<PAGE>
Fellow Shareholders
By virtually every measure, the economy strengthened during the Funds' fiscal
year ended February 28, 1994. Gross domestic product grew at an annual rate of
nearly 1.5% for the first six months of calendar 1993, then surged at an annual
rate of more than 5% in the second half. Unemployment dropped steadily, capacity
utilization rose, and personal income gains were impressive. Based on stronger
spending by consumers on durable goods and housing, and by businesses on fixed
equipment, economic momentum seemed to carry over into early 1994 even though
the Arctic cold snap east of the Rockies and the earthquake in Los Angeles
tended to depress business activity.
The swing in the economy's thrust was reflected in the credit markets.
Perceived weakness in the economy through the autumn of 1993 and the Federal
Reserve's continued easy monetary policy encouraged a substantial decline in
note and bond yields. Between the end of February 1993 and mid-October, the
yield on the Treasury's benchmark 30-year bond dropped more than one full
percentage point, reaching a low of 5.78%. As it became increasingly apparent
that the economy was entering a phase of stronger growth, interest rates began
to rise--a trend that was accelerated by the Fed's announcement of a tightening
in early February. Despite reaching new lows last autumn, short- and
intermediate-term interest rates on taxable notes and bonds actually closed the
Funds' year-end 30 to 75 basis points higher than 12 months earlier, though
long-term Treasury bond yields closed a bit lower.
The tax-exempt sector experienced the same trend in yields. After declining
to 20-year lows in October, municipal yields closed the Funds' fiscal year
higher in every maturity range, with the most significant moves occurring during
the final quarter. From November 30 to February 28, short- and intermediate-term
rates rose about 30 basis points while long-term yields increased approximately
20 basis points.
The municipal market can be volatile during periods of uncertainty, and the
recent past was no exception. Unlike taxable markets, which include individuals,
foreign and domestic corporations, mutual funds, pension funds, and government
entities, the municipal market is now dominated by individual investors. As a
result, tax-exempt securities can be very sensitive to changes in supply and
demand, often becoming overbought or oversold. In September and October 1993,
for example, long-term yields dipped to low levels and prices rose as investors
rapidly increased their tax-free mutual fund holdings. Since October, the
pendulum has swung in the opposite direction, and cash flows into long-term bond
funds have abated. Municipal investors have drifted to the sidelines with a
wait-and-see attitude, and the reduced liquidity in the marketplace has sent
bond prices lower. As a result, our bond funds reflected share-price declines
for the quarter. Our money funds, of course, are managed to maintain a stable
$1.00 per share value.
[GRAPH APPEARS HERE]
Municipal Interest Rate Levels
A line graph compares the yields of the 30-year Prime General Obligation bond,
the five-year Prime General Obligation bond, and the six-month Moody's
Investment Grade 1 Note.
TAX-EXEMPT MONEY FUND
During the past three months, the short-term, tax-exempt money market managed to
post both its lowest and highest interest rates of the fiscal year. As the
quarter began, yields reached record lows amid concerns about massive
reinvestment of proceeds from maturing bonds and coupon payments made on January
1, 1994. By February, however, the focus turned to the Federal Reserve's efforts
to push short-term rates higher. As a result, yields on six-month and one-year
notes fluctuated 70 to 100 basis points in a very short time.
<PAGE>
Assets in the tax-exempt money fund industry expanded by 11% over the
fiscal year to a record $112.7 billion, indicating a strong desire among
investors for principal stability. Much of this cash flow was invested in the
one- to 30-day maturity area as portfolio managers sought to preserve
flexibility in a rising rate environment. This caused yields of very short
maturities to move lower, while maturities of 90 days or more moved higher in
tandem with the general direction of short-term rates.
We kept the Tax-Exempt Money Fund's weighted average maturity at more than
60 days during December and January, but shortened to 55 days by quarter-end.
For most of the Fund's fiscal year, our maturity target was equal to or longer
than the peer group average.
<TABLE>
<CAPTION>
Portfolio Characteristics
Periods Ended
2/28/93 11/30/93 2/28/94
------- -------- -------
<S> <C> <C> <C>
Weighted Avg. Quality* 2.0 1.9 2.0
Weighted Avg. Maturity (days) 55 61 55
</TABLE>
*On a T. Rowe Price scale of 1 to 10, with Grade 1 representing highest quality.
This more aggressive posture helped put the Fund's performance in the top
quartile of tax-exempt money funds for both the three and 12 months ended
February 28, 1994.
<TABLE>
<CAPTION>
Performance Comparison
Periods Ended 2/28/94
3 Mos. 12 Mos.
------ -------
<S> <C> <C>
Tax-Exempt Money Fund 0.53% 2.05%
Donoghue's Tax-Free
Money Fund Average* 0.45 1.91
</TABLE>
*Stockbroker and General Purpose Funds.
Over the next quarter, we expect gradually rising rates as the Federal
Reserve continues to move away from the stimulative stance it pursued during the
past five years. Accordingly, Fund shareholders should enjoy moderately higher
returns during the ensuing fiscal year. We expect to maintain your Fund's
weighted average maturity more or less in line with its peer group.
TAX-FREE SHORT-INTERMEDIATE FUND
The short-intermediate municipal market enjoyed a favorable balance of supply
and demand during the fiscal year ended February 28, 1994, as record new
issuance and a growing supply of intermediate, pre-refunded bonds met strong
investor demand. As investors sought out less aggressive, fixed-income
investments, the many new intermediate-term mutual funds were strong buyers in
this range.
Based on our early 1993 forecast for slow economic growth and tame
inflation, your Fund maintained a weighted average maturity of nearly 3.5 years
from March through October, a figure higher than its historical average. We
focused on three- to four-year maturities whose yields were at least a full
percentage point above money market instruments. We also emphasized market
sectors yielding more than usual due to excess supply. Heavy issuance in New
York, California, and Maryland, for example, made the bonds of those high-tax
states attractive relative to other states.
<TABLE>
<CAPTION>
Portfolio Characteristics
Periods Ended
2/28/93 11/30/93 2/28/94
------- -------- -------
<S> <C> <C> <C>
Weighted Avg. Quality* 2.3 2.3 2.2
Weighted Avg. Maturity (years) 3.4 3.4 3.1
Weighted Avg. Effective
Duration (years) 2.9 2.9 2.7
</TABLE>
*On a T. Rowe Price scale of 1 to 10, with Grade 1 representing highest quality.
As evidence of a stronger economy began to emerge in late 1993, we began
shortening the Fund's average maturity by selling more vol-atile bonds while at
the same time emphasizing higher-quality bonds. When the Fed tightened on
February 4, 1994, the weighted average maturity stood at 3.1 years and average
credit quality was AA. The sharp yield increase in February eliminated the price
gains made earlier in the past year and reduced the Fund's total return at year-
end. Even so, the Fund's performance slightly exceeded its peer group average
for both the quarter and the year.
