Semiannual Report
Summit
Income
Funds
April 30, 1999
T. Rowe Price
REPORT HIGHLIGHTS
Summit Income Funds
o Interest rates rose during the six months, as the U.S. economy
strengthened; money market funds generally outperformed bond funds as a
result.
o Low expenses contributed to good returns for all the funds, and Summit Cash
Reserves considerably exceeded its peer group average.
o Summit Limited-Term Bond Fund posted only modest results for the six-month
period, but outpaced its peer group return over the past 12 months.
o Summit GNMA Fund's solid, above-average returns reflected relatively good
performance in the mortgage market.
o Although we are proceeding cautiously considering the uncertainty in the
bond markets, we anticipate a more stable environment for interest rates.
Fellow Shareholders
As of April 30, 1999, interest rates were still below their levels of one year
ago. However, during the past six months, investor concerns about potentially
inflationary economic growth pushed rates higher. As a result, bond funds
generally fell behind money market funds during the semiannual period, a trend
that held true for the Summit Income Funds.
MARKET ENVIRONMENT
As has been the case for several quarters, domestic interest rates were
caught in a tug-of-war between outstanding U.S. economic performance and
weakness overseas. The continued struggles of the Asian and Latin American
economies, combined with a slowdown in Europe, contributed to heightened
global market volatility. On the other hand, waning global demand also
depressed global inflation, which was a boon to U.S. consumers. Lower
inflation boosted real income growth and helped spur increased spending on
imports (and local products that compete with them), real estate, and other
goods. Consumption has soared, so that the nation's saving rate has dropped
to zero. With real gross domestic product growth accelerating to 6% in
1998's fourth quarter, and slowing only modestly so far in 1999, upward
pressure on interest rates increased.
Interest Rate Levels-Line Chart
CC GNMA 5-Yr T-Note 90-Day T-Bill
4/30/98 6.76 5.72 5.05
6.65 5.57 5.09
6.59 5.50 5.06
7/98 6.60 5.51 5.07
6.33 5.07 5.03
5.96 4.24 4.38
10/98 6.25 4.22 4.21
6.25 4.62 4.58
6.26 4.59 4.55
1/99 6.22 4.56 4.47
6.70 5.11 4.65
6.65 5.12 4.47
4/30/99 6.68 5.15 4.51
The Federal Reserve has taken no action since cutting the federal funds
target rate three times in the autumn of 1998. Despite the improving health
of overseas economies, most are still too fragile to tolerate the global
financial illiquidity that would result from a significant Fed tightening
program. Although rates were marginally lower than they were a year ago,
the recent increase was significant enough to diminish bond returns.
Intermediate and longer-term rates rose more sharply than short-term
instruments: while 90-day Treasury bill rates rose only 30 basis points
since October 31, 1998 (100 basis points equal one percent), five-year
Treasury yields spiked 93 basis points. The pattern created a significantly
steeper yield curve.
Money market securities performed best during the period, as rising rates
help support higher yields on these instruments. The U.S. economic picture
also renewed investor confidence in corporate securities, which had lagged
Treasuries during the worst of the overseas turmoil. Mortgage-backed
securities did well, despite a wave of refinancings that occurred after the
rate cuts last autumn. The premium yields on mortgage securities typically
help protect their prices from rising interest rates.
SUMMIT CASH RESERVES FUND
Performance Comparison
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Periods Ended 4/30/99 6 Months 12 Months
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Cash Reserves Fund 2.41% 5.13%
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Lipper Money Market
Funds Average 2.15 4.64
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Your fund produced returns of 2.41% for the six months and 5.13% for the 12
months ended April 30. Dividends per share slipped modestly from October
31, yet overall results outpaced the Lipper Money Market Funds Average of
2.15% and 4.64% for the same periods. Low expenses greatly contributed to
this superior performance. The fund's return placed it in the top 10% of
the 331 funds in the above Lipper category for the one-year period ended
April 30, 1999.*
As interest rates shifted higher and the yield curve steepened,
longer-maturity money market securities gained an appreciable yield
advantage over shorter securities. This trend, coupled with our view that
Fed policy would be stable, encouraged us to keep the fund's average
maturity about 10 to 15 days longer than our peer group's average.
Strategically, we emphasized purchases of securities with three- and
six-month maturities. This represented a modest shift from an earlier
"barbell" strategy that divided assets between one-month and one-year
instruments. This restructuring will help us curtail trading activity
around the turn of the millennium, as it limits our holdings in securities
that would mature at that time.
* One-year returns placed 21st out of 316 funds in the fund's Lipper
category; five-year returns were 19th out of 211 funds, and returns since
inception on October 31, 1993, placed 19th out of 192 funds. Past
performance cannot guarantee future results.
An investor flight to quality during the last two months of 1998 was
completely reversed by the end of April. Between last November and the end
of April, the yield difference between a three-month Treasury bill and a
three-month CD had narrowed from 66 to 33 basis points. Since these
fluctuating yield differences were the result of gyrations in rates on
Treasury bills rather than on the commercial paper and CDs owned by the
fund, there was little reason to change the sector allocation much during
the period. The mix of fixed and floating rate instruments also was
virtually unchanged.
Under commercial paper, overall exposure to the banking industry (which
includes banking, insurance, and finance and credit issues as well as
asset-backed securities issued or guaranteed by financial institutions)
remained at just under 50% of assets. However, our certificate of deposit
holdings shifted along with changes in readily available issue supply.
