Semiannual Report - Financial Statements
T. Rowe Price
Tax-Free
Intermediate
Bond Fund
August 31, 1999
Portfolio Highlight
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SECTOR DIVERSIFICATION
Percent of Percent of
Net Assets Net Assets
2/28/99 8/31/99
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General Obligation - Local 12% 13%
Hospital Revenue 11 12
Nuclear Revenue 11 12
Dedicated Tax Revenue 10 12
General Obligation - State 6 10
Solid Waste Revenue 10 10
Air and Sea Transportation Revenue 11 10
Electric Revenue 4 8
Lease Revenue 4 4
Industrial and Pollution Control Revenue 1 3
Housing Finance Revenue 3 3
Ground Transportation Revenue 5 3
Water and Sewer Revenue 3 3
All Other 8 2
Other Assets Less Liabilities 1 -5
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Total 100% 100%
T. Rowe Price Tax-Free Intermediate Bond Fund
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Unaudited
Financial Highlights For a share outstanding throughout each period
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6 Months Year
Ended Ended
8/31/99 2/28/99 2/28/98 2/28/97 2/29/96 2/28/95
NET ASSET VALUE
Beginning
of period $ 11.13 $ 11.06 $ 10.80 $ 10.84 $ 10.35 $ 10.58
Investment activities
Net investment
income 0.24 0.48 0.48* 0.48* 0.48 0.46*
Net realized and
unrealized
gain (loss) (0.44) 0.10 0.29 (0.04) 0.49 (0.20)
Total from
investment
activities (0.20) 0.58 0.77 0.44 0.97 0.26
Distributions
Net investment
income (0.24) (0.48) (0.48) (0.48) (0.48) (0.46)
Net realized
gain (0.04) (0.03) (0.03) - - (0.03)
Total
distributions (0.28) (0.51) (0.51) (0.48) (0.48) (0.49)
NET ASSET VALUE
End of period $ 10.65 $ 11.13 $ 11.06 $ 10.80 $10.84 $ 10.35
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Ratios/Supplemental Data
Total return
(diamond) (1.85)% 5.37% 7.31%* 4.19%* 9.57%* 2.65%*
Ratio of total
expenses to average
net assets 0.65%! 0.65% 0.65%* 0.65%* 0.65%* 0.65%*
Ratio of net
investment
income to average
net assets 4.32%! 4.35% 4.43%* 4.47%* 4.52%* 4.53%*
Portfolio turnover
rate 35.4%! 24.3% 56.1% 76.8% 63.8% 170.8%
Net assets,
end of period
(in thousands) $116,674 $121,053 $108,256 $ 99,176 $ 92,153 $ 83,517
(diamond) Total return reflects the rate that an investor would have earned
on an investment in the fund during each period, assuming
reinvestment of all distributions.
* Excludes expenses in excess of a 0.65% voluntary expense limitation
in effect 3/1/94 through 2/28/98.
! Annualized
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free Intermediate Bond Fund
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Unaudited August 31, 1999
Statement of Net Assets Par Value
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In thousands
ARIZONA 1.8%
Arizona Transportation Board,
Maricopa County, Excise Tax
5.60%, 7/1/02 (AMBAC Insured) $ 2,000 $ 2,069
Total Arizona (Cost $2,021) 2,069
CALIFORNIA 1.6%
California Public Works Board,
Dept. of Corrections
6.00%, 11/1/05 (MBIA Insured) 1,550 1,680
Foothill / Eastern Transportation Corridor Agency
Zero Coupon, 1/15/17 (MBIA Insured) 500 181
Total California (Cost $1,767) 1,861
COLORADO 2.3%
Denver City and County Airport
6.25%, 11/15/06 (MBIA Insured) * 2,500 2,699
Total Colorado (Cost $2,602) 2,699
CONNECTICUT 2.8%
Connecticut, GO, 5.00%, 6/15/06 3,215 3,289
Total Connecticut (Cost $3,293) 3,289
FLORIDA 4.5%
Dade County, Resource Recovery Fac.
6.00%, 10/1/06 (AMBAC Insured) * 2,950 3,144
Florida Division of Bond Fin.
Dept. of Environmental Preservation
6.00%, 7/1/05 (MBIA Insured) 2,000 2,147
Total Florida (Cost $5,132) 5,291
GEORGIA 1.6%
Municipal Electric Auth. of Georgia
6.00%, 1/1/06 (AMBAC Insured) 1,770 1,889
Total Georgia (Cost $1,875) 1,889
HAWAII 4.4%
Hawaii Airport System,
6.70%, 7/1/05 (MBIA Insured) * $ 3,000 $ 3,165
Hawaii Dept. of Budget and Finance,
Hawaiian Electric
4.95%, 4/1/12 (MBIA Insured) 2,000 1,937
Total Hawaii (Cost $5,122) 5,102
IDAHO 0.5%
Idaho HFA, St. Lukes Regional Medical Center
VRDN (Currently 2.95%) 600 600
Total Idaho (Cost $600) 600
ILLINOIS 9.5%
Chicago, GO, 5.75%, 1/1/05 (AMBAC Insured) 5,200 5,467
Chicago Board of Ed., GO
Zero Coupon, 12/1/12 (FGIC Insured) 3,000 1,428
Chicago-O'Hare Int'l. Airport, Int'l. Terminal
7.50%, 1/1/05 (MBIA Insured) * 1,180 1,217
7.50%, 1/1/05 (MBIA Insured)
(Prerefunded 1/1/00!) * 570 588
Metropolitan Pier & Expo Auth.,
McCormick Place Expansion
5.375%, 12/15/18 (FGIC Insured) 2,500 2,397
Total Illinois (Cost $11,192) 11,097
LOUISIANA 1.0%
Louisiana Offshore Terminal Auth.,
VRDN (Currently 2.70%) 1,100 1 ,100
Total Louisiana (Cost $1,100) 1,100
MARYLAND 10.6%
Baltimore County, GO, Pension Funding,
5.125%, 8/1/12 1,200 1,198
Maryland CDA
Single Family
5.40%, 4/1/03 1,070 1,097
5.70%, 4/1/06 1,000 1,038
Montgomery County, GO,
Consolidated Public Improvement
5.25%, 5/1/04 3,000 3,110
Northeast Maryland Waste Disposal Auth.
Montgomery County Resources
6.30%, 7/1/16 (MBIA Insured) * $ 2,000 $ 2,104
Southwest Resource Recovery Fac.
7.10%, 1/1/03 (MBIA Insured) 3,500 3,786
Total Maryland (Cost $12,054) 12,333
MASSACHUSETTS 2.3%
Massachusetts
GO
5.25%, 8/1/15 1,375 1,344
6.30%, 11/1/05 (FGIC Insured) 1,250 1,359
Total Massachusetts (Cost $2,605) 2,703
MICHIGAN 6.8%
Detroit City School Dist., GO,
5.25%, 5/1/12 (FGIC Insured) 1,000 996
Greater Detroit Resource Recovery Auth.
