds look attractive compared with taxable alternatives, which
could represent an opportunity to buy bonds at higher yields.
We anticipate slower economic growth in 1998, continued low inflation, and
stable monetary policy, all of which should be favorable for the municipal
bond market.
Respectfully submitted,
Mary J. Miller
Director, Municipal Bond Department
March 20, 1998
T. Rowe Price Tax-Free Funds
Portfolio Highlights
Key statistics
8/31/97 2/28/98
Tax-Exempt Money Fund
_____________________________________________________________________
Price Per Share $ 1.00 $ 1.00
Dividends Per Share
For 6 months 0.016 0.016
For 12 months 0.031 0.032
Dividend Yield (7-Day Compound) * 3.04% 3.03%
Weighted Average Maturity (days) 60 59
Weighted Average Quality ** First Tier First Tier
Tax-Free Short-Intermediate Fund
_______________________________________________________________________
Price Per Share $ 5.33 $ 5.37
Dividends Per Share
For 6 months 0.11 0.11
For 12 months 0.22 0.22
Dividend Yield *
For 6 months 4.27% 4.28%
For 12 months 4.37 4.32
Capital Gain Distribution (long
term, paid 12/30/97) - $ 0.01
Weighted Average Maturity (years) 3.8 4.1
Weighted Average Effective
Duration (years) 2.8 3.0
Weighted Average Quality *** AA- AA
T. Rowe Price Tax-Free Funds
Portfolio Highlights
Key statistics
8/31/97 2/28/98
Tax-Free Insured Intermediate Bond Fund
_______________________________________________________________________
Price Per Share $ 10.86 $ 11.06
Dividends Per Share
For 6 months 0.24 0.24
For 12 months 0.48 0.48
Dividend Yield *
For 6 months 4.44% 4.49%
For 12 months 4.56 4.52
Capital Gain Distribution (paid 12/30/97)
Short-Term - $ 0.02
Long-Term - 0.01
Weighted Average Maturity (years) 8.5 8.4
Weighted Average Effective Duration
(years) 5.4 5.5
Weighted Average Quality *** AA AA
Tax-Free Income Fund
______________________________________________________________________
Price Per Share $ 9.71 $ 9.95
Dividends Per Share
For 6 months 0.26 0.26
For 12 months 0.52 0.52
Dividend Yield *
For 6 months 5.40% 5.33%
For 12 months 5.51 5.44
Weighted Average Maturity (years) 17.4 17.1
Weighted Average Effective
Duration (years) 7.5 7.4
Weighted Average Quality *** AA- AA-
T. Rowe Price Tax-Free Funds
Portfolio Highlights
Key statistics
8/31/97 2/28/98
Tax-Free High Yield Fund
______________________________________________________________________
Price Per Share $ 12.33 $ 12.66
Dividends Per Share
For 6 months 0.35 0.34
For 12 months 0.70 0.69
Dividend Yield *
For 6 months 5.74% 5.57%
For 12 months 5.92 5.74
Weighted Average Maturity (years) 18.7 18.9
Weighted Average Effective Duration
(years) 7.0 7.2
Weighted Average Quality *** A- A-
* Dividends earned and reinvested for the periods indicated are
annualized and divided by the average daily net asset values per
share for the same period.
** All securities purchased in the money fund are rated in the two
highest categories (tiers) as established by national rating agencies
or, if unrated, are deemed of comparable quality by T. Rowe Price.
*** Based on T. Rowe Price research.
T. Rowe Price Tax-Free Funds
Average Annual Compound Total Return
This table shows how each fund would have performed each year if its
actual (or cumulative) returns for the periods shown had been earned at a
constant rate.