Eurodollar CDs (those issued and traded in Europe) increased from 4% to 14%
during the past six months, while Yankee CDs (foreign debt issued and
traded in New York) decreased from 23% to 10%.
We would expect to maintain our present maturity posture as long as the
short-term yield curve remains upward sloping and the outlook for inflation
remains favorable.
SUMMIT LIMITED-TERM BOND FUND
Performance Comparison
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Periods Ended 4/30/99 6 Months 12 Months
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Limited-Term Bond Fund 0.64% 5.43%
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Lipper Short Intermediate
Investment-Grade
Debt Funds Average 1.07 5.23
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Your fund posted a modest return of 0.64% for the past six months.
Below-average fund expenses helped income to more than offset a share price
decline. The fund's Lipper average turned in a 1.07% result. Although the
fund gave back some of the relative advantage it gained during the previous
six-month period, its 5.43% 12-month return still outpaced its peer group
by 20 basis points. A low interest rate environment made it difficult to
maintain consistent distributions although dividends per share slipped by
only a penny.
Interest rate movements explain the fund's modest underperformance since
October 31. Although, as a matter of strategy, we do not attempt to adjust
the portfolio in anticipation of interest rate shifts, those movements will
influence results over short periods. With a weighted average maturity of
3.9 years and an effective duration of 3.2 years, the fund has somewhat
more interest rate sensitivity than the typical fund in its Lipper group.
As a result, its price will rise more quickly when rates fall and fall more
quickly when rates rise, as it did during the most recent six-month period.
The fund's yield edged lower as the result of two factors. Short-term
interest rates are lower than they were a year ago, and therefore coupon
payments and the proceeds of maturing issues had to be reinvested at lower
yields. In addition, we reduced the fund's exposure to corporate bonds,
which tend to yield more than the mortgage-backed bonds and Treasuries that
replaced them. Total corporate bond exposure declined from 56% to 44%
during the period, while investments in Treasury obligations increased from
7% to 14%, and investments in AAA rated asset and mortgage-backed
securities also increased.
The decision to reduce corporate bonds was defensive. Recent economic
strength has created a renewed sense of investor confidence in-and demand
for-the short-term debt of corporations in all rating categories. As a
result, the amount of added yield we could receive from holding a typical
corporate bond, compared with an ultra-safe Treasury, fell to levels not
seen since before the financial crisis of August 1998. At these levels, the
risk/return profile of corporate bonds appears less attractive. Heavy new
issuance of corporate bonds, coupled with the favorable outlook of
corporate bond investors (overly optimistic, in our view), serves to
heighten the risk of underperformance in the sector. We believe Treasuries,
mortgage-backed issues, and asset-backed issues will provide the fund with
considerably higher credit quality with only minimal loss in income.
Quality Diversification-Pie Chart
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AAA AA A BBB BB
44 14 20 21 1
With 78% of assets invested in securities rated single A or better, the
fund's overall credit quality remains solidly in AA territory. In fact,
average quality rose slightly during the period, from AA- to AA. During
this period of market uncertainty, we believe a higher-quality portfolio,
combined with broad diversification across sectors, will result in solid
performance within the fund's peer group in almost any environment.
SUMMIT GNMA FUND
Performance Comparison
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Periods Ended 4/30/99 6 Months 12 Months
- --------------------------------------------------------------------------------
GNMA Fund 1.72% 5.55%
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Lipper GNMA Funds Average 1.69 5.26
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Your fund continued to exceed the Lipper GNMA Funds Average for the past
six and 12 months. At 1.72% and 5.55%, it outperformed the peer group's
1.69% and 5.26% gains, respectively, over those periods. Income accounted
for all of these gains, as the fund's price per share was down $0.14 over
the last six months to $9.73. Dividends per share for both periods
decreased by one penny, reflecting the loss of the fund's higher-coupon
issues during a period of refinancings. As these returns suggest, the
higher rate environment of the last six months was better for the mortgage
market than for other bond categories. While Treasury yields climbed by
anywhere from 20 to nearly 100 basis points since October, 30-year mortgage
rates rose only about 10 basis points, resulting in smaller price losses
and allowing your fund to outperform comparable maturity Treasury funds.
A sharp drop in interest rates beginning last fall spurred heavy
refinancings in the mortgage market. The trend peaked in February before
rates began to rise again this year. (Prepayments can negatively affect
total return when homeowners refinance their high-rate mortgages, causing
premium-priced mortgage-backed bonds to be cashed out at par. In that case,
the premium and the higher yield are lost.) Fortunately, the fund suffered
only slightly as many of its mortgage holdings have added protection
against prepayments. These securities include project loans and
collateralized mortgage obligations (CMOs), which have features that
minimize early prepayments. The threat of refinancing is now largely behind
us; mortgage rates would have to drop substantially to ignite another
refinancing wave. As interest rates rose toward the end of the period, your
fund's longer duration compared with its Lipper category caused it to lag
its peer group average modestly. (Duration is a measure of sensitivity to
interest rates. The higher a fund's duration, the greater its reaction to
rate changes.) We therefore took steps to improve the fund's liquidity and
to reduce duration from the very long posture of last year. Going forward,
we expect to continue managing the risk from changing interest rates as we
look for new opportunities to increase overall return.
OUTLOOK
The Fed recently expressed concern over the pace of U.S. economic growth,
suggesting a possible bias toward tighter future monetary policy. While
rates may yet rise a bit more, much of the damage has already occurred.