6.25%, 12/13/05 (AMBAC Insured) 2,000 2,169
Michigan Building Auth., Lease
6.25%, 10/1/03 (AMBAC Insured) 2,000 2,137
Univ. of Michigan Hosp.,
VRDN (Currently 2.75%) 1,000 1,000
Wayne County (Charter) Airport,
5.25%, 12/1/10 (MBIA Insured) 1,610 1,624
Total Michigan (Cost $7,873) 7,926
MINNESOTA 0.9%
Minneapolis and St. Paul Metropolitan
Airports Commission, GO
6.40%, 1/1/06 * 1,000 1,040
Total Minnesota (Cost $1,014) 1,040
MISSISSIPPI 3.0%
Mississippi Business Fin.,
Solid Waste Disposal
VRDN (Currently 2.90%) * 3,550 3,550
Total Mississippi (Cost $3,550) 3,550
MISSOURI 0.4%
Missouri HEFA, Cox Health Systems
VRDN (Currently 3.00%) (MBIA Insured) $ 500 $ 500
Total Missouri (Cost $500) 500
NEBRASKA 1.8%
Omaha Public Power Dist., 5.50%, 2/1/07 2,000 2,086
Total Nebraska (Cost $2,093) 2,086
NEW JERSEY 3.9%
New Jersey Transportation Trust Fund Auth.
5.00%, 6/15/04 3,475 3,555
5.625%, 6/15/14 1,000 1,031
Total New Jersey (Cost $4,672) 4,586
NEW YORK 2.0%
Long Island Power Auth.,
5.00%, 4/1/05 (FSA Insured) 750 765
Metropolitan Transportation Auth.
6.25%, 7/1/05 (MBIA Insured) 1,420 1,536
Total New York (Cost $2,246) 2,301
NORTH CAROLINA 3.8%
North Carolina Municipal Power Agency,
Catawba Electric
6.00%, 1/1/04 (MBIA Insured) 4,200 4,430
Total North Carolina (Cost $4,320) 4,430
OHIO 1.8%
Columbus, GO
Police Firemen Disability
5.00%, 7/15/10 1,035 1,030
5.00%, 7/15/11 1,095 1,082
Total Ohio (Cost $2,176) 2,112
PENNSYLVANIA 2.2%
Pennsylvania, GO,
5.375%, 11/15/03 (FGIC Insured) $ 2,500 $ 2,596
Total Pennsylvania (Cost $2,543) 2,596
SOUTH CAROLINA 5.1%
South Carolina Public Service Auth.
Santee Cooper
5.75%, 1/1/22 (MBIA Insured) 4,900 4,863
6.50%, 7/1/24 (AMBAC Insured)
(Prerefunded 7/1/02!) 1,000 1,078
Total South Carolina (Cost $6,023) 5,941
TENNESSEE 3.9%
Knox County Health Ed. and Housing Fac. Board
Catholic Healthcare, VRDN (Currently 3.25%) 3,800 3,800
Memphis-Shelby County Airport Auth.
6.25%, 2/15/11 (MBIA Insured) * 700 757
Total Tennessee (Cost $4,529) 4,557
TEXAS 10.1%
Dallas-Fort Worth Regional Airport
7.75%, 11/1/03 (FGIC Insured) 1,000 1,122
Harris County Health Fac. Dev.
Methodist Hosp.,
VRDN (Currently 3 00%) 1,400 1,400
St. Luke's Episcopal Hosp.,
VRDN (Currently 3.10%) 100 100
Texas Childrens Hosp., 5.375%, 10/1/12 1,695 1,676
Houston, Water and Sewer,
7.00%, 12/1/03 (AMBAC Insured) 2,650 2 ,904
San Antonio
Water
6.40%, 5/15/05 (FDIC Insured)
(Escrowed to Maturity) 20 22
6.40%, 5/15/05 (FGIC Insured) 85 91
6.40%, 5/15/05 (FGIC Insured)
(Prerefunded 5/15/02!) 45 48
Tarrant County Health Fac. Dev.,
Texas Health Resources
5.75%, 2/15/10 (MBIA Insured) 2,500 2,597
Texas Dept. of Housing and Community Affairs
Single Family Mortgage
5.75%, 3/1/10 (MBIA Insured) $ 1,810 $ 1,860
Total Texas (Cost $11,634) 11,820
VERMONT 0.3%
Vermont Ed. and Health Buildings Fin. Agency
Medical Center Hosp. of Vermont
7.35%, 9/1/13 (FGIC Insured) 350 370
Total Vermont (Cost $350) 370
VIRGINIA 7.0%
Washington D.C. Metropolitan Airport Auth.
6.625%, 10/1/12 (MBIA Insured) * 500 534
Alexandria IDA, Ogden Martin,
VRDN (Currently 2.90%) * 100 100
Richmond Metropolitan Auth., Expressway
5.25%, 7/15/17 (FGIC Insured) 2,125 2,067
Riverside Regional Jail Auth.,
5.60%, 7/1/06 (MBIA Insured) 1,100 1,159
Roanoke IDA, Carilion Health Systems
VRDN (Currently 3.00%) 1,000 1,000
Virginia Ed. Loan Auth., Student Loan Program
5.80%, 3/1/05 (Escrowed to Maturity) * 980 1,030
Virginia Transportation Board
Northern Virginia Transportation Dist.
5.80%, 5/15/03 1,425 1,494
5.80%, 5/15/04 695 734
Total Virginia (Cost $8,029) 8,118
WASHINGTON 5.9%
Tacoma Electric Systems
5.90%, 1/1/05 (FGIC Insured) 1,000 1,060
6.00%, 1/1/06 (FGIC Insured) 2,000 2,132
Washington, GO, 5.50%, 7/1/14 2,550 2,586
Washington Health Care Fac. Auth.
Virginia Mason Medical Center
6.00%, 8/15/08 (MBIA Insured) 1,000 1,071
Total Washington (Cost $6,910) 6,849
WEST VIRGINIA 0.7%
West Virginia, GO,
Zero Coupon, 11/1/12 (FGIC Insured) $ 1,550 $ 768
Total West Virginia (Cost $798) 768
WYOMING 2.7%
Kemmerer County, PCR, Exxon,
VRDN (Currently 2.70%) 1,700 1,700
Sublette County, PCR, Exxon,
VRDN (Currently 2.80%) * 1,200 1,200
Sweetwater County, PCR, Idaho Power,
VRDN (Currently 2.75%) 200 200
Total Wyoming (Cost $3,100) 3,100
Total Investments in Securities
105.2% of Net Assets (Cost $121,723) $ 122,683
Other Assets Less Liabilities (6,009)
NET ASSETS $ 116,674
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Net Assets Consist of:
Accumulated net investment income - net of distributions $ 54
Accumulated net realized gain/loss - net of distributions (454)
Net unrealized gain (loss) 960
Paid-in-capital applicable to
10,957,042 shares of $0.01 par
value capital stock outstanding;
1,000,000,000 shares authorized 116,114
NET ASSETS $ 116,674
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NET ASSET VALUE PER SHARE $ 10.65
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* Interest subject to alternative minimum tax
! Used in determining portfolio maturity
AMBAC AMBAC Indemnity Corp.