<TABLE>
<CAPTION>
Performance Comparison
Periods Ended 2/28/94
3 Mos. 12 Mos.
------ -------
<S> <C> <C>
Tax-Free Short-Intermediate
Fund 0.61% 3.49%
Lipper Short Municipal
Debt Fund Average 0.59 3.31
</TABLE>
2
<PAGE>
Entering the Fund's new fiscal year, our focus is on improving yield where
possible and keeping price volatility moderate by maintaining a shorter
duration. At present, we think the two-year-maturity range, where prices already
reflect the impact of further tightening by the Fed, looks attractive. In
addition, new legislation subjecting certain discount bonds to ordinary income
taxes increases the appeal of high-coupon, premium bonds, which dovetails with
our more conservative strategy.
TAX-FREE INSURED INTERMEDIATE BOND FUND
The municipal market's record issuance in 1993 included 37% of insured bonds, a
sector that has grown steadily since 1990. Since over half of the supply was
used for advance refundings of older, higher-coupon bonds with call dates within
10 years, the result was a huge increase in the overall supply of intermediate
maturities, many of which were insured. This large issuance resulted in
attractive prices and yields on insured securities for most of 1993, but the
supply also made the sector more vulnerable to downward price pressure when
interest rates rose in February.
<TABLE>
<CAPTION>
Portfolio Characteristics
Periods Ended
2/28/93 11/30/93 2/28/94
------- -------- -------
<S> <C> <C> <C>
Weighted Avg. Quality* 2.1 2.1 2.1
Weighted Avg. Maturity (years) 8.0 7.9 7.9
Weighted Avg. Effective
Duration (years) 5.3 5.8 5.8
</TABLE>
*On a T. Rowe Price scale of 1 to 10, with Grade 1 representing highest quality.
We postured the portfolio aggressively for the first six months of the
fiscal year, then started reducing our risk profile in September. Based on our
outlook in early 1993 for slow economic growth and low inflation, we had
maintained the Fund's average maturity at around nine years, near the long end
of its five- to 10-year maturity range as outlined in the prospectus. When signs
of the improving economy began to emerge, we reacted by shortening the weighted
average maturity to approximately 7.5 years and by purchasing bonds less
sensitive to price fluctuations, such as those with higher coupons. We also
sought to take advantage of the excessive supply of bonds issued in high-tax
states and in those with heavy demand for municipal bonds. Typically, bonds
issued by states such as New York, Virginia, Maryland, and Florida trade at
higher prices than those issued by other states. As issuance slows in 1994, we
anticipate that increased demand for these bonds will cause their values to
improve relative to the rest of the market.
Our efforts throughout the year paid off with top quartile performance for
the 12-month period ended February 28, even though the Fund slightly
underperformed its peer group average for the quarter.
<TABLE>
<CAPTION>
Performance Comparison
Periods Ended 2/28/94
3 Mos. 12 Mos.
------ -------
<S> <C> <C>
Tax-Free Insured Intermediate
Bond Fund 0.49% 5.49%
Lipper Intermediate Municipal
Debt Fund Average 0.54 4.76
</TABLE>
Keeping with our outlook for gradually rising interest rates, we are
continuing to shorten the portfolio's duration. By purchasing bonds in the six-
to seven-year range, we expect to deliver 80% of the yield of a 30-year bond,
with significantly less price fluctuation.
TAX-FREE INCOME FUND
As highlighted in our general overview, the long end of the bond market had
quite a ride over the last 12 months. Our investment strategy during this
turbulent period was marked by two distinct phases. In the spring and summer, we
were aggressive, extending the Fund's average maturity and duration so that
long-term bonds represented 85% to 90% of assets. As autumn began, however,
interest rates dropped to 20-year lows and the economy was showing signs of
accelerating. We concluded that an aggressive Fund posture was no longer
warranted under such conditions and reduced our risk profile by shortening the
portfolio's duration and weighted average maturity. For example, the Fund's
duration during the summer months was eight years or longer and the weighted
average maturity was in the 19 1/2- to 20-year range. From September through
mid-December, however, duration averaged 7 1/2
3
<PAGE>
years and the weighted average maturity was reduced to 18 1/2 years.
<TABLE>
<CAPTION>
Portfolio Characteristics
Periods Ended
2/28/93 11/30/93 2/28/94
------- -------- -------
<S> <C> <C> <C>
Weighted Avg. Quality* 2.5 2.4 2.4
Weighted Avg. Maturity (years) 20.0 18.5 18.0
Weighted Avg. Effective
Duration (years) 7.3 7.6 7.7
</TABLE>
*On a T. Rowe Price scale of 1 to 10, with Grade 1 representing highest quality.
During the last three months, we continued in a cautious direction as the
strength in the economy became more apparent and after the Federal Reserve
announced in February its first tightening move in five years. We maintained the
high credit quality of the portfolio throughout the fiscal year, believing that
the yield on lower-quality holdings did not adequately compensate for the
additional risks.
The Fund's performance exceeded its peer group average for the three and 12
months ended February 28, 1994. The narrow margin in the final quarter reflected
our more cautious stance; the Fund's investment posture was in line with that of
the average municipal bond fund. In essence, our earlier aggressiveness enabled
the Fund to outperform its peer group as interest rates declined, while our
neutral posture over the last half of the year resulted in average performance
when rates rose.
<TABLE>
<CAPTION>
Performance Comparison
Periods Ended 2/28/94
3 Mos. 12 Mos.
------ -------
<S> <C> <C>
Tax-Free Income Fund 0.47% 5.50%
Lipper General Municipal
Debt Fund Average 0.45 5.24
</TABLE>
TAX-FREE HIGH YIELD FUND
On balance, the Fund's fiscal year was a good one for the high-yield sector of
the municipal bond market though it was subject to the same price volatility
that characterized the entire market for much of the year. Our investment
strategy, while influenced by the same factors that affected our management of
other long-term funds, did not display as significant a shift in investment
posture as those funds, reflecting the strong income orientation of the Tax-Free
High Yield Fund. We did extend the Fund's weighted average maturity to
approximately 21 years and effective duration to 7.4 years based on our outlook
for declining interest rates during the first half of the year. Long-term bonds
during this period represented 88% to 90% of net assets. Beginning in the fall,
we shifted the portfolio to a more neutral stance versus its peer group and
generally held that position into February. Recently, average maturity and
effective duration were extended as we were able to add positions at what we
felt were very attractive levels.
Demand was consistently strong last year for the medium- and lower-quality
bonds that your Fund usually holds. Yield spreads between low- and high-quality
bonds, narrow for the most of the year, widened somewhat during the last quarter
as interest rates rose and issuance increased. During this time, we increased
the Fund's exposure to lower-quality bonds. By year-end, 26% of Fund assets were
invested in below-investment-grade credits (i.e., bonds rated below the BBB
category), up from 22% at the start of the year.
<TABLE>
<CAPTION>
Portfolio Characteristics
Periods Ended
2/28/93 11/30/93 2/28/94
------- -------- -------
<S> <C> <C> <C>
Weighted Avg. Quality* 3.7 3.7 3.8
Weighted Avg. Maturity (years) 21.9 20.9 21.3
Weighted Avg. Effective
Duration (years) 6.7 7.2 7.4
</TABLE>
*On a T. Rowe Price scale of 1 to 10, with Grade 1 representing highest quality.