Furthermore, given the lingering global economic weakness, the U.S. economy
should finally slow from its torrid pace of the last two quarters, and
inflation is likely to remain subdued. We consider it likely that, by the
end of this year, rates could drift lower again. In this environment, we
look for our funds to perform in line with their long-term averages.
Respectfully submitted,
Edward A. Wiese
President
May 21, 1999
T. Rowe Price Summit Income Funds
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Portfolio Highlights
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KEY STATISTICS
10/31/98 4/30/99
Summit Cash Reserves Fund
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Price Per Share $ 1.00 $ 1.00
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Dividends Per Share
- --------------------------------------------------------------------------------
For 6 months 0.026 0.024
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For 12 months 0.052 0.050
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Dividend Yield (7-Day Compound) * 5.16% 4.70%
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Weighted Average Maturity (days) 81 74
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Weighted Average Quality ** First Tier First Tier
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Summit Limited-Term Bond Fund
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Price Per Share $ 4.69 $ 4.59
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Dividends Per Share
- --------------------------------------------------------------------------------
For 6 months 0.14 0.13
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For 12 months 0.28 0.27
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Dividend Yield *
- --------------------------------------------------------------------------------
For 6 months 5.88% 5.71%
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For 12 months 6.15 5.91
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30-Day Standardized Yield 5.31 5.53
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Weighted Average Maturity (years) 4.0 3.9
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Weighted Average Effective Duration (years) 3.1 3.2
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Weighted Average Quality *** AA- AA
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(continued on next page)
T. Rowe Price Summit Income Funds
- --------------------------------------------------------------------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
KEY STATISTICS
10/31/98 4/30/99
Summit GNMA Fund
- --------------------------------------------------------------------------------
Price Per Share $ 9.87 $ 9.73
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Dividends Per Share
- --------------------------------------------------------------------------------
For 6 months 0.32 0.31
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For 12 months 0.64 0.63
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Dividend Yield *
- --------------------------------------------------------------------------------
For 6 months 6.40% 6.44%
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For 12 months 6.68 6.58
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30-Day Standardized Yield 5.83 5.98
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Weighted Average Maturity (years) 8.0 7.5
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Weighted Average Effective Duration (years) 3.1 4.0
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Weighted Average Quality *** AAA AAA
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* Dividends earned and reinvested for the periods indicated are annualized
and divided by the fund's net asset value per share 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.
T. Rowe Price Summit Income Funds
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Portfolio Highlights
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SECTOR DIVERSIFICATION
Percent of Percent of
Net Assets Net Assets
10/31/98 4/30/99
Summit Cash Reserves Fund
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U.S. Negotiable Bank Notes 6% 7%
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Certificates of Deposit 32 28
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Domestic Negotiable CDs 5 4
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Eurodollar Negotiable CDs 4 14
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U.S. Dollar-Denominated Foreign Negotiable CDs 23 10
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Commercial Paper and Medium-Term Notes 62 63
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Asset-Backed 24 19
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Banking 11 13
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Insurance 4 8
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Finance and Credit 3 5
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Asset-Backed Structured Notes 5 4
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All Other 15 14
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Foreign Government and Municipalities 1 1
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Other Assets Less Liabilities -1 1
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Total 100% 100%
Fixed Rate Obligations 86 85
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Floating Rate Instruments 14 15
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(continued on next page)
T. Rowe Price Summit Income Funds
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Portfolio Highlights
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SECTOR DIVERSIFICATION
Percent of Percent of
Net Assets Net Assets
10/31/98 4/30/99
Summit Limited-Term Bond Fund
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Corporate Bonds and Notes 56% 44%
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Consumer Products and Services 10 11
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Banking and Finance 13 9
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Industrial 12 9
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Utilities 11 8
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Media and Communications 3 3
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All Other 7 4
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Asset-Backed Securities 10 12
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Mortgage-Backed Securities 14 17
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U.S. Government Obligations 15 22
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U.S. Treasuries 7 14
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Government Agency Obligations 8 8
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Money Market Funds* 9 5
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Other Assets Less Liabilities -4 --
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Total 100% 100%
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Summit GNMA Fund
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GNMA 81% 91%
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U.S. Government Agencies 13 8
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Asset-Backed Securities 4 3
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Agency-Backed STRIPS 2 1
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Money Market Funds* 4 8
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Other Assets Less Liabilities -4 -11
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Total 100% 100%
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*See note at end of financial statements.
T. Rowe Price Summit Income Funds
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Performance Comparison
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These charts show the value of a hypothetical $25,000 investment in each
fund over the past 10 fiscal year periods or since inception (for funds
lacking 10-year records). The result is compared with a broad-based average
or index. The index return does not reflect expenses, which have been
deducted from the fund's return.