CDA Community Development Administration
FGIC Financial Guaranty Insurance Company
FSA Financial Security Assurance Corp.
GO General Obligation
HFA Health Facility Authority
IDA Industrial Development Authority
MBIA Municipal Bond Investors Assurance Corp.
PCR Pollution Control Revenue
VRDN Variable Rate Demand Note
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free Intermediate Bond Fund
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Unaudited
Statement of Operations
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In thousands
6 Months
Ended
8/31/99
Investment Income
Interest income $ 2,975
Expenses
Investment management 243
Shareholder servicing 64
Custody and accounting 51
Prospectus and shareholder reports 11
Registration 9
Legal and audit 6
Directors 3
Miscellaneous 2
Total expenses 389
Expenses paid indirectly (1)
Net expenses 388
Net investment income 2,587
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities (238)
Futures (28)
Net realized gain (loss) (266)
Change in net unrealized gain or loss on securities (4,575)
Net realized and unrealized gain (loss) (4,841)
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ (2,254)
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The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free Intermediate Bond Fund
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Unaudited
Statement of Changes in Net Assets
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In thousands
6 Months Year
Ended Ended
8/31/99 2/28/99
Increase (Decrease) in Net Assets
Operations
Net investment income $ 2,587 $ 4,979
Net realized gain (loss) (266) 559
Change in net unrealized gain or loss (4,575) 454
Increase (decrease) in net assets from operations (2,254) 5,992
Distributions to shareholders
Net investment income (2,587) (4,979)
Net realized gain (436) (303)
Decrease in net assets from distributions (3,023) (5,282)
Capital share transactions*
Shares sold 9,841 27,045
Distributions reinvested 2,381 4,064
Shares redeemed (11,324) (19,022)
Increase (decrease) in net assets from capital
share transactions 898 12,087
Net Assets
Increase (decrease) during period (4,379) 12,797
Beginning of period 121,053 108,256
End of period $ 116,674 $ 121,053
------------------------
*Share information
Shares sold 901 2,443
Distributions reinvested 219 367
Shares redeemed (1,039) (1,718)
Increase (decrease) in shares outstanding 81 1,092
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free Intermediate Bond Fund
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Unaudited August 31, 1999
Notes to Financial Statements
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NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Tax-Free Intermediate Bond 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 November
30, 1992.
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. Expenses paid indirectly reflect
credits earned on daily uninvested cash balances at the custodian, which
are used to reduce the fund's custody charges.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $20,322,000 and $27,018,000, respectively, for the
six months ended August 31, 1999.
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 August 31, 1999, the cost for federal income tax purposes was
substantially the same as for financial reporting and totaled $121,723,000.
Net unrealized gain aggregated $960,000 at period-end, of which $2,075,000
was related to appreciated investments and $1,115,000 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 $42,000 was payable at August 31, 1999. The fee is computed
daily and paid monthly, and consists 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 0.30% for assets in
excess of $80 billion. At August 31, 1999, and for the six months 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.
Under the terms of the investment management agreement, the manager had
been required to bear any expenses through February 28, 1998, which would
cause the fund's ratio of total expenses to average net assets to exceed
0.65%. Thereafter, through February 29, 2000, the fund is required to
reimburse the manager for these expenses, provided that average net assets
have grown or expenses have declined sufficiently to allow reimbursement
without causing the fund's ratio of total expenses to average net assets to
exceed 0.65%. Pursuant to this previous agreement, $21,000 of unaccrued
fees were repaid during the six months ended August 31, 1999, and $2,000
remains subject to reimbursement.
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
$86,000 for the six months ended August 31, 1999, of which $15,000 was
payable at period-end.
T. Rowe Price Shareholder Services
- --------------------------------------------------------------------------------
Investment Services And Information
KNOWLEDGEABLE SERVICE REPRESENTATIVES
By Phone 1-800-225-5132 Available Monday through Friday from 8 a.m. to 10
p.m. ET and weekends from 8:30 a.m. to 5 p.m. ET.
In Person Available in T. Rowe Price Investor Centers.
ACCOUNT SERVICES
Checking Available on most fixed income funds ($500 minimum).
Automatic Investing From your bank account or paycheck.
Automatic Withdrawal Scheduled, automatic redemptions.
Distribution Options Reinvest all, some, or none of your distributions.
Automated 24-Hour Services Including Tele*Access(registered trademark) and
the T. Rowe Price Web site on the Internet. Address: www.troweprice.com
BROKERAGE SERVICES*
Individual Investments Stocks, bonds, options, precious metals, and other
securities at a savings over full-service commission rates.**
INVESTMENT INFORMATION
Combined Statement Overview of all your accounts with T. Rowe Price.
Shareholder Reports Fund managers' reviews of their strategies and results.
T. Rowe Price Report Quarterly investment newsletter discussing markets and
financial strategies.
Performance Update Quarterly review of all T. Rowe Price fund results.
Insights Educational reports on investment strategies and financial
markets.
Investment Guides Asset Mix Worksheet, College Planning Kit, Diversifying
Overseas: A Guide to International Investing, Personal Strategy Planner,
Retirees Financial Guide, and Retirement Planning Kit.
* T. Rowe Price Brokerage is a division of T. Rowe Price Investment
Services, Inc., Member NASD/SIPC.
** Based on a January 1999 survey for representative-assisted stock
trades. Services vary by firm, and commissions may vary depending on
size of order.
For fund and account information
or to conduct transactions,
24 hours, 7 days a week
By touch-tone telephone
Tele*Access 1-800-638-2587
By Account Access on the Internet
www.troweprice.com/access
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132
To open a brokerage account
or obtain information, call:
1-800-638-5660
Internet address:
www.troweprice.com
Plan Account Lines for retirement
plan participants:
The appropriate 800 number appears
on your retirement account statement.
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 appropriate
to the fund or funds covered in this
report.
Walk-In Investor Centers:
For directions, call 1-800-225-5132
or visit our Web site
Baltimore Area
Downtown
101 East Lombard Street
Owings Mills
Three Financial Center
4515 Painters Mill Road
Boston Area
386 Washington Street
Wellesley
Colorado Springs
4410 ArrowsWest Drive
Los Angeles Area
Warner Center
21800 Oxnard Street, Suite 270
Woodland Hills
Tampa
4200 West Cypress Street
10th Floor
Washington, D.C.
900 17th Street N.W.
Farragut Square
"T. Rowe Price, Invest with Confidence" (registered trademark)
T. Rowe Price Investment Services, Inc., Distributor. F49-051 8/31/99
THE SHAREHOLDER LETTER AND REPORT FOR THE COMBINED TAX-FREE FUNDS ARE
ATTACHED HERE BY ACCESSING THE FOLLOWING:
Semiannual Report
Tax-Free Funds
August 31, 1999
T. Rowe Price
Report Highlights
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Tax-Free Funds
o Strong U.S. economic growth and rising interest rates hurt the bond
market over the past six months.
o All funds posted negative returns over the difficult six-month period,
except for the Tax-Exempt Money Fund and PLUS Class shares, which benefited
from higher short-term rates.
o A common goal across the funds was to improve the dividend yield as rates
rose.
o While rates could trend higher, |municipal bonds continue to offer
attractive after-tax yields at current levels.