Your Fund extended its record of favorable performance, finishing in the
top quartile for the 12 months ended February 28, 1994, and exceeding the peer
group average for the last quarter. Over an even longer time horizon, the Fund's
performance has exceeded its peer group average for each of the past six years.
<TABLE>
<CAPTION>
Performance Comparison
Periods Ended 2/28/94
3 Mos. 12 Mos.
------ -------
<S> <C> <C>
Tax-Free High Yield Fund 1.04% 7.49%
Lipper High Yield Municipal
Debt Fund Average 0.84 6.15
</TABLE>
4
<PAGE>
CAPITAL GAIN DISTRIBUTIONS
While the Funds' primary objective is to earn a high level of tax-exempt income
consistent with each portfolio's composition and risk profile, capital gains
will arise in the course of managing the portfolios. A dividend consisting of a
fund's undistributed net gains as of October 31 must be declared by the end of
each calendar year, and a second distribution is required if the fund has
undistributed net gains as of the close of its fiscal year. Accordingly, three
of the municipal bond funds declared capital gain distributions (shown below),
payable March 31 to shareholders of record March 28. Your check or statement
reflecting these distributions was mailed separately. These distributions are
taxable to you for 1994 and will be reported on Form 1099-DIV mailed in January
1995.
<TABLE>
<CAPTION>
Short-Term Long-Term Total
---------- --------- -----
<S> <C> <C> <C>
Tax-Free Insured
Intermediate Bond $0.02 $0.01 $0.03
Tax-Free Income $0.01 $0.03 $0.04
Tax-Free High Yield -- $0.04 $0.04
</TABLE>
OUTLOOK
As the Funds enter a new fiscal year, the bond markets are cautious about a
robust economy as well as a vigilant Federal Reserve Board. Fed Chairman Alan
Greenspan clearly intends to contain inflation by raising short-term interest
rates as the economy approaches full labor and capital utilization over the next
year or two. The Fed's most recent hike was greeted more constructively by long-
term investors; in sharp contrast to the reaction in February, bond yields fell
on March 22, the day the Fed announced that the federal funds rate would be
increased another one-quarter of one percent. Inflation currently does not look
threatening and, if the Fed's strategy works, bond investors may be reassured by
the inflation-fighting stance. Still, commodity prices are moving up, labor
markets could start tightening later this year or early next, and the global
economy continues to strengthen, so the bond market's nervousness is
understandable. On balance, we expect modestly increasing yields though the
course may be choppy in 1994 as inflation expectations wax and wane.
Despite these strong economic fundamentals, the municipal market retains
certain advantages. First, as a result of the sharp sell-off experienced in
recent weeks, yields on securities in many maturities are at attractive levels
relative to comparable taxable issues, appealing to taxpayers in all but the
lowest tax brackets. Second, the projected 30% to 40% decline in new issuance in
1994 should bring supply and demand into better balance and support municipal
prices. Third, tax-advantaged investments and the value they offer should come
into the limelight as high income taxpayers prepare to file their first returns
at the new, higher tax rates.
We encourage all shareholders to make sure their current investments are
consistent with their personal financial objectives. If, as a result of your
review, you want additional information on the funds, our investor service
representatives will be happy to assist you. We look forward to the challenges
and opportunities that await us in the new fiscal year and appreciate your
continued confidence in us.
Respectfully submitted,
/s/ William T. Reynolds
William T. Reynolds
Assistant Director,
Fixed-Income Division
March 25, 1994
Duration as a Guide to Interest Rate Risk
Starting with this report, we've added a new measure to the statistical tables
that more accurately defines a fund's interest rate sensitivity. Unlike
maturity, which merely indicates when the bond repays principal, "duration"
incorporates the cash flows of all interest and principal payments over the life
of the bond to reflect the recovery of your original investment. Future payments
are discounted to reflect their present value. These payments are then
multiplied by the number of years over which they will be received to produce a
value that is expressed in years, i.e., the duration. Effective duration is an
even better measure of a bond's sensitivity to interest rate changes because it
takes into account call features and sinking fund payments which may shorten a
bond's life.
You can multiply the duration by the potential change in interest rates to
estimate the change in principal value. For example, a bond or bond fund with a
duration of five years would rise or fall roughly 5% in price if rates fell or
rose by one percentage point.
5
<PAGE>
<TABLE>
<CAPTION>
Financial Summary
Net Asset Value Dividend Per Share+ Dividend Yield*
Per Share 3 Months Ended 3 Months Ended
--------------------- --------------------- ---------------------
11/30/93 02/28/94 11/30/93 02/28/94 11/30/93 02/28/94
<S> <C> <C> <C> <C> <C> <C>
Tax-Exempt Money $ 1.00 $ 1.00 $0.005 $0.005 2.15% 2.15%
Tax-Free Short-Intermediate 5.34 5.32 0.055 0.053 4.12 4.02
Tax-Free Insured Intermediate Bond 10.68 10.58 0.115 0.115 4.29 4.33
Tax-Free Income 9.92 9.66 0.134 0.131 5.35 5.42
Tax-Free High Yield 12.49 12.26 0.184 0.182 5.87 5.95
</TABLE>
* 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.
+ Taxability of dividends. 100% of the dividends paid for the 12 months ended
2/28/94 were exempt from federal income tax.
<TABLE>
<CAPTION>
Average Annual Compound Total Return
Periods Ended 12/31/93
----------------------------------------------------
1 Year 5 Years 10 Years Since Inception
<S> <C> <C> <C> <C> <C>
Tax-Exempt Money 2.01% 3.94% 4.45% 4.93% (4/81)
Tax-Free Short-Intermediate 6.32 6.63 6.55 6.49 (12/83)
Tax-Free Insured Intermediate Bond 12.66 - - 13.04 (11/92)
Tax-Free Income 12.77 9.85 9.51 7.66 (10/76)
Tax-Free High Yield 12.97 10.36 - 11.00 (3/85)
</TABLE>
[GRAPH APPEARS HERE]
Tax-Free Insured Intermediate Fund Performance Comparison
A line graph compares the 2/28/94 value of a hypothetical $10,000 investment
made in the Tax-Free Insured Intermediate Fund at its inception (11/30/92) and a
similar investment made concurrently in the Lehman 7-Year G.O. Bond Index. At
2/28/94, the Fund investment would have been worth $11,267 and the Lehman Index
investment would have been worth $10,995.