Summit Cash Reserves-SEC Graph
Lipper SCR
10/29/93 25,000 25,000
4/94 25,335 25,372
4/95 26,490 26,617
4/96 27,872 28.088
4/97 29,226 29,538
4/98 30,710 31,133
4/30/99 32,172 32,731
Summit Limited-Term Bond Fund-SEC Graph
Merrill Lipper SLT
10/29/93 25,000 25,000 25,000
4/94 24,646 24,332 24,456
4/95 26,153 25,588 25,619
4/96 28,097 27,450 27,046
4/97 29,847 29,118 28,619
4/98 32,199 31,370 30,920
4/30/99 34,237 32,981 32,599
T. Rowe Price Summit Income Funds
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Performance Comparison
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Summit GNMA Fund-SEC Graph
Salomon Lipper SGM
10/29/93 25,000 25,000 25,000
4/94 24,463 24,235 24,630
4/95 26,495 25,910 26,425
4/96 28,840 27,985 28,503
4/97 31,168 29,938 30,475
4/98 34,238 32,858 33,723
4/30/99 36,358 34,628 35,593
Average Annual Compound Total Return
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This table shows how each fund would have performed each year if its actual
(or cumulative) returns for the periods shown had been earned at a constant
rate.
Periods Ended Since Inception
4/30/99 1 Year 3 Years 5 Years Inception Date
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Summit Cash
Reserves Fund 5.13% 5.23% 5.23% 5.02% 10/29/93
- --------------------------------------------------------------------------------
Summit Limited-Term
Bond Fund 5.43 6.42 5.92 4.94 10/29/93
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Summit GNMA Fund 5.55 7.69 7.64 6.63 10/29/93
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Investment return represents 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 are not insured or guaranteed by
the FDIC or any other government agency. Although it seeks to preserve the
value of your investment at $1.00 per share, it is possible to lose money
by investing in the fund.
T. Rowe Price Summit Cash Reserves Fund
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Unaudited
Financial Highlights For a share outstanding throughout each period
6 Months Year 10/29/93
Ended Ended Through
4/30/99 10/31/98 10/31/97 10/31/96 10/31/95 10/31/94
NET ASSET VALUE
Beginning of
period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
Investment activities
Net investment
income 0.024 0.052 0.052 0.051 0.055 0.035
Distributions
Net investment
income (0.024) (0.052) (0.052) (0.051) (0.055) (0.035)
---------------------------------------------------------
NET ASSET VALUE
End of period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
=========================================================
Ratios/Supplemental Data
Total return(*) 2.41% 5.35% 5.33% 5.23% 5.68% 3.60%
- --------------------------------------------------------------------------------
Ratio of total
expenses to
average net assets 0.45%! 0.45% 0.45% 0.45% 0.45% 0.45%!
- --------------------------------------------------------------------------------
Ratio of net
investment income
to average net
assets 4.79%! 5.24% 5.18% 5.09% 5.55% 4.03%!
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Net assets, end of
period (in
millions) $2,162 $1,885 $1,303 $742 $433 $187
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(*) 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.
! Annualized
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Summit Limited-Term Bond Fund
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Unaudited
Financial Highlights For a share outstanding throughout each period
6 Months Year 10/29/93
Ended Ended Through
4/30/99 10/31/98 10/31/97 10/31/96 10/31/95 10/31/94
NET ASSET VALUE
Beginning of
period $4.69 $4.61 $4.60 $4.65 $4.64 $5.00
-----------------------------------------------------------
Investment activities
Net investment
income 0.13 0.28 0.29 0.30 0.32 0.33
Net realized and
unrealized
gain (loss) (0.10) 0.08 0.01 (0.05) 0.01 (0.36)
-----------------------------------------------------------
Total from
investment
activities 0.03 0.36 0.30 0.25 0.33 (0.03)
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Distributions
Net investment
income (0.13) (0.28) (0.28) (0.29) (0.31) (0.33)
Tax return
of capital - - (0.01) (0.01) (0.01) -
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Total distributions (0.13) (0.28) (0.29) (0.30) (0.32) (0.33)
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NET ASSET VALUE
End of period $4.59 $4.69 $4.61 $4.60 $4.65 $4.64
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Ratios/Supplemental Data
Total return(*) 0.64% 7.97% 6.73% 5.48% 7.36% (0.71)%
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Ratio of total
expenses to
average net assets 0.55%! 0.55% 0.55% 0.55% 0.55% 0.55%!
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Ratio of net
investment income
to average
net assets 5.60%! 5.96% 6.28% 6.43% 6.85% 6.98%!
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Portfolio turnover
rate 45.0%! 52.0% 74.5% 116.1% 84.3% 296.0%!
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Net assets, end
of period
(in thousands) $54,316 $40,904 $29,620 $25,984 $27,004 $21,116
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(*) 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.
! Annualized
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Summit GNMA Fund
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Unaudited
Financial Highlights For a share outstanding throughout each period
6 Months Year 10/29/93
Ended Ended Through
4/30/99 10/31/98 10/31/97 10/31/96 10/31/95 10/31/94
NET ASSET VALUE
Beginning of period $9.87 $9.83 $9.65 $9.81 $9.15 $10.00
-----------------------------------------------------------
Investment activities
Net investment
income 0.31 0.64 0.67 0.67 0.70 0.69
Net realized
and unrealized
gain (loss) (0.14) 0.04 0.18 (0.16) 0.66 (0.85)
-----------------------------------------------------------
Total from
investment
activities 0.17 0.68 0.85 0.51 1.36 (0.16)
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Distributions
Net investment
income (0.31) (0.64) (0.64) (0.62) (0.67) (0.69)
Tax return
of capital - - (0.03) (0.05) (0.03) -
-----------------------------------------------------------
Total distributions (0.31) (0.64) (0.67) (0.67) (0.70) (0.69)
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NET ASSET VALUE
End of period $9.73 $9.87 $9.83 $9.65 $9.81 $9.15
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Ratios/Supplemental Data
Total return(*) 1.72% 7.10% 9.17% 5.47% 15.43% (1.67)%
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Ratio of total
expenses to
average net assets 0.60%! 0.60% 0.60% 0.60% 0.60% 0.60%!