UPDATES AVAILABLE
For updates on the fund following the end of each calendar quarter, please see
our Web site www.troweprice.com.
Fellow Shareholders
The U.S. economy's above-average growth during the six months ended August
31 was good for consumers but not so good for bond investors. Interest
rates rose throughout the period as investors worried about a buildup in
inflationary pressures and the possibility-which became an actuality-of
monetary tightening by the Federal Reserve. As a result, declines in
taxable and municipal bond prices led to meager or negative returns on most
longer-term bond funds for the period. The tax-free bond funds were not
immune to this trend.
MARKET ENVIRONMENT
For Municipal Bond and Notes Yields
- --------------------------------------------------------------------------------
30-Year AAA 5-Year AAA 1-Year Moody's
General Obligations General Obligations Investment Grade 1 Note
8/98 4.93 3.85 3.5
4.82 3.7 3.3
4.92 3.7 2.95
11/98 4.89 3.75 3.05
4.94 3.75 3.05
4.87 3.65 2.95
2/99 4.99 3.78 3
5.04 3.83 3.15
5.08 3.85 3.2
5/99 5.16 4 3.2
5.33 4.33 3.5
5.41 4.3 3.55
8/99 5.6 4.4 3.75
Source: T. Rowe Price Associates.
The U. S. economy continued its robust growth, driven by exuberant consumer
spending. Although broad measures of inflation did not rise appreciably,
tight labor markets, low unemployment, and a rebound in energy prices
raised fears of a buildup in inflationary pressures. The fixed income
markets reacted nervously to these developments as well as to the increased
likelihood of action by the Federal Reserve. Indeed, as summer approached,
Fed Chairman Alan Greenspan served clear warning that the central bank
would act to preempt a rise in inflation. Actions soon followed words as
the Fed raised key short-term interest rates on June 30 and again on August
24, pushing the federal funds target rate up a total of 50 basis points
(one-half of a percentage point) to 5.25%. With these moves the Fed
effectively rescinded two of its three rate reductions last fall, when it
had moved swiftly to ease a global financial crisis. Signs of recovery in
many Asian and Latin American nations most affected by that crisis helped
push the U.S. dollar lower and interest rates higher.
Market Changes Spell Higher Tax-Free Yields
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Structural changes are taking place in the fixed income markets resulting
in higher tax-free yields for investors.
The chart below tracks the yield on 30-year, AAA general obligation
municipal bonds as a percentage of long-term Treasury bond yields since
1981. Historically, the yield on these municipal bonds has averaged about
85% of the Treasury yield. This discount reflected both the tax benefit of
municipals and uncertainty about future tax laws. Investors in the 31%
federal tax bracket, for example, keep only 69% of their income from
taxable bonds. Therefore, they would logically be attracted to high-quality
municipal bonds offering 85% or more of the prevailing Treasury yield.
The sharp spike in municipal yields in 1986 reflects the tax reform debate,
which posed a threat to municipal bonds' federal tax exemption.
Accordingly, municipal bond yields reached parity with Treasury yields.
However, when the Tax Reform Act of 1986 left the tax benefit intact,
municipal bond prices rose sharply until yields had fallen to more normal
levels.
Recently, different forces have been at work that go beyond the impact of
1998's global financial crisis. At that time, shaky world markets prompted
foreign investors (who have no need for U.S. tax-exempt bonds) to buy
Treasuries, and Treasury yields plunged to near parity with municipals.
Since then, Treasury yields have returned to pre-crisis levels, but
municipal yields are again unusually high at about 94% of Treasury yields.
According to Mary Miller, director of the T. Rowe Price municipal bond
department, the current relationship is "illogical from a tax standpoint"
but unlikely to change soon.
For one thing, the supply of Treasury debt is shrinking due to the federal
budget surplus, while outstanding municipal supply continues to grow. In
addition, the supply of taxable bonds outside of Treasuries-including
corporate, asset-backed and mortgage-backed bonds-has also risen, and this
has created more competition in the market. As a result, even as tax-exempt
yields have risen in relation to Treasury yields over the past two years,
they have fallen in relation to the yields on other high-quality taxable
bonds.
Over time, income makes up the vast majority of a bond investor's total
return. Therefore, these developments have given investors the opportunity
to earn higher-than-expected tax-free income with little or no sacrifice of
credit quality.
For Municipal/Treasury Yield Ratio
- --------------------------------------------------------------------------------
Treasury Ratio Treasury Average
79 84.5
78.4 84.5
'81 83.2 84.5
81.6 84.5
86.6 84.5
86.3 84.5
93.3 84.5
88.4 84.5
87.6 84.5
89.2 84.5
88.3 84.5
86.3 84.5
86.6 84.5
84.8 84.5
'82 82.1 84.5
85.5 84.5
86.3 84.5
91.9 84.5
86.5 84.5
84.1 84.5
81.9 84.5
83.7 84.5
81.4 84.5
84.9 84.5
81.9 84.5
78.8 84.5
'83 78.4 84.5
80.1 84.5
79.7 84.5
81 84.5
78.7 84.5
78.3 84.5
77.6 84.5
76.1 84.5
75.5 84.5
76.5 84.5
76.3 84.5
75.9 84.5
'84 77.6 84.5
80.4 84.5
85.1 84.5
84 84.5
83.7 84.5
79.3 84.5
79.2 84.5
80.4 84.5
79.4 84.5
80.1 84.5
80.4 84.5
82.5 84.5
'85 84.5 84.5
87.2 84.5
83.7 84.5
83.4 84.5
88 84.5
81 84.5
81.5 84.5
89.4 84.5
93.1 84.5
97.3 84.5
100.9 84.5
97 84.5
'86 93.1 84.5
89.5 84.5
87.3 84.5
87.8 84.5
87.6 84.5
85.6 84.5
86.4 84.5
86.1 84.5
90.8 84.5
89.2 84.5
90 84.5
85.5 84.5
'87 83.6 84.5
86.3 84.5
89.2 84.5
86.3 84.5
84.6 84.5
86.2 84.5
88.3 84.5
88.1 84.5
83.4 84.5
83.7 84.5
85.9 84.5
82.5 84.5
'88 81.7 84.5
83 84.5
81.9 84.5
82.2 84.5
82.3 84.5
79.9 84.5
81.2 84.5
83.1 84.5
81.3 84.5
81.4 84.5
85.3 84.5
85.9 84.5
'89 85.4 84.5
87.4 84.5
90.4 84.5
87.5 84.5
85.9 84.5
83.5 84.5
82 84.5
83 84.5
81.8 84.5
81.6 84.5
84.5 84.5
82.7 84.5
'90 80.7 84.5
81 84.5
80.9 84.5
82.2 84.5
85 84.5
83.5 84.5
83.7 84.5
84.3 84.5
83.2 84.5
82.3 84.5
82.7 84.5
82.2 84.5
'91 83.2 84.5
84.6 84.5
82.9 84.5
83.2 84.5
86.6 84.5
84.5 84.5
83.5 84.5
82.9 84.5
80.9 84.5
81.7 84.5
80.4 84.5
79.1 84.5
'92 82.4 84.5
84 84.5
84.7 84.5
81.7 84.5
82.5 84.5
83.4 84.5
79.8 84.5
83.8 84.5
81.5 84.5
81.7 84.5
81.7 84.5
83.8 84.5
'93 87 84.5
86.3 84.5
87.1 84.5
85.7 84.5
82 84.5
83.4 84.5
84.1 84.5
86.8 84.5
84.1 84.5
81.5 84.5
82.8 84.5
81.9 84.5
'94 81.9 84.5
81.3 84.5
81.7 84.5
84.4 84.5