<TABLE>
<CAPTION>
Fiscal-Year Performance
Periods Ended 2/28/94
-------------------------------
1 Year 5 Years 10 Years
<S> <C> <C> <C>
Short-Intermediate 3.49% 6.46% 6.39%
Insured Intermediate
Bond* 5.49 - -
Income 5.50 9.38 9.14
High Yield** 7.49 9.87 -
</TABLE>
* Since inception 11/92: 10.05%
** Since inception 3/85: 10.71%
Income return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
6
<PAGE>
[GRAPH APPEARS HERE]
Tax-Free Short-Intermediate Fund Performance Comparison
A line graph compares the 2/28/94 value of a hypothetical $10,000 investment
made in the Tax-Free Short-Intermediate Fund at its inception (12/23/83) and a
similar investment made concurrently in the Lehman 3 Year Bond Index. At
2/28/94, the Fund investment would have been worth $17,243 and the Lehman Index
investment would have been worth $18,473.
[GRAPH APPEARS HERE]
Tax-Free Income Fund Performance Comparison
A line graph compares the 2/28/94 value of a hypothetical $10,000 investment
made ten years earlier in both the Tax-Free Income Fund and the Lehman Municipal
Bond Index. At 2/28/94, the Fund investment would have been worth $23,986, the
Lehman Index investment would have been worth $27,680.
[GRAPH APPEARS HERE]
Tax-Free High-Yield Fund Performance Comparison
A line graph compares the 2/28/94 value of a hypothetical $10,000 investment
made in the Tax-Free High-Yield Fund at its inception (3/1/85) and a similar
investment made concurrently in the Lehman Revenue Bond Index. At 2/28/94, the
Fund investment would have been worth $24,982 and the Lehman Index investment
would have been worth $26,711.
7
<PAGE>
ANNUAL REPORT
FOR YIELD, PRICE, LAST TRANSACTION, T. Rowe Price
AND CURRENT BALANCE, 24 HOURS, -------------
7 DAYS A WEEK, CALL: TAX-FREE FUNDS
1-800-638-2587 toll free
625-7676 Baltimore area
FEBRUARY 28, 1994
FOR ASSISTANCE WITH YOUR EXISTING
FUND ACCOUNT, CALL:
Shareholder Service Center
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 distri-
bution only to shareholders and to
others who have received a copy of
the prospectus of the T. Rowe Price
Tax-Free Funds.
T. Rowe Price
Invest With Confidence(R)
TFF
<PAGE>
T. Rowe Price
TAX-FREE INSURED INTERMEDIATE BOND FUND
February 28, 1994
Investment Record
The table below shows the investment record of one share of the T. Rowe Price
Tax-Free Insured Intermediate Bond Fund, purchased at the original offering
price of $10.00. Over this time, interest rates have been volatile. The
results shown should not be considered a representation of the dividend income
or capital gain or loss which may be realized from an investment made in the
Fund today.
<TABLE>
<CAPTION>
Fiscal Capital With With Dividends
Year Net Asset Income Gain Dividends and Capital Gains Total
Ended Value Dividends Distributions/2/ Reinvested Reinvested Return
- ------ --------- --------- ---------------- ---------- ----------------- ------
<S> <C> <C> <C> <C> <C> <C>
2/28/93/1/ $10.55 $0.13 $10.68 $10.68 6.81%
1994 10.58 0.48 $0.06 11.20 11.27 5.49
- ----------------------------------------------------------------------------------------------------------------------
TOTAL $0.61 $0.06
</TABLE>
/1/ From inception 11/30/92 to 2/28/93.
/2/ Includes short-term capital gains of $0.02 on 6/30/93 and $0.04 on
12/10/93.
Sector Diversification / February 28, 1994
<TABLE>
<CAPTION>
Percent of
Net Assets
<S> <C>
Hospital Revenue 19%
Educational Revenue 14
Dedicated Tax Revenue 11
Water & Sewer Revenue 9
General Obligation - Local 7
Ground Transportation Revenue 6
Lease Revenue 6
Nuclear Revenue 5
Pre-Refunded Bonds 5%
Air & Sea Transportation Revenue 5
Electric Revenue 4
General Obligation - State 2
Solid Waste Revenue 1
Housing Finance Revenue 1
Other Assets Less Liabilities 5
</TABLE>
<PAGE>
T. Rowe Price Tax-Free Insured Intermediate Bond Fund
Portfolio of Investments / February 28, 1994
<TABLE>
<CAPTION>
Amounts in Thousands
--------------------------
Face Amount Value
----------- -----------
<S> <C> <C>
ALABAMA -- 0.7%
Alabama Municipal Electric Auth., (MBIA Insured), 5.75%, 9/1/01..................... $ 500 $ 529
Hoover Board of Ed., Special School Tax, GO, TAW, (AMBAC Insured),
6.20%, 2/1/01 (Escrowed to Maturity)............................................ 100 107
6.20%, 2/1/02 (Pre-refunded 2/1/01+)............................................ 90 99
- -------------------------------------------------------------------------------------------------------------------------------
ALASKA -- 0.1%
Univ. of Alaska, (AMBAC Insured), 5.90%, 10/1/03.................................... 115 122
- -------------------------------------------------------------------------------------------------------------------------------
ARIZONA -- 4.4%
Maricopa County, Mesa Unified School Dist., GO, (FGIC Insured),
5.40%, 7/1/05.................................................................... 1,000 1,017
Mesa, GO, (AMBAC Insured), 6.75%, 7/1/98............................................ 300 328
Pima County, Water Improvement Dist. Special Assessment, (FGIC Insured),
5.90%, 1/1/04.................................................................... 75 80
Tucson, Street and Highway User, (MBIA Insured), 4.00%, 7/1/96...................... 1,905 1,916
Tucson Airport Auth., (MBIA Insured), 5.30%, 6/1/03................................. 1,000 1,020
- -------------------------------------------------------------------------------------------------------------------------------
ARKANSAS -- 1.1%
North Little Rock Electric, (MBIA Insured), 6.10%, 7/1/02........................... 1,035 1,121
- -------------------------------------------------------------------------------------------------------------------------------
CALIFORNIA -- 1.5%
California Public Works Board, Dept. of Corrections, State Prisons,
(AMBAC Insured), 4.50%, 12/1/99.................................................. 1,000 1,000
Las Virgenes Municipal Water Dist., COP, (MBIA Insured), 9.00%, 11/1/99............. 80 97
San Jose, Airport Revenue, (MBIA Insured), 4.70%, 3/1/97............................ 335 341
Santa Rosa, Wastewater, (FGIC Insured), 5.875%, 9/1/04.............................. 70 74
- -------------------------------------------------------------------------------------------------------------------------------
COLORADO -- 2.5%
Jefferson County School Dist., GO, (AMBAC Insured), 6.00%, 12/15/06................. 100 108
Mesa County, 4.60%, 12/1/02......................................................... 1,190 1,175
4.70%, 12/1/03................................................................... 1,240 1,225
- -------------------------------------------------------------------------------------------------------------------------------
CONNECTICUT -- 3.4%
Connecticut, GO, (AMBAC Insured), 4.40%, 9/15/99.................................... 980 982