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Ratio of net
investment
income to average
net assets 6.31%! 6.47% 6.91% 6.99% 7.40% 7.31%!
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Portfolio turnover
rate 107.9%! 83.8% 111.8% 136.1% 173.8% 61.5%!
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Net assets,
end of period
(in thousands) $59,659 $46,571 $29,530 $24,718 $22,777 $17,184
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(*) 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.
! Annualized
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Summit Cash Reserves Fund
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Unaudited April 30, 1999
Statement of Net Assets Par Value
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In thousands
BANK NOTES 5.5%
Bank of New York
5.70%, 5/26/99 $ 10,000 $ 10,000
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5.75%, 5/14/99 25,000 24,999
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FCC National Bank
5.05%, 12/24/99 29,750 29,750
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5.68%, 6/3/99 10,000 9,999
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First Union National Bank, 5.03%, 5/19/99 20,000 19,998
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Nationsbank N.A., 5 33%, 9/13/99 10,000 10,014
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PNC Bank, VR, 4.949%, 5/13/99 15,000 15,000
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Total Bank Notes (Cost $119,760) 119,760
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BANKERS' ACCEPTANCES 1.4%
Regions Bank
4.80%, 5/17/99 1,500 1,497
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4.85%, 6/16 - 6/30/99 3,000 2,978
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5.30%, 9/10/99 25,000 25,000
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Total Bankers' Acceptances (Cost $29,475) 29,475
CERTIFICATES OF DEPOSIT 27.2%
ABN AMRO
4.99%, 11/18/99 25,000 24,998
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5.50%, 9/2/99 4,300 4,307
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Bank of Austria, 5.01%, 12/22/99 10,000 10,001
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Bank of Scotland, (London), 5.05%, 6/4/99 30,000 30,000
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Banque National de Paris, 5.00%, 7/6/99 15,000 15,002
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Banque Paribas, 4.94%, 8/9/99 25,000 25,001
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Barclays Bank PLC, VR, 4.797%, 5/4/99 10,000 9,999
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Bayerische Landesbank
4.845%, 7/22/99 10,000 9,997
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5.645%, 7/22/99 5,000 5,007
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5.65%, 7/23/99 15,000 14,997
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5.70%, 5/21/99 10,000 10,003
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Bayerische Vereinsbank, 4.91%, 7/7/99 6,600 6,600
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Chase Manhattan Bank
5.685%, 8/3/99 $ 10,000 $ 9,998
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5.73%, 5/17/99 3,000 3,000
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Den Danske Bank A/S, 4.86%, 7/19/99 25,000 25,000
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Deutsche Bank AG, (London)
4.88%, 8/2/99 7,000 7,000
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4.96%, 9/30/99 25,000 25,001
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Fleet National Bank, VR, 4.971%, 6/9/99 15,000 14,996
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Halifax
5.02%, 11/18/99 10,000 10,000
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5.14%, 12/6/99 45,000 45,023
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International Lease Finance, 5.20%, 7/15/99 16,000 16,007
- --------------------------------------------------------------------------------
Internationale Nederlanden Bank, N.V., 4.91%, 5/28/99 10,000 10,000
- --------------------------------------------------------------------------------
Key Bank, VR, 4.854%, 5/28/99 15,000 14,997
- --------------------------------------------------------------------------------
Landsbank Baden Wurttemberg, 4.99%, 8/18/99 55,000 55,004
- --------------------------------------------------------------------------------
National Bank of Canada, 5.80%, 5/12/99 10,000 10,000
- --------------------------------------------------------------------------------
Nationsbank
4.87%, 10/6/99 4,000 3,999
----------------------------------------------------------------------------
5.15%, 7/12/99 10,000 10,003
- --------------------------------------------------------------------------------
Nordeutsche Landesbank, (London), 4.92%, 10/25/99 20,000 20,002
- --------------------------------------------------------------------------------
Regions Bank of Alabama, 4.86%, 5/12/99 1,000 998
- --------------------------------------------------------------------------------
Royal Bank of Canada, 5.60%, 8/23/99 30,000 30,058
- --------------------------------------------------------------------------------
Societe Generale
4.95%, 10/8/99 10,000 9,995
----------------------------------------------------------------------------
5.785%, 5/12/99 5,000 5,000
- --------------------------------------------------------------------------------
Svenska Handelsbanken
4.96%, 10/8/99 25,000 25,003
----------------------------------------------------------------------------
5.665%, 8/9/99 1,000 1,002
----------------------------------------------------------------------------
5.74%, 6/1/99 10,000 9,999
- --------------------------------------------------------------------------------
Swiss Bank
5.68%, 6/4/99 3,000 3,002
----------------------------------------------------------------------------
5.69%, 6/3/99 10,000 9,999
- --------------------------------------------------------------------------------
Toronto Dominion, 5 64%, 7/14/99 3,000 3,004
- --------------------------------------------------------------------------------
Union Bank of California, 5.05%, 12/13/99 24,700 24,700
- --------------------------------------------------------------------------------
Westdeutsche Landesbank, (London), 4.96%, 7/13/99 20,000 20,000
- --------------------------------------------------------------------------------
Total Certificates of Deposit (Cost $588,702) 588,702
--------------
COMMERCIAL PAPER 48.9%
Abbey National N.A.