83.8 84.5
80.5 84.5
80.0 84.5
80.1 84.5
81.8 84.5
84.8 84.5
89.1 84.5
86 84.5
'95 87.9 84.5
89.5 84.5
88.5 84.5
87.2 84.5
87.5 84.5
87.1 84.5
84.4 84.5
85.6 84.5
84.1 84.5
84.4 84.5
83.4 84.5
81.8 84.5
'96 80.9 84.5
80.1 84.5
82.8 84.5
84.2 84.5
82.2 84.5
81.8 84.5
80.9 84.5
81 84.5
80.7 84.5
79.6 84.5
80.4 84.5
81.8 84.5
'97 81 84.5
82 84.5
85 84.5
85.7 84.5
84.8 84.5
86.2 84.5
85.8 84.5
86.5 84.5
87.4 84.5
87.1 84.5
89.7 84.5
89.2 84.5
'98 93.8 84.5
97.3 84.5
95.6 84.5
96.3 84.5
97.4 84.5
95.5 84.5
89.5 84.5
89.7 84.5
89.8 84.5
88.5 84.5
89.2 84.5
88.5 84.5
8/99 92.3 84.5
Source: Municipal Market Data
Interest rates rose across all maturities, with the bellwether 30-year
Treasury bond rising from near 5% at the beginning of the year to over 6%
for the first time since mid-1998. Short-term yields rose a bit more than
intermediate and long-term bond yields over the period, creating a flatter
yield curve-a typical occurrence when the Fed is actively raising
short-term rates. Municipal market interest rates also rose throughout the
period, as shown in the chart on page 1, but not as much as those on
taxable bonds. Municipals were helped by strong seasonal demand in July
through the reinvestment of proceeds from maturing bonds and other
cashflows. Thus, for much of the past six months, overall returns on
municipals compared favorably with their taxable counterparts, although
both were modest at best.
In August, however, this trend reversed. A heavy supply of corporate bonds
in the market pushed up their yields and attracted "crossover"
institutional buyers-those who buy either corporate or municipal bonds
depending on their after-tax yields. The drop in demand for municipals from
these institutional investors (some of whom also sold municipals from their
portfolios), combined with a reluctance by dealers to add to their bond
inventories, created a weak market tone. Municipal yields rose to their
highest level of the past year. After outperforming taxable bonds through
July, municipals lost ground in August, and their performance fell more in
line with taxable securities for the entire six-month period.
TAX-EXEMPT MONEY FUND AND PLUS SHARES
Performance Comparison
- --------------------------------------------------------------------------------
Since Inception*
Periods Ended 8/31/99 6 Months 12 Months (PLUS Shares)
- --------------------------------------------------------------------------------
Tax-Exempt Money Fund 1.38% 2.78% -
Tax-Exempt Money Fund
PLUS Shares 1.31 - 2.06%
Lipper Tax-Exempt Money
Market Funds Average 1.29 2.63 2.14
*11/1/98
Tax-Exempt Money Fund PLUS Shares
- --------------------------------------------------------------------------------
Starting November 1, 1998, we created a new class of shares called The
Tax-Exempt Money - PLUS Class. The share class is offered as part of our new
Asset Manager Account, which incorporates a number of additional services, such
as unlimited checkwriting and a debit card. Both the Tax-Exempt Money Fund and
Tax-Exempt Money - PLUS are based on the same portfolio, and as such will be
reported on together in future annual and semiannual reports. However,
performance will differ because the classes of shares have different expense
ratios. Tax-Exempt Money - PLUS will have no impact on the expenses, share
price, or yield of the original Tax-Exempt Money Fund.
Note: To request a prospectus for any T. Rowe Price fund, please call
1-800-638-5660. Read the prospectus carefully before investing.
The Tax-Exempt Money Fund's results were comfortably ahead of its Lipper
peer group average for both the 6- and 12-month periods ended August 31,
1999. The six-month return for the Tax-Exempt Money Fund PLUS shares was
slightly ahead of the Lipper average, but its return since inception on
November 1, 1998, trailed Lipper by eight basis points, a reflection of the
PLUS shares' higher expenses that accompany their additional services.
During the past six months, short-term tax-exempt yields moved higher as
the Federal Reserve lifted the federal funds rate twice, as mentioned. On
August 31 yields in the 30- to 90-day range were 50 basis points higher
than six months earlier while 6- and 12-month rates were up 75 basis
points. Additionally, later in the reporting period the short-term
tax-exempt yield curve grew noticeably steeper as one-year securities
yielded 65 basis points more than one- to seven-day maturities. This
contrasted with a difference of 15 basis points on February 28.
We took advantage of these changes by maintaining a longer-than-average
weighted average maturity (WAM) throughout the period. On February 28, the
WAM was 53 days compared with 42 days for the peer group average. From
March through May, we recognized opportunity in the slope of the yield
curve and extended maturity as much as 25 to 28 days beyond that of our
competitors. As we approached summer, we allowed our average maturity to
drift down closer to the average. This more neutral posture coincided well
with the beginning of the seasonal increase in new note issuance and the
Fed's tighter monetary stance. Now that the Fed has raised rates twice, we
intend to modestly lengthen our weighted average maturity, although not as
much as earlier in the year. On August 31, the WAM was 54 days, four days
longer than the peer group average.
Growth in money market fund assets slowed markedly so far in 1999.
Tax-exempt funds, which total $192.8 billion, increased by only 2.7%, the
lowest rate of increase in six years. However, this slow growth in demand
has been well balanced by manageable supply. While tax-exempt industry
assets were up approximately $5 billion, supply of new issues for the year
is higher by only $1.7 billion.
TAX-FREE SHORT-INTERMEDIATE FUND
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 8/31/99 6 Months 12 Months
- --------------------------------------------------------------------------------
Tax-Free Short-Intermediate Fund -0.07% 2.32%
Lipper Short-Intermediate
Municipal Debt Funds Average -0.55 1.52
During the past six months, against a backdrop of rising interest rates,
dividend income largely offset the drop in the fund's net asset value,
resulting in only a small loss for the period. For the 12 months ended
August 31, the fund posted a respectable gain in a difficult environment.
Performance in both periods surpassed the average for the fund's Lipper
peer group, a result of the fund's low expenses, our duration strategy, and
credit research. (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.)