Periods Ended 2/28/98
SinceInception
1 Year 5 Years 10 Years Inception Date
______________________________________________________________________
Tax-Exempt Money 3.24% 2.87% 3.65% - 4/8/81
Tax-Free Short-
Intermediate 5.28 4.50 5.44 -12/23/83
Tax-Free Insured
Intermediate
Bond 7.31 5.81 - 6.87%11/30/92
Tax-Free Income 9.37 6.33 7.70 -10/26/76
Tax-Free High
Yield 10.42 7.15 8.58 - 3/1/85
Investment returns represent past performance and will vary. Shares of the
bond funds may be worth more or less at redemption than at original
purchase. The Money Fund's $1.00 share price is not guaranteed, nor is the
fund insured by the U.S. government.
Performance Comparison
These charts show the value of a hypothetical $10,000 investment in each
fund over the past 10 fiscal year periods or since inception (for funds
lacking 10-year records). The result is compared with a broad-based
average or index. The index return does not reflect expenses, which have
been deducted from each fund's return.
Tax-Exempt Money Fund
As of 2/28/98
Lipper Tax-Exempt
Money Market Tax-Exempt
Fund Index Money Fund
2/88 $10,000$ 10,000
2/89 10,500 10,508
2/90 11,120 11,125
2/91 11,719 11,705
2/92 12,176 12,138
2/93 12,470 12,424
2/94 12,707 12,679
2/95 13,030 13,012
2/96 13,464 13,453
2/97 13,858 13,864
2/98 14,296 14,312
T. Rowe Price Tax-Free Funds
Performance Comparison
Tax-Free Short-Intermediate Fund
As of 2/28/98
Lehman 3-Year Lipper Short- Tax-Free
GO Bond Intermediate Short-Intermediate
Index Debt Funds Average Fund
2/88 $10,000 $ 10,000 $10,000
2/89 10,261 10,389 10,314
2/90 11,088 11,183 11,073
2/91 12,016 12,038 11,855
2/92 12,996 12,989 12,677
2/93 14,124 14,182 13,629
2/94 14,615 14,731 14,105
2/95 14,998 15,040 14,515
2/96 16,206 16,130 15,512
2/97 16,952 16,808 16,136
2/98 17,857 17,720 16,987
Tax-Free Insured Intermediate Bond Fund
As of 2/28/98
Lehman 7-Year Lipper Intermediate Tax-Free
Municipal Municipal Debt Insured Intermediate
Bond Index Funds Average Bond Fund
11/30/92 $10,000 $ 10,000 $10,000
2/93 10,542 10,540 10,681
2/94 11,008 11,038 11,267
2/95 11,277 11,250 11,566
2/96 12,434 12,278 12,672
2/97 13,050 12,816 13,204
2/98 14,043 13,767 14,168
T. Rowe Price Tax-Free Funds
Performance Comparison
Tax-Free Income Fund
As of 2/28/98
Lehman Lipper General
Municipal Municipal Debt Tax-Free
Bond Index Funds Average Income Fund
2/88 $10,000 $10,000 $10,000
2/89 10,621 10,693 10,411
2/90 11,710 11,642 11,259
2/91 12,790 12,599 12,205
2/92 14,067 13,882 13,447
2/93 16,003 15,871 15,447
2/94 16,890 16,738 16,297
2/95 17,208 16,867 16,606
2/96 19,109 18,560 18,318
2/97 20,161 19,440 19,199
2/98 22,004 21,268 20,998
Tax-Free High Yield Fund
As of 2/28/98
Lipper High Yield Tax-Free
Lehman Revenue Municipal Debt High Yield
Bond Index Funds Average Fund
2/88 $10,000 $10,000 $10,000
2/89 10,805 10,798 10,827
2/90 11,968 11,741 11,861
2/91 13,069 12,420 12,801
2/92 14,475 13,706 14,154
2/93 16,580 15,373 16,127
2/94 17,619 16,374 17,335
2/95 17,890 16,615 17,554
2/96 19,918 18,354 19,419
2/97 21,093 19,370 20,627
2/98 23,149 21,661 22,776
For yield, price, last transaction,
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T. Rowe Price Associates
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Baltimore, Maryland 21202
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and to others who have received
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C03-050 2/28/98