4.75%, 8/2/99 $ 50,000 $ 49,386
----------------------------------------------------------------------------
4.80%, 8/9/99 6,000 5,920
- --------------------------------------------------------------------------------
Allied Signal, 4(2), 4.85%, 5/24/99 4,000 3,988
- --------------------------------------------------------------------------------
American Express, 4 82%, 6/8/99 850 846
- --------------------------------------------------------------------------------
American Home Products, 4(2), 4.78%, 5/5/99 1,000 999
- --------------------------------------------------------------------------------
American Petrofina Holding, 4.80%, 6/17/99 25,000 24,843
- --------------------------------------------------------------------------------
AON
4.83%, 5/13/99 2,000 1,997
----------------------------------------------------------------------------
4.89%, 5/11/99 5,200 5,193
- --------------------------------------------------------------------------------
Asset Securitization Cooperative
4(2)
4.80%, 6/1/99 10,000 9,959
----------------------------------------------------------------------------
4.83%, 5/14/99 1,670 1,667
- --------------------------------------------------------------------------------
Beta Finance, 4(2), 4.85%, 9/13/99 3,800 3,731
- --------------------------------------------------------------------------------
Bl North America, 4 83%, 5/14/99 15,000 14,974
- --------------------------------------------------------------------------------
British Columbia (Province of), 4.80%, 8/4/99 4,000 3,949
- --------------------------------------------------------------------------------
Caisse D Amortissement, 4.80%, 12/23/99 8,800 8,523
- --------------------------------------------------------------------------------
California Pollution Control, 4.91%, 6/9/99 2,500 2,500
- --------------------------------------------------------------------------------
Coca Cola
4.83%, 6/7/99 32,000 31,841
----------------------------------------------------------------------------
4.85%, 5/19/99 9,600 9,577
- --------------------------------------------------------------------------------
Commonwealth Bank of Australia
4.75%, 7/27/99 9,333 9,226
----------------------------------------------------------------------------
4.80%, 8/10/99 10,000 9,865
- --------------------------------------------------------------------------------
Corporate Asset Funding, 4(2), 4.80%, 6/2/99 29,050 28,926
- --------------------------------------------------------------------------------
Countrywide Funding, 4.93%, 5/3/99 10,000 9,997
- --------------------------------------------------------------------------------
Countrywide Home Loans, 4.82%, 5/27/99 8,259 8,230
- --------------------------------------------------------------------------------
Credit Suisse First Boston, 4.895%, 11/17/99 10,700 10,409
- --------------------------------------------------------------------------------
Cregem N.A., 4.75%, 7/9 - 7/27/99 54,500 53,933
- --------------------------------------------------------------------------------
Delaware Funding
4(2)
4.80%, 5/21/99 5,000 4,987
----------------------------------------------------------------------------
4.81%, 5/19 - 6/16/99 11,414 11,361
- --------------------------------------------------------------------------------
Dover Funding, 4(2), 4.80%, 5/20/99 25,000 24,937
- --------------------------------------------------------------------------------
Dresdner U.S. Finance, 4.82%, 8/9/99 13,628 13,446
- --------------------------------------------------------------------------------
Du Pont Ei De Nemours, 7.50%, 6/11/99 $ 4,308 $ 4,319
- --------------------------------------------------------------------------------
Duke Energy, 4.90%, 5/3/99 994 994
- --------------------------------------------------------------------------------
Duke University, 4.85%, 7/14/99 6,500 6,435
- --------------------------------------------------------------------------------
Falcon Asset Securitization
4(2)
4.80%, 5/7/99 16,900 16,886
----------------------------------------------------------------------------
4.82%, 5/26 - 6/18/99 50,580 50,370
- --------------------------------------------------------------------------------
FCAR Owner Trust, 4 80%, 5/4/99 8,000 7,997
- --------------------------------------------------------------------------------
Ford Motor Credit
4.80%, 5/6 - 5/10/99 6,215 6,209
----------------------------------------------------------------------------
4.82%, 5/21/99 2,000 1,995
- --------------------------------------------------------------------------------
General Electric Capital
4.78%, 6/25/99 5,387 5,348
----------------------------------------------------------------------------
4.80%, 5/5 - 5/18/99 20,800 20,771
----------------------------------------------------------------------------
4.82%, 5/6/99 1,108 1,107
- --------------------------------------------------------------------------------
Generale Bank, 4.84%, 5/11/99 8,237 8,226
- --------------------------------------------------------------------------------
Gillette, 5.00%, 5/3/99 3,656 3,655
- --------------------------------------------------------------------------------
Glaxo Wellcome PLC, 4(2), 4.80%, 5/18/99 1,300 1,297
- --------------------------------------------------------------------------------
Golden Funding
4.85%, 6/24/99 6,600 6,552
----------------------------------------------------------------------------
4.87%, 5/21/99 24,000 23,935
- --------------------------------------------------------------------------------
International Lease Finance, 4.80%, 6/18/99 800 795
- --------------------------------------------------------------------------------
KFW International, 4.91%, 5/3/99 5,025 5,024
- --------------------------------------------------------------------------------
LGE&E Energy Systems, 4.83%, 9/13 - 10/6/99 44,254 43,391
- --------------------------------------------------------------------------------
Market Street Funding
4.86%, 6/8 - 6/10/99 49,650 49,390
----------------------------------------------------------------------------
4.88%, 5/6/99 21,000 20,986
- --------------------------------------------------------------------------------
Merita North America, 4.83%, 7/13/99 5,000 4,951
- --------------------------------------------------------------------------------
Merrill Lynch, 4.82%, 5/7/99 30,000 29,976
- --------------------------------------------------------------------------------
Metlife Funding, 4.84%, 5/6/99 17,149 17,137
- --------------------------------------------------------------------------------
National City Credit, 4.81%, 6/29/99 30,000 29,763
- --------------------------------------------------------------------------------
New York Life Capital, 4.75%, 5/13/99 23,000 22,964
- --------------------------------------------------------------------------------