Special Assessment Unemployment Compensation Advance Fund,
(AMBAC Insured), 4.50%, 5/15/99............................................... 1,000 1,000
4.60%, 5/15/00................................................................ 1,000 1,000
South Central Connecticut Regional Water Auth., Water System,
(FGIC Insured), 5.10%, 8/1/00.................................................... 360 370
- -------------------------------------------------------------------------------------------------------------------------------
DELAWARE -- 0.1%
Wilmington, GO, (MBIA Insured), 6.10%, 7/1/04....................................... 125 133
- -------------------------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA -- 4.5%
Washington Metropolitan Area Transit Auth., (FGIC Insured), 4.50%, 7/1/01........... 2,000 1,983
4.80%, 1/1/04.................................................................... 1,000 986
4.90%, 7/1/05.................................................................... 1,500 1,479
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Amounts in Thousands
--------------------------
Face Amount Value
----------- -----------
<S> <C> <C>
FLORIDA -- 12.2%
Boca Raton Community Redev. Agency, Mizner Park Project, (FGIC Insured),
5.25%, 3/1/01.................................................................... $ 150 $ 155
5.60%, 3/1/04.................................................................... 125 131
Dade County, Water and Sewer Systems, (FGIC Insured), 5.00%, 10/1/00................ 1,000 1,022
Dade County Public Fac., Jackson Memorial Hosp., (MBIA Insured),
5.20%, 6/1/04.................................................................... 1,000 1,008
Florida, Dept. of Environmental Protection - Save Our Coast,
(AMBAC Insured), 4.30%, 7/1/00................................................... 2,280 2,245
Florida Division of Bond Fin. Dept., Dept. Natural Resources Preservation,
(MBIA Insured), 5.80%, 7/1/01.................................................... 90 96
6.25%, 7/1/06.................................................................... 700 754
Florida Municipal Power Agency, St. Lucie Project, (FGIC Insured),
5.10%, 10/1/02................................................................... 100 102
5.30%, 10/1/04................................................................... 2,000 2,032
Tri City Project, (AMBAC Insured), 3.70%, 10/1/95................................ 175 177
Homestead, Special Insurance Assessment, Hurricane Andrew,
(MBIA Insured), 5.00%, 9/1/01.................................................... 1,325 1,341
5.25%, 3/1/03................................................................. 1,250 1,272
Jacksonville Electric Auth., St. John's River Power Park System,
6.85%, 10/1/00 (Pre-refunded 10/1/95+)........................................... 90 96
Jacksonville HFA, Baptist Medical Center, (MBIA Insured), VRDN
(Currently 2.25%)................................................................ 700 700
Kissimmee Utility Auth., Electric System Improvement, (FGIC Insured),
5.20%, 10/1/05................................................................... 1,000 1,002
- -------------------------------------------------------------------------------------------------------------------------------
GEORGIA -- 0.3%
Fulton County, Water and Sewer, (FGIC Insured), 5.30%, 1/1/99....................... 275 284
- -------------------------------------------------------------------------------------------------------------------------------
HAWAII -- 1.1%
Hawaii, Airport Systems, (MBIA Insured), 6.70%, 7/1/05 *............................ 1,000 1,108
- -------------------------------------------------------------------------------------------------------------------------------
ILLINOIS -- 1.4%
Illinois HFA, Resurrection Health Care System, VRDN (Currently 2.30%)............... 800 800
Illinois State, GO, 7.00%, 6/1/99 (Pre-refunded 6/1/97+)............................ 90 100
Metropolitan Pier and Exposition Auth., McCormick Place Expansion Project,
(AMBAC Insured), Zero Coupon, 12/15/95........................................... 490 455
- -------------------------------------------------------------------------------------------------------------------------------
KENTUCKY -- 1.0%
Louisville & Jefferson County Regional Aiport Auth., Airport Systems,
(MBIA Insured), 4.75%, 7/1/00 *.................................................. 1,000 998
- -------------------------------------------------------------------------------------------------------------------------------
LOUISIANA -- 1.3%
Louisiana PFA, Student Loan Revenue, 6.50%, 3/1/02 *................................ 100 107
Willis-Knighton Medical Center, (AMBAC Insured), VRDN (Currently 2.45%).......... 1,100 1,100
Louisiana Recovery Dist., (AMBAC Insured), 7.375%, 7/1/96........................... 90 96
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
T. Rowe Price Tax-Free Insured Intermediate Bond Fund
Portfolio of Investments
<TABLE>
<CAPTION>
Amounts in Thousands
--------------------------
Face Amount Value
----------- -----------
<S> <C> <C>
MARYLAND -- 6.2%
Maryland HHEFA, Francis Scott Key Medical Center, (FGIC Insured),
4.90%, 7/1/02................................................................. $2,000 $ 2,008
Sinai Hosp. of Baltimore, (AMBAC Insured), 5.40%, 7/1/06......................... 750 765
Maryland State, GO, 7.00%, 1/1/01 (Pre-refunded 1/1/98+)............................ 1,000 1,109
Montgomery County, Solid Waste System, (AMBAC Insured), 5.30%, 6/1/02 *............. 1,000 1,019
Washington Suburban Sanitary Dist., Sewage Disposal, GO,
6.70%, 6/1/04 (Pre-refunded 6/1/01+)............................................. 1,050 1,191
- -------------------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS -- 1.7%
Commonwealth of Massachusetts, 7.00%, 6/1/02........................................ 50 55
(FGIC Insured), 7.375%, 12/1/08 (Pre-refunded 12/1/98+).......................... 500 574
Massachusetts HEFA, Massachusetts General Hosp., (AMBAC Insured),
5.10%, 7/1/99.................................................................... 50 51
Massachusetts Turnpike Auth., (FGIC Insured), 4.70%, 1/1/03......................... 1,000 985
- -------------------------------------------------------------------------------------------------------------------------------
MICHIGAN -- 2.6%
Board of Governors of Wayne State Univ., (AMBAC Insured), 4.70%, 11/15/00........... 2,000 2,010
Michigan State Hosp. Fin. Auth., Sisters of Mercy, (MBIA Insured),
7.50%, 8/15/07................................................................... 500 559
- -------------------------------------------------------------------------------------------------------------------------------
MINNESOTA -- 3.5%