While the duration at the end of August was unchanged at 3.0 years from six
months earlier, it varied between 2.8 and 3.2 years in the interim. As
rates moved higher, we initially extended duration in May in anticipation
of a slowdown in second quarter growth. When the slowdown failed to
materialize, we moved back to a neutral position then shortened again as
prices rose in July. Heavy Treasury, corporate, and municipal issuance in
August caused intermediate and long-term tax-exempt rates to rise to their
highest levels of the year-levels not seen since 1997. Recently, we have
begun to extend duration because of the higher rates, good valuations (see
story on page 2), investor demand, and the prospects for lower issuance
through the rest of 1999.
Our sector diversification experienced some changes primarily due to our
efforts to extend duration rather than to any shift in opinion about the
credit quality or relative value of individual securities. Our allocation
to shorter prerefunded securities declined while exposure to longer
maturities, including nuclear revenue and state general obligation bonds,
increased. These sector adjustments resulted in a moderate decline in the
fund's overall credit quality from AA to AA-, based on our in-house
research.
TAX-FREE INTERMEDIATE BOND FUND
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 8/31/99 6 Months 12 Months
- --------------------------------------------------------------------------------
Tax-Free Intermediate Bond Fund -1.85% 0.36%
Lipper Intermediate
Municipal Debt Funds Average -1.87 0.25
Your fund suffered along with other intermediate- and longer-term bond
funds during the six months ended August 31 and provided a negative return
that was slightly ahead of the Lipper average for similar funds. For the
12-month period, the fund posted a small gain that again surpassed the
competitor average as dividend income of $0.48 overcame the drop in net
asset value. Our relatively favorable results were largely due to the
fund's low expenses and our management of duration. (See Tax-Free
Short-Intermediate Fund report for an explanation of the effect duration
has on bond fund prices when interest rates rise or fall.)
At the end of August, the portfolio's duration was 5.1 years, down from 5.4
years six months earlier. At different times during the course of the
reporting period, we lengthened or shortened when we thought it appropriate
to take advantage of fluctuations in the market. Our focus in a period of
generally rising rates was to improve the fund's dividend yield and to make
opportunistic purchases of attractively valued bonds that would serve as
core holdings. The fund's overall credit rating remained stable at AA,
based on our in-house rating system, and higher using the ratings from
national rating agencies.
We also made some changes in our allocation to various sectors. Primary
among them were sharp increases in state general obligation and dedicated
tax revenue bonds, which we believe will perform better than other types of
securities in the current economic environment. We also have recently begun
to reduce the fund's allocation to hospital securities because of cutbacks
in Medicare reimbursement payments, which could adversely affect the
sector.
TAX-FREE INCOME FUND
In a difficult environment for bonds, the fund's returns were negative for
the 6- and 12-month periods. However, they were better than the average
returns for our competition due to the fund's below-average expenses and
our investment strategy. Dividend income, which was steady in both periods,
partly offset the decline in net asset value.
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 8/31/99 6 Months 12 Months
- --------------------------------------------------------------------------------
Tax-Free Income Fund -2.99% -1.14%
Lipper General Municipal
Debt Funds Average -3.34 -1.63
Our portfolio management strategy changed as the market reversed course
from the bond market rally that occurred in the second half of 1998. For
most of the past six months, we targeted a neutral duration of 7.5 years
after pursuing a more aggressive posture in the prior six months. (Duration
is a better measure of sensitivity to interest rate movements than the
average maturity of the portfolio.) We accomplished this by raising cash
reserves modestly from 1% to 2% of assets last year to between 3% and 4%
this year. We also sold some of our lower-coupon, longer-maturity bonds to
buy others with more defensive characteristics, such as higher coupons and
shorter durations.
In August, when long-term municipal rates rose to their highest level of
the past 12 months, a number of bonds in the portfolio that had been
trading to their shorter call dates began trading to maturity. As a result,
fund duration extended almost half a year to just under eight years. At the
same time, the fund's weighted average maturity was at its shortest point
of the last 10 years. With rates at their current levels, we expect to see
little further extension of duration in the portfolio and will continue to
target a neutral posture. During the summer, we sold bonds with losses and
reinvested the proceeds in new bonds with higher yields. This action helps
lift the portfolio's dividend yield to shareholders and allows us to use a
capital loss to offset any recognized capital gains.
One reason why we did not become more defensive in our investment posture
is the attractiveness of municipal bonds relative to taxable alternatives.
For the past year, long-term AAA rated municipal bond yields have ranged
between 87% and 98% of comparable Treasury yields, well above the long-term
average of 85%. At times both lower-rated and insured bonds have yielded
much more than Treasuries. While this appears to be a reaction to current
supply-and-demand factors (see story on page 2), it gave us reason to be
more optimistic about the municipal market.
Our credit exposure is little changed from six months ago except for a
reduction in the hospital sector from 15% to 12% of assets, a reflection of
its poor financial performance. We increased our holdings of state general
obligation debt from 5% to 7% in recognition of the benefits of enhanced
tax revenues due to the strong economy. Overall, the fund's average credit
quality was AA- at the end of August, based on T. Rowe Price research, and
slightly higher based on national agency ratings.
TAX-FREE HIGH YIELD FUND
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 8/31/99 6 Months 12 Months
- --------------------------------------------------------------------------------
Tax-Free High Yield Fund -2.71% -1.18%
Lipper High Yield Municipal
Debt Funds Average -1.95 -0.49
Against a backdrop of sharply rising interest rates during the past six
months, municipal tax-exempt bonds fared poorly along with other fixed
income securities. Your fund posted negative returns for the 6- and
12-month periods ended August 31 and trailed the average returns for the
Lipper universe of competing funds.
Factors that contributed to the fund's relatively weak results included our
longer duration and our exposure to high-quality bonds, which were more
adversely affected by rising rates than lower-rated securities. Low-quality
securities turned in a better performance because of their higher coupon
and shorter call date structure; as the economy showed continued strength,
so did the financial prospects of many high-yield bonds. Since we are
somewhat underweighted in them, our relative performance suffered.
At the end of August, the fund's duration stood at 8.2 years up from 7.6
years at the end of February. Much of this extension occurred late in the
period as our holdings with shorter call dates began trading to their final
maturity. The biggest changes occurred within the BBB and lower segment of
the portfolio as we have added holdings and extended our duration within
them. In our effort to take advantage of the recent upturn in yields, we
increased below-investment-grade issues to 25% of the fund, up from 22% six
months ago. Yields on new low-quality issues range between 6.5% and 7.5%,
levels we find attractive for long-term investments. The fund's weighted
average quality was A-, based on our in-house rating system.
For Quality Diversification
- --------------------------------------------------------------------------------
Tax-Free High-Yield Fund
AAA AA A BBB BB and below
5 24 19 27 25
Based on net assets of 8/31/99
We added to positions in sectors of the market that have declined and now
offer attractive yields, including corporate-backed municipals. This
strategy should enable us to increase the fund's average coupon and
dividend yield. We have continued to add to our holdings in long-term
healthcare while reducing exposure to uninsured hospitals, which is
currently at its lowest level of portfolio assets in several years. (The
increase in these bonds shown in the Sector Diversification table after
this letter reflects additions in very high-quality money market holdings
for liquidity purposes.)