Nordbanken North America
4.82%, 8/10/99 20,000 19,730
----------------------------------------------------------------------------
4.84%, 8/9/99 20,000 19,731
- --------------------------------------------------------------------------------
Oesterreichische, 4 80%, 9/22/99 3,155 3,094
- --------------------------------------------------------------------------------
Park Avenue Recreation
4.81%, 6/3/99 $ 1,450 $ 1,444
----------------------------------------------------------------------------
4.82%, 5/17 - 6/24/99 24,425 24,345
----------------------------------------------------------------------------
4.86%, 5/13/99 1,250 1,248
----------------------------------------------------------------------------
4.87%, 5/25/99 5,387 5,370
----------------------------------------------------------------------------
Petrofina, 4.80%, 5/7/99 5,000 4,996
- --------------------------------------------------------------------------------
Pheller Financial, 4.88%, 8/9/99 25,000 24,661
- --------------------------------------------------------------------------------
Port of Corpus Christi Authority, 4.93%, 5/3/99 25,000 25,000
- --------------------------------------------------------------------------------
Preferred Receivables Funding, 4.81%, 6/9 - 6/22/99 44,900 44,632
- --------------------------------------------------------------------------------
Repeat Offering
4.80%, 7/16/99 10,000 9,898
----------------------------------------------------------------------------
4.82%, 7/27/99 13,300 13,145
----------------------------------------------------------------------------
4.85%, 7/13/99 20,000 19,803
----------------------------------------------------------------------------
4.87%, 5/28/99 5,000 4,982
----------------------------------------------------------------------------
4.89%, 5/28/99 15,072 15,017
----------------------------------------------------------------------------
Repsol International Financial, 4.75%, 7/27/99 10,000 9,885
- --------------------------------------------------------------------------------
Safeco, 4(2), 4.84%, 6/25/99 19,800 19,654
- --------------------------------------------------------------------------------
Safeco Credit, 4.84%, 6/23/99 11,900 11,815
- --------------------------------------------------------------------------------
Sand Dollar Funding
4.81%, 6/15/99 14,933 14,843
----------------------------------------------------------------------------
4.89%, 5/4/99 4,000 3,999
- --------------------------------------------------------------------------------
Statoil (Den Norske Stats Oljeselskap), 4.83%, 5/3/99 3,528 3,527
- --------------------------------------------------------------------------------
Yale University, 4.88%, 6/10/99 1,300 1,293
- --------------------------------------------------------------------------------
Total Commercial Paper (Cost $1,057,795) 1,057,795
--------------
MEDIUM-TERM NOTES 13.9%
Abbey National Treasury Services, 5.645%, 6/1/99 10,000 9,999
- --------------------------------------------------------------------------------
Associates Corporation of North America, 6.75%, 10/15 800 806
- --------------------------------------------------------------------------------
Beta Finance, VR, 4 919%, 5/17/99 10,000 9,997
- --------------------------------------------------------------------------------
Citicorp, Sr. Notes, VR, 4.98%, 6/17/99 15,000 14,999
- --------------------------------------------------------------------------------
Countrywide Funding, 8.43%, 11/16/99 2,500 2,544
- --------------------------------------------------------------------------------
Countrywide Home Loans, 5.05%, 6/30/99 10,000 10,000
- --------------------------------------------------------------------------------
Credit Suisse, VR, 4.869%, 5/18/99 8,000 8,000
- --------------------------------------------------------------------------------
Daimler Banz Vehicle Owner Trust, VR, 5.271%, 5/20/99 5,952 5,952
- --------------------------------------------------------------------------------
Dean Witter Discover, 5.395%, 6/1/99 3,000 3,008
- --------------------------------------------------------------------------------
Disney, 6.25%, 6/21/99 3,450 3,454
- --------------------------------------------------------------------------------
First Security Auto Owner Trust, 5.248%, 5/17/99 400 1
- --------------------------------------------------------------------------------
Ford Motor Credit, 5.20%, 7/5/99 $ 4,150 $ 4,153
- --------------------------------------------------------------------------------
Goldman Sachs
VR
4.926%, 5/21/99 5,000 5,000
----------------------------------------------------------------------------
4.931%, 5/12/99 15,000 15,000
- --------------------------------------------------------------------------------
Grand Metropolitan, 7.00%, 6/15/99 7,800 7,817
- --------------------------------------------------------------------------------
Honda, 4.974%, 2/15/00 3,125 3,125
- --------------------------------------------------------------------------------
IBM Credit, VR, 4.97%, 5/3/99 15,000 15,000
- --------------------------------------------------------------------------------
Lincs Series, VR, 4 946%, 5/18/99 30,000 30,000
- --------------------------------------------------------------------------------
Merrill Lynch, 5.25%, 5/25/99 5,000 5,001
- --------------------------------------------------------------------------------
Newcourt Equipment Trust
5.007%, 5/20/99 4,383 4,383
----------------------------------------------------------------------------
5.195%, 4/15 - 5/17/99 4,606 4,606
- --------------------------------------------------------------------------------
Peoples Benefit, VR, 5.079%, 5/3/99 10,000 10,000
- --------------------------------------------------------------------------------
Protective Life Insurance Company, VR, 5.234%, 6/1/99 12,000 12,000
- --------------------------------------------------------------------------------
Prudential Funds, 6 84%, 12/30/99 9,800 9,898
- --------------------------------------------------------------------------------
Rabobank, VR, 4.929%, 5/17/99 6,746 6,746
- --------------------------------------------------------------------------------
Rockwell International, 8.875%, 9/15/99 2,000 2,029
- --------------------------------------------------------------------------------
Salomon
6.82%, 7/26/99 3,725 3,741
----------------------------------------------------------------------------
7.875%, 10/1/99 2,000 2,024
- --------------------------------------------------------------------------------
Strategic Money Market Trust, VR, 5.111%, 6/15/99 20,000 20,000
- --------------------------------------------------------------------------------
Tiers Trust, VR, (144a), 4.926%, 5/17/99 20,000 20,000
- --------------------------------------------------------------------------------
Wachovia Bank N.A.