Minneapolis & St. Paul Metropolitan Airports Commission, 6.40%, 1/1/06 *............ 1,300 1,386
Robbinsdale, North Memorial Medical Center, (AMBAC Insured),
4.55%, 5/15/99................................................................... 1,020 1,019
4.75%, 5/15/00................................................................... 1,100 1,105
- -------------------------------------------------------------------------------------------------------------------------------
MISSISSIPPI -- 1.6%
Mississippi Higher Education Assistance Corp., Student Loan, 5.50%, 9/1/03 *........ 1,500 1,533
- -------------------------------------------------------------------------------------------------------------------------------
MISSOURI -- 2.0%
Kansas City School Building, (FGIC Insured), 4.70%, 2/1/03.......................... 1,000 979
4.80%, 2/1/04.................................................................... 1,000 975
- -------------------------------------------------------------------------------------------------------------------------------
MONTANA -- 1.5%
Montana Higher Education Student Assistance Corp., Student Loan,
4.90%, 12/1/99 *................................................................. 1,500 1,507
- -------------------------------------------------------------------------------------------------------------------------------
NEW JERSEY -- 2.2%
Bergen County Utilities Auth., Water Poll. Control Revenue, (FGIC Insured),
5.00%, 12/15/99.................................................................. 225 231
New Jersey Turnpike Auth., (AMBAC Insured), 6.40%, 1/1/07........................... 310 337
Ocean County Utilities Auth., Wastewater Revenue, (FGIC Insured),
6.70%, 1/1/07.................................................................... 175 188
Passaic County, GO, (FGIC Insured), 4.40%, 9/1/01................................... 1,400 1,380
- -------------------------------------------------------------------------------------------------------------------------------
NEW MEXICO -- 0.9%
New Mexico Ed. Assistance Foundation, Student Loan, 5.05%, 12/1/00 *................ 300 302
5.20%, 12/1/01 *................................................................. 600 605
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Amounts in Thousands
--------------------------
Face Amount Value
----------- -----------
<S> <C> <C>
NEW YORK -- 7.1%
Dormitory Auth. of the State of New York, (MBIA Insured), 4.00%, 7/1/98............. $ 500 $ 496
City Univ., (FGIC Insured), 5.40%, 7/1/02........................................ 1,000 1,032
Metropolitan Transportation Auth., (AMBAC Insured),
7.00%, 7/1/02.................................................................... 85 97
Municipal Assistance Corp. for the City of New York, 6.875%, 7/1/07................. 600 661
New York City, GO, (FGIC Insured), VRDN (Currently 2.30%)........................... 1,300 1,300
New York City Municipal Water Finance Auth., 4.875%, 6/15/02........................ 2,000 2,007
Suffolk County IDA, (FGIC Insured), 4.40%, 2/1/01................................... 1,500 1,468
- -------------------------------------------------------------------------------------------------------------------------------
NORTH CAROLINA -- 2.2%
Concord Utilities System, (MBIA Insured), 5.55%, 12/1/05............................ 1,000 1,062
North Carolina Municipal Power Agency, (FGIC Insured), 5.20%, 1/1/00................ 1,100 1,132
- -------------------------------------------------------------------------------------------------------------------------------
OHIO -- 1.8%
Ohio State Building Auth., State Correctional Fac., (MBIA Insured),
7.35%, 8/1/04 (Pre-refunded 8/1/99+)............................................. 900 1,037
Ohio Water Dev. Auth., Pure Water, (MBIA Insured), 5.20%, 12/1/99................... 750 774
- -------------------------------------------------------------------------------------------------------------------------------
OREGON -- 1.6%
Deschutes and Jefferson Counties, School Dist., GO, (MBIA Insured),
5.60%, 6/1/09.................................................................... 1,500 1,540
- -------------------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA -- 2.8%
Allegheny County, Pittsburgh International Airport, (MBIA Insured),
5.50%, 1/1/05 *.................................................................. 1,000 1,016
Commonwealth of Pennsylvania, (MBIA Insured), 6.00%, 11/1/99........................ 500 535
Pennsylvania Housing Fin. Agency, 4.85%, 7/1/00 *................................... 1,000 1,015
Pennsylvania Turnpike Commission, (AMBAC Insured), 6.60%, 6/1/05.................... 200 219
- -------------------------------------------------------------------------------------------------------------------------------
TENNESSEE -- 0.6%
Knox County Health, Ed., and Housing Fac. Board, Mercy Health System,
(AMBAC Insured), 4.70%, 9/1/99................................................... 565 568
- -------------------------------------------------------------------------------------------------------------------------------
TEXAS -- 6.3%
Anderson County, Coffield Prison Farm, (AMBAC Insured), 5.40%, 3/15/01.............. 1,385 1,433
Austin Utility Systems, (AMBAC Insured), 6.25%, 11/15/03............................ 90 99
Brazos Higher Ed. Auth., 5.60%, 6/1/03.............................................. 1,000 1,021
Fort Bend County, (FGIC Insured), 6.50%, 9/1/01..................................... 90 100
Houston Water and Sewer System, (MBIA Insured), 5.60%, 12/1/02...................... 65 68
5.75%, 12/1/03................................................................... 1,100 1,159
San Antonio, Water Revenue, (FGIC Insured), 6.40%, 5/15/05.......................... 150 164
Texas Municipal Power Agency, (MBIA Insured), 5.00%, 9/1/02......................... 1,000 1,012
Texas State Veterans, GO, 6.00%, 12/1/12 *.......................................... 350 355
Univ. of Houston, (MBIA Insured), 7.40%, 2/15/05 (Pre-refunded 2/15/00+)............ 700 801
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
T. Rowe Price Tax-Free Insured Intermediate Bond Fund
Portfolio of Investments
<TABLE>
<CAPTION>
Amounts in Thousands
--------------------------
Face Amount Value
----------- -----------
<S> <C> <C>
UTAH -- 2.6%
Intermountain Power Agency, 6.60%, 7/1/97........................................... $ 410 $ 439
Utah State Board of Regents, Student Loan, (AMBAC Insured),
5.95%, 11/1/01 *................................................................. 2,060 2,166
- -------------------------------------------------------------------------------------------------------------------------------
VERMONT -- 0.4%
Vermont Ed. and Health Buildings Fin. Agency, Medical Center Hosp.