OUTLOOK
Interest rates could move higher in coming months because of persistent
strength in the domestic economy and recovery overseas. The Fed is keeping
a close eye on inflationary pressures, particularly in the labor markets,
and could tighten another 25 basis points if it intends to move the federal
funds rate back to its level of a year ago. However, the Fed is also
interested in maintaining a liquid and orderly market as we approach the
end of the year and the transition to 2000, which could serve to moderate
future rate increases. At the same time, it is important to recognize that
the increase in rates so far this year could be enough to slow certain
sectors of the economy. At present, we are focusing on the higher yields
available in the marketplace and on the current appeal of tax-free
municipal bonds relative to taxable securities.
Respectfully submitted,
Mary J. Miller
Director
Municipal Bond Department
September 24, 1999
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
KEY STATISTICS
2/28/99 8/31/99
Tax-Exempt Money Fund
- --------------------------------------------------------------------------------
Price Per Share $1.00 $1.00
Dividends Per Share
For 6 months 0.014 0.014
For 12 months 0.029 0.027
Dividend Yield (7-Day Compound) * 2.54% 2.80%
Weighted Average Maturity (days) 53 54
Weighted Average Quality ** First Tier First Tier
Tax-Exempt Money Fund PLUS Shares
- --------------------------------------------------------------------------------
Price Per Share $ 1.00 $ 1.00
Dividends Per Share
For 6 months 0.007! 0.013
For 12 months -- --
Dividend Yield (7-Day Compound) * 2.07 2.67%
Weighted Average Maturity (days) 53 54
Weighted Average Quality ** First Tier First Tier
To request a prospectus for any T. Rowe Price fund, please call 1-800-638-5660.
Read the prospectus carefully before investing.
(continued on next page)
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
KEY STATISTICS
2/28/99 8/31/99
Tax-Free Short-Intermediate Fund
- --------------------------------------------------------------------------------
Price Per Share $ 5.39 $ 5.27
Dividends Per Share
For 6 months 0.11 0.11
For 12 months 0.22 0.21
Dividend Yield *
For 6 months 4.07% 4.03%
For 12 months 4.12 4.14
30-Day Standardized Yield 3.16 3.97
Weighted Average Maturity (years) 4.0 4.2
Weighted Average Effective Duration (years) 3.0 3.0
Weighted Average Quality *** AA AA-
Tax-Free Intermediate Bond Fund
- --------------------------------------------------------------------------------
Price Per Share $ 11.13 $ 10.65
Dividends Per Share
For 6 months 0.24 0.24
For 12 months 0.48 0.48
Dividend Yield *
For 6 months 4.39% 4.45%
For 12 months 4.42 4.56
30-Day Standardized Yield 3.36 4.16
Weighted Average Maturity (years) 8.5 7.3
Weighted Average Effective Duration (years) 5.4 5.1
Weighted Average Quality *** AA AA
(continued on next page)
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Portfolio Highlights
KEY STATISTICS
2/28/99 8/31/99
Tax-Free Income Fund
- --------------------------------------------------------------------------------
Price Per Share $ 9.94 $ 9.39
Dividends Per Share
For 6 months 0.25 0.25
For 12 months 0.50 0.50
Dividend Yield *
For 6 months 5.13% 5.28%
For 12 months 5.19 5.42
30-Day Standardized Yield 4.11 4.81
Weighted Average Maturity (years) 16.1 15.5
Weighted Average Effective Duration (years) 7.3 7.7
Weighted Average Quality *** AA- AA-
Tax-Free High Yield Fund
- --------------------------------------------------------------------------------
Price Per Share $ 12.53 $ 11.87
Dividends Per Share
For 6 months 0.33 0.33
For 12 months 0.66 0.65
Dividend Yield *
For 6 months 5.34% 5.52%
For 12 months 5.45 5.65
30-Day Standardized Yield 4.46 5.10
Weighted Average Maturity (years) 19.3 18.4
Weighted Average Effective Duration (years) 7.6 8.2
Weighted Average Quality *** A- A-
* Dividends earned and reinvested for the periods indicated are annualized
and divided by the fund's net asset value at the end of the period.
** All securities purchased in the money fund are rated in the two highest
categories (tiers) as established by national rating agencies or, if
unrated, are deemed of comparable quality by T. Rowe Price.
*** Based on T. Rowe Price research. ! Dividends for the period 11/1/98 to
2/28/99.
# Dividends for the period 11/1/98 to 2/28/98.
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Performance Comparison
- --------------------------------------------------------------------------------
These charts show the value of a hypothetical $10,000 investment in the funds
over the past 10 fiscal year periods or since inception (for funds lacking
10-year records). The result is compared with benchmarks, which may include a
broad-based market index and a peer group average or index. Market indexes do
not include expenses, which are deducted from fund returns as well as mutual
fund averages and indexes.
For Performance Comparison
- --------------------------------------------------------------------------------
Tax-Exempt Money Fund
- --------------------------------------------------------------------------------
Lipper TEM
8/89 10000 10000
8/90 10557 10548
8/91 10911 11014
8/92 11254 11343
8/93 11487 11579
8/94 11719 11832
8/95 12096 12220
8/96 12472 12606
8/97 12851 13003
8/98 13245 13418
8/99 13596 13791
For Performance Comparison
- --------------------------------------------------------------------------------
Tax-Free Short-Intermediate Fund
- --------------------------------------------------------------------------------
Lehman Lipper TFS
8/89 10000 10000 10000
8/90 10659 10617 10642
8/91 11600 11525 11427
8/92 12619 12454 12237
8/93 13450 13398 13030
8/94 13798 13597 13313
8/95 14742 14434 14096
8/96 15321 14942 14637
8/97 16173 15766 15417
8/98 17105 16617 16281
8/99 17603 16935 16658
For Performance Comparison
- --------------------------------------------------------------------------------
Tax-Free Intermediate Bond Fund
- --------------------------------------------------------------------------------
Lehman Lipper TII
11/30/92 10000 10000 10000
8/93 10883 10909 11103
8/94 11037 11036 11308
8/95 12007 11843 12212
8/96 12475 12355 12696
8/97 13446 13271 13572
8/98 14471 14248 14599
8/99 14688 14303 14652
For Performance Comparison
- --------------------------------------------------------------------------------
Tax-Free Income Fund
- --------------------------------------------------------------------------------
Lehman Lipper TFI
8/89 10000 10000 10000
8/90 10642 10485 10530
8/91 11897 11726 11721
8/92 13225 13066 13087
8/93 14838 14680 14857
8/94 14859 14553 14739
8/95 16176 15655 15934
8/96 17024 16438 16802
8/97 18598 17947 18311
8/98 20207 19477 19934
8/99 20308 19190 19707
For Performance Comparison
- --------------------------------------------------------------------------------
Tax-Free High Yield Fund
- --------------------------------------------------------------------------------
Lehman Lipper TFH
8/89 10000 10000 10000
8/90 10659 10461 10699
8/91 11993 11474 11847
8/92 13409 12644 13203
8/93 15157 14056 14945
8/94 15134 14162 15059
8/95 16480 15264 16232
8/96 17442 16124 17179
8/97 19154 17718 18944
8/98 20856 19263 20624
8/99 20944 19180 20380
Average Annual Compound Total Return
- --------------------------------------------------------------------------------
This table shows how each fund would have performed each year if its actual (or
cumulative) returns for the periods shown had been earned at a constant rate.