of Vermont, (FGIC Insured), RIB, 9/1/13 (Currently 7.35%)........................ 350 383
- -------------------------------------------------------------------------------------------------------------------------------
VIRGINIA -- 9.2%
Augusta County IDA, Augusta Hosp., (AMBAC Insured), 6.45%, 9/1/04................... 250 275
Virginia Beach Dev. Auth., Virginia Beach General Hosp., (AMBAC Insured),
4.60%, 2/15/02................................................................... 1,255 1,232
4.70%, 2/15/03................................................................... 1,300 1,272
Virginia Ed. Loan Auth., Student Loan Program, 5.10%, 3/1/00........................ 1,500 1,515
5.70%, 3/1/04 *.................................................................. 1,000 1,023
5.80%, 3/1/05 *.................................................................. 1,250 1,281
Winchester IDA, Winchester Medical Center, Inc., (AMBAC Insured), RIB
1/1/02 (Currently 5.91%)......................................................... 1,300 1,270
1/1/03 (Currently 6.01%)......................................................... 1,300 1,269
- -------------------------------------------------------------------------------------------------------------------------------
WASHINGTON -- 2.6%
Washington Health Care Fac. Auth., Empire Health Services,
(MBIA Insured), 5.00%, 11/1/99................................................... 750 765
Washington Public Power Supply System, 4.90%, 7/1/04................................ 1,500 1,463
Bonneville Power Administration, (FGIC Insured), 7.25%, 7/1/00................... 325 365
- -------------------------------------------------------------------------------------------------------------------------------
WEST VIRGINIA -- 0.3%
West Virginia State Univ. Board of Trustees, (AMBAC Insured), 5.10%, 4/1/99......... 300 307
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES -- 95.3% OF NET ASSETS (COST - $93,485)............. $94,542
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* - Interest subject to alternative minimum tax
+ - Used in determining portfolio maturity
AMBAC - American Municipal Bond Assurance Corporation
COP - Certificates of Participation
FGIC - Financial Guaranty Insurance Company
GO - General Obligation
HEFA - Health & Educational Facility Authority
HFA - Health Facility Authority
HHEFA - Health & Higher Educational Facility Authority
IDA - Industrial Development Authority
MBIA - Municipal Bond Insurance Association
PFA - Public Facility Authority
RIB - Residual Interest Bond
TAW - Tax Anticipation Warrant
VRDN - Variable Rate Demand Note
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
T. Rowe Price Tax-Free Insured Intermediate Bond Fund
Statement of Assets and Liabilities / February 28, 1994
<TABLE>
<CAPTION>
Amounts in Thousands
--------------------
<S> <C>
ASSETS
Investments in securities at value (Cost --$93,485)...................... $ 94,542
Receivable for investment securities sold................................ 5,227
Other assets............................................................. 1,979
--------
Total assets........................................................... $101,748
--------
LIABILITIES
Payable for investment securities purchased.............................. 2,029
Other liabilities........................................................ 557
--------
Total liabilities...................................................... 2,586
--------
NET ASSETS CONSISTING OF:
Accumulated net investment income - net of distributions................. 14
Accumulated realized gains/losses - net of distributions................. 235
Unrealized appreciation of investments................................... 1,053
Paid-in-capital applicable to 9,369,811 shares of $0.01 par value
capital stock outstanding; 1,000,000,000 shares authorized............. 97,860
--------
NET ASSETs............................................................... $ 99,162
========
NET ASSET VALUE PER SHARE................................................ $10.58
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
T. Rowe Price Tax-Free Insured Intermediate Bond Fund
Statement of Operations / Year Ended February 28, 1994
<TABLE>
<CAPTION>
Amounts in Thousands
<S> <C>
INVESTMENT INCOME
Interest income........................................... $3,733
Expenses
Shareholder servicing fees & expenses................... $ 163
Custodian and accounting fees & expenses................ 110
Registration fees & expenses............................ 60
Prospectus & shareholder reports........................ 20
Legal & auditing fees................................... 15
Investment management fees.............................. 9
Directors' fees & expenses.............................. 7
Miscellaneous........................................... 19
Less: Expenses Reimbursed by Manager.................... (143)
------
Total expenses.......................................... 260
------
Net investment income..................................... 3,473
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain
Securities.............................................. 555
Futures................................................. 101
------
Net realized gain......................................... 656
Change in unrealized appreciation or depreciation......... (22)
------
Net gain on investments................................... 634
------
INCREASE IN NET ASSETS FROM OPERATIONS.................... $4,107
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
T. Rowe Price Tax-Free Insured Intermediate Bond Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Amounts in Thousands
-----------------------------------------------
Nov. 30, 1992
(Commencement
Year Ended of Operations) to
February 28, 1994 February 28, 1993
-------------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income......................................... $ 3,473 $ 162
Net realized gain on investments.............................. 656 82
Change in unrealized appreciation or
depreciation of investments................................. (22) 1,075
-------- --------
Increase in net assets from operations........................ 4,107 1,319
-------- --------
Distributions to shareholders
Net investment income......................................... (3,473) (162)
Net realized gain on investments.............................. (503) --
-------- --------
Decrease in net assets from
distributions to shareholders............................... (3,976) (162)
--------- --------
Capital share transactions
Sold 8,949 and 3,724 shares................................... 94,906 38,098
Distributions reinvested of 282 and 12 shares................. 3,002 125
Redeemed 3,459 and 148 shares................................. (36,837) (1,520)
-------- --------
Increase in net assets from capital share transactions........ 61,071 36,703
-------- --------
Total increase.................................................. 61,202 37,860
NET ASSETS
Beginning of period........................................... 37,960 100
-------- --------
End of period................................................. $ 99,162 $37,960
======== ========
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
T. Rowe Price Tax-Free Insured Intermediate Bond Fund
Notes to Financial Statements / February 28, 1994
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Tax-Free Insured Intermediate Bond Fund (the Fund) is registered
under the Investment Company Act of 1940 as a diversified, open-end management
investment company.
A) Security valuation - Debt securities are generally traded in the over-the-
counter market. Investments in securities with remaining 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
remaining maturities 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. Financial futures contracts are valued at closing
settlement prices.
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 on municipal securities are amortized for
both financial and tax reporting purposes. Discounts, other than original
issue, are not amortized for financial reporting 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 an 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
which may differ from generally accepted accounting principles. Payments
("variation margin") made or received by the Fund, dependent on the daily
fluctuations in the value of the futures contracts, are recorded as unrealized
gains or losses until the contracts are closed.
D) Accounting Change - Effective as of the beginning of the year, the Fund
adopted a recently issued accounting standard related to shareholder
distributions. This change resulted in a reclassification to paid-in-capital of
permanent differences between tax and financial reporting of net investment
income and net realized gains/losses. The cumulative effect of this change as
of February 28, 1993, increased Accumulated net investment income - net of
distributions by $5,000 and decreased Paid-in-capital by $5,000. The results of
operations, shareholder distributions and net assets were not affected by this
change.
NOTE 2 - FINANCIAL INSTRUMENTS
As a part of its investment program, the Fund utilizes futures contracts. The
nature and risk of these instruments and the reasons for using them are set
forth more fully in the Fund's Prospectus and Statement of Additional
Information.
A futures contract provides for the future sale by one party and purchase
by another party of a specified amount of a specific financial instrument at a
specified price, date, time and place designated at the time the contract is
made. Risks arise from the possible illiquidity of the futures market and from
movements in security values. At February 28, 1994, the Fund had a short
position in 15 Municipal Bond Index futures contracts which expire in June,
1994, and which have a contract value of $1,478,000. Net unrealized
depreciation of $4,000 on these contracts at February 28, 1994, is included in
the accompanying financial statements. Municipal securities having a market
value of $91,454 were pledged as initial margin on these contracts.
10
<PAGE>
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $112,574,000 and $54,584,000, respectively, for the year
ended February 28, 1994.
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, 1994, the aggregate cost of investments for federal income
tax and financial reporting purposes was $93,485,000 and net unrealized
appreciation aggregated $1,057,000, of which $1,385,000 related to appreciated
investments and $328,000 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,
computed daily and paid monthly, consisting of an Individual Fund Fee equal to
0.05% 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 0.31% for assets in excess of $34
billion. The effective annual Group Fee rate at February 28, 1994, was 0.34%,
and for the year then ended was 0.35%. The Fund pays a pro rata portion of the
Group Fee based on the ratio of the Fund's net assets to those of the Group.