Since Inception
Periods Ended 8/31/99 1 Year 5 Years 10 Years Inception Date
- --------------------------------------------------------------------------------
Tax-Exempt Money 2.78% 3.11% 3.27% -- 4/8/81
Tax-Exempt Money PLUS - - - 2.06% 11/1/98
Tax-Free Short-Intermediate 2.32 4.59 5.24 - 12/23/83
Tax-Free Intermediate Bond 0.36 5.32 - 5.82 11/30/92
Tax-Free Income -1.14 5.98 7.02 - 10/26/76
Tax-Free High Yield -1.18 6.24 7.38 - 3/1/85
Investment returns represent past performance and will vary. Shares of the bond
funds may be worth more or less at redemption than at original purchase.
Investments in the Money Fund and PLUS Class shares are not insured or
guaranteed by the FDIC or any other government agency. Although they seek to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the fund and PLUS Class shares.
T. Rowe Price Shareholder Services
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Investment Services And Information
KNOWLEDGEABLE SERVICE REPRESENTATIVES
By Phone 1-800-225-5132 Available Monday through Friday from 8 a.m. to 10
p.m. ET and weekends from 8:30 a.m. to 5 p.m. ET.
In Person Available in T. Rowe Price Investor Centers.
ACCOUNT SERVICES
Checking Available on most fixed income funds ($500 minimum).
Automatic Investing From your bank account or paycheck.
Automatic Withdrawal Scheduled, automatic redemptions.
Distribution Options Reinvest all, some, or none of your distributions.
Automated 24-Hour Services Including Tele*Access(registered trademark) and
the T. Rowe Price Web site on the Internet. Address: www.troweprice.com
BROKERAGE SERVICES*
Individual Investments Stocks, bonds, options, precious metals, and other
securities at a savings over full-service commission rates.**
INVESTMENT INFORMATION
Combined Statement Overview of all your accounts with T. Rowe Price.
Shareholder Reports Fund managers' reviews of their strategies and results.
T. Rowe Price Report Quarterly investment newsletter discussing markets and
financial strategies.
Performance Update Quarterly review of all T. Rowe Price fund results.
Insights Educational reports on investment strategies and financial
markets.
Investment Guides Asset Mix Worksheet, College Planning Kit, Diversifying
Overseas: A Guide to International Investing, Personal Strategy Planner,
Retirees Financial Guide, and Retirement Planning Kit.
* T. Rowe Price Brokerage is a division of T. Rowe Price Investment
Services, Inc., Member NASD/SIPC.
** Based on a January 1999 survey for representative-assisted stock
trades. Services vary by firm, and commissions may vary depending on
size of order.
T. Rowe Price Mutual Funds
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STOCK FUNDS
Domestic
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Diversified Small-Cap Growth
Dividend Growth
Equity Income
Equity Index 500
Extended Equity Market Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Media & Telecommunications
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons*
Real Estate
Science & Technology
Small-Cap Stock
Small-Cap Value
Spectrum Growth
Tax-Efficient Growth
Total Equity Market Index
Value
International/Global
Emerging Markets Stock
European Stock
Global Stock
International Discovery
International Growth & Income
International Stock
Japan
Latin America
New Asia
Spectrum International
BOND FUNDS
Domestic Taxable
Corporate Income
GNMA
High Yield
New Income
Short-Term Bond
Short-Term U.S. Government
Spectrum Income
Summit GNMA
Summit Limited-Term Bond
U.S. Treasury Intermediate
U.S. Treasury Long-Term
Domestic Tax-Free
California Tax-Free Bond
Florida Intermediate Tax-Free**
Georgia Tax-Free Bond
Maryland Short-Term Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Summit Municipal Intermediate
Tax-Free High Yield
Tax-Free Income
Tax-Free Intermediate Bond***
Tax-Free Short-Intermediate
Virginia Short-Term Tax-Free Bond
Virginia Tax-Free Bond
International/Global
Emerging Markets Bond
Global Bond
International Bond
MONEY MARKET FUNDS!
Taxable
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
Tax-Free
California Tax-Free Money
New York Tax-Free Money
Summit Municipal
Money Market
Tax-Exempt Money
BLENDED ASSET FUNDS
Balanced
Personal Strategy Balanced
Personal Strategy Growth
Personal Strategy Income
Tax-Efficient Balanced
T. ROWE PRICE NO-LOAD
VARIABLE ANNUITY
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
Mid-Cap Growth Portfolio
New America Growth Portfolio
Personal Strategy Balanced Portfolio
Prime Reserve Portfolio
* Closed to new investors. ** Formerly named Florida Insured Intermediate
Tax-Free. *** Formerly named Tax-Free Insured Intermediate Bond.
! Investments in the funds are not insured or guaranteed by the FDIC or any
other government agency. Although the funds seek to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
funds.
Please call for a prospectus. Read it carefully before investing.
The T. Rowe Price No-Load Variable Annuity [#V6021] is issued by Security
Benefit Life Insurance Company. In New York, it [#FSB201(11-96)] is issued by
First Security Benefit Life Insurance Company of New York, White Plains, NY. T.
Rowe Price refers to the underlying portfolios' investment managers and the
distributors, T. Rowe Price Investment Services, Inc.; T. Rowe Price Insurance
Agency, Inc.; and T. Rowe Price Insurance Agency of Texas, Inc. The Security
Benefit Group of Companies and the T. Rowe Price companies are not affiliated.
The variable annuity may not be available in all states. The contract has
limitations. Call a representative for costs and complete details of the
coverage.
For fund and account information
or to conduct transactions,
24 hours, 7 days a week
By touch-tone telephone
Tele*Access 1-800-638-2587
By Account Access on the Internet
www.troweprice.com/access
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132
To open a brokerage account
or obtain information, call:
1-800-638-5660
Internet address:
www.troweprice.com
Plan Account Lines for retirement
plan participants:
The appropriate 800 number appears
on your retirement account statement.
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 appropriate
to the fund or funds covered in this
report.
Walk-In Investor Centers:
For directions, call 1-800-225-5132
or visit our Web site
Baltimore Area
Downtown
101 East Lombard Street
Owings Mills
Three Financial Center
4515 Painters Mill Road
Boston Area
386 Washington Street
Wellesley
Colorado Springs
4410 ArrowsWest Drive
Los Angeles Area
Warner Center
21800 Oxnard Street, Suite 270
Woodland Hills
Tampa
4200 West Cypress Street
10th Floor
Washington, D.C.
900 17th Street N.W.
Farragut Square
"T. Rowe Price Invest with Confidence" (registered trademark)
T. Rowe Price Investment Services, Inc., Distributor. C03-051 8/31/99