In the interest of limiting the expense of the Fund during its initial
period of operations, the Manager agreed to bear all expenses of the Fund
through June 30, 1993. Thereafter, the Manager has agreed to bear any expenses
through February 28, 1994, which would cause the Fund's ratio of expenses to
average net assets to exceed 0.50%. Thereafter, the Fund is required to
reimburse the Manager for these expenses, provided average net assets have grown
or expenses have declined sufficiently so as not to cause the Fund's ratio of
expenses to average net assets to exceed 0.50% in any month, and that no such
reimbursement shall be made to the Manager after February 28, 1997. Pursuant to
this agreement, $301,000 of management fees were not accrued for the year ended
February 28, 1994, of which $73,000 were permanently waived. In addition,
$201,000 of other Fund expenses borne by the Manager were permanently waived.
T. Rowe Price Services, Inc. (TRPS) is a wholly owned subsidiary of the Manager.
TRPS provides transfer and dividend disbursing agent functions and shareholder
services for all accounts. The Manager, under a separate agreement, calculates
the daily share price and maintains the financial records of the Fund. For the
year ended February 28, 1994, the Fund incurred fees totalling approximately
$176,000 for these services provided by related parties. At February 28, 1994,
investment management and service fees payable were $20,000.
11
<PAGE>
T. Rowe Price Tax-Free Insured Intermediate Bond Fund
Financial Highlights
<TABLE>
<CAPTION>
For a share outstanding
throughout each period
----------------------------------
Year Nov. 30, 1992
Ended (Commencement of
Feb. 28, Operations) to
1994 Feb. 28, 1993
--------- ---------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......................... $ 10.55 $ 10.00
-------- --------
Investment Activities
Net investment income..................................... 0.48* 0.13*
Net realized and unrealized gain.......................... 0.09 0.55
-------- --------
Total from Investment Activities............................. 0.57 0.68
-------- --------
Distributions
Net investment income..................................... (0.48) (0.13)
Net realized gain......................................... (0.06) --
-------- --------
Total Distributions.......................................... (0.54) (0.13)
-------- --------
NET ASSET VALUE, END OF PERIOD............................... $ 10.58 $ 10.55
=================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Total Return................................................. 5.49% 6.81%
Ratio of Expenses to Average Net Assets...................... 0.33%* 0.00%+*
Ratio of Net Investment Income to Average Net Assets......... 4.45% 5.08%+
Portfolio Turnover Rate...................................... 74.8% 65.3%+
Net Assets, End of Period (in thousands)..................... $99,162 $ 37,960
Number of Shareholder Accounts, End of Period................ 4,000 1,600
=================================================================================================================
</TABLE>
* The manager agreed to bear all expenses of the Fund through June 30, 1993.
Excludes expenses in excess of a 0.20% voluntary expense limitation in effect
July 1, 1993 through July 31, 1993, a 0.30% voluntary expense limitation in
effect August 1, 1993 through August 31, 1993, a 0.40% voluntary expense
limitation in effect September 1, 1993 through September 30, 1993, and a 0.50%
voluntary expense limitation in effect October 1, 1993 through February 28,
1994.
+ Annualized.
12
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Directors of
T. Rowe Price Tax-Free Insured Intermediate Bond Fund, Inc.
We have audited the accompanying statement of assets and liabilities of T.
Rowe Price Tax-Free Insured Intermediate Bond Fund, Inc., including the
portfolio of investments, as of February 28, 1994, and the related statement of
operations for the year then ended, the statement of changes in net assets and
the financial highlights for the year then ended and for the period November 30,
1992 (commencement of operations) to February 28, 1993. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
February 28, 1994, 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 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 Insured Intermediate Bond Fund, Inc., as of February 28,
1994, the results of its operations, changes in its net assets and financial
highlights for the respective periods stated in the first paragraph in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND
Baltimore, Maryland
March 17, 1994
13
<PAGE>
Officers and Directors
William T. Reynolds, President
Calvin W. Burnett, Director
George J. Collins, Director
Anthony W. Deering, Director
F. Pierce Linaweaver, Director
James S. Riepe, Director
John Sagan, Director
John G. Schreiber, Director
Janet G. Albright, Vice President
Patrice L. Berchtenbreiter, Vice President
Michael P. Buckley, Vice President
Patricia S. Deford, Vice President
Charles B. Hill, Vice President
Charles O. Holland, Vice President
Henry H. Hopkins, Vice President
Mary J. Miller, Vice President
Alan P. Richman, Vice President
C. Stephen Wolfe II, Vice President
Lenora V. Hornung, Secretary
Carmen F. Deyesu, Treasurer
David S. Middleton, Controller
T. Rowe Price No-Load Mutual Funds
STABILITY CONSERVATIVE GROWTH
Prime Reserve Balanced
Summit Cash Reserves Capital Appreciation
U.S. Treasury Money Dividend Growth
California Tax-Free Money Equity Income
New York Tax-Free Money Growth & Income
Summit Municipal Spectrum Growth
Money Market
Tax-Exempt Money GROWTH
Blue Chip Growth
CONSERVATIVE INCOME European Stock
Adjustable Rate Growth Stock
U.S. Government International Stock
Short-Term Bond Japan
Short-Term Global Income Mid-Cap Growth
Summit Limited-Term Bond New Era
U.S. Treasury Intermediate Small-Cap Value
Florida Insured
Intermediate Tax-Free AGGRESSIVE GROWTH
Maryland Short-Term International Discovery
Tax-Free Bond Latin America
Summit Municipal New America Growth
Intermediate New Asia
Tax-Free Insured New Horizons
Intermediate Bond
Tax-Free Short-Intermediate OTC
Science & Technology
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
High Yield
International Bond
Tax-Free High Yield
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.
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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.
TELEPHONE SERVICES
ACCESS YOUR ACCOUNT 24 HOURS A DAY BY CALLING 1-800-638-2587.
Tele*Access(R)--Gives you your account balance, date and amount of your
last transaction, latest dividend payment, and fund prices and yields. Also,
lets you purchase, exchange, or redeem shares.
SHAREHOLDER SERVICE REPRESENTATIVES ARE AVAILABLE FROM 8:30 A.M. TO 10:00 P.M.,
MONDAY-FRIDAY, AND SATURDAY FROM 9:00 A.M. TO 5:00 P.M., E.T. CALL
1-800-225-5132.
Shareholder Service Center--Call to exchange shares or move money between
your bank and fund accounts.
ACCOUNT SERVICES
Checking--Write checks for $500 or more on any money market and most bond
fund accounts.
Automatic Investing--Build your account over time by investing directly
from your bank account or paycheck. 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.
Quarterly Shareholder 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.
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, and 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
Trade stocks, bonds, options, and precious metals at substantial savings over
full-cost brokers.
Tele*Trade--Call this automated phone ser-vice after business hours to
place your orders.
Fax*Trade--Buy and sell by simply faxing your order.
Tele*Quote--Provides 24-hour access to stock and option quotes.
Money Fund Sweep Feature--Buy and sell securities and have your "sweep"
account automatically debited or credited. Dividend and interest payments are
credited daily.
If you have questions or would like to add a service to your account, please
call our Shareholder Service Center.
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