VR
4.908%, 5/5/99 20,000 19,995
----------------------------------------------------------------------------
5.01%, 11/19/99 10,000 10,000
- --------------------------------------------------------------------------------
Wells Fargo, 5.225%, 4/10/00 20,000 19,993
- --------------------------------------------------------------------------------
Total Medium-Term Notes (Cost $299,271) 299,271
--------------
FUNDING AGREEMENTS 2.5%
General American Life Insurance, VR, 5.14%, 5/3/99 ! 10,000 10,000
- --------------------------------------------------------------------------------
Peoples Benefit Life Insurance, VR, 5.079%, 5/3/99 ! 20,000 20,000
- --------------------------------------------------------------------------------
Security Life of Denver, VR, 5.059%, 5/3/99 ! 10,000 10,000
- --------------------------------------------------------------------------------
Transamerica Life Insurance, VR, 5.10%, 7/1/99 ! 15,000 15,000
- --------------------------------------------------------------------------------
Total Funding Agreements (Cost $55,000) 55,000
--------------
Total Investments in Securities
99.4% of Net Assets (Cost $2,150,003) $2,150,003
Other Assets Less Liabilities 11,682
--------------
NET ASSETS $2,161,685
--------------
Net Assets Consist of:
Accumulated net realized gain/loss - net of distributions $ 47
Paid-in-capital applicable to 2,161,637,721 shares
of $0.0001 par value capital stock outstanding;
4,000,000,000 shares of the Corporation authorized 2,161,638
--------------
NET ASSETS $2,161,685
--------------
NET ASSET VALUE PER SHARE $1.00
--------------
! Private Placement
VR Variable Rate
4(2) Commercial Paper sold within terms of a private placement
memorandum, exempt from registration under section 4.2 of the
Securities Act of 1933, as amended, and may be sold only to
dealers in that program or other "accredited investors". 144a
Security was purchased pursuant to Rule 144a under the Securities
Act of 1933 and may not be resold subject to that rule except to
qualified institutional buyers - total of such securities at
period-end amounts to 0.92% of net assets.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Summit Limited-Term Bond Fund
- --------------------------------------------------------------------------------
Unaudited April 30, 1999
Statement of Net Assets Par/Shares Value
- --------------------------------------------------------------------------------
In thousands
CORPORATE BONDS AND NOTES 43.6%
Banking and Finance 8.7%
ABN AMRO Bank (Chicago), N.V., Gtd. Sub. Notes
7.25%, 5/31/05 $ 250 $ 263
- --------------------------------------------------------------------------------
Banco Generale, Sr Sub. Notes, (144a), 7.70%, 8/ 300 287
- --------------------------------------------------------------------------------
General Electric Capital, MTN, 6.15%, 11/5/01 350 354
- --------------------------------------------------------------------------------
Goldman Sachs Group, MTN, (144a), 6.25%, 2/1/03 500 501
- --------------------------------------------------------------------------------
Hartford National, Sub. Cap. Notes, 9.85%, 6/1/99 50 50
- --------------------------------------------------------------------------------
HSBC Finance Nederland, Sub. Gtd. Notes, (144a)
7.40%, 4/15/03 270 279
- --------------------------------------------------------------------------------
Kansallis Osake Pankki (New York), Sub. Notes
10.00%, 5/1/02 375 414
- --------------------------------------------------------------------------------
MBNA, Sub. Notes, 7 25%, 9/15/02 200 205
- --------------------------------------------------------------------------------
Mercantile Safe Deposit & Trust, 6.53%, 7/3/00 300 304
- --------------------------------------------------------------------------------
Merrill Lynch, 6.81%, 6/13/02 500 513
- --------------------------------------------------------------------------------
Morgan Guaranty Trust, Sub. Notes, 7.375%, 2/1/02 250 259
- --------------------------------------------------------------------------------
Paine Webber Group, 7.875%, 2/15/03 500 524
- --------------------------------------------------------------------------------
Salomon, 7.30%, 5/15/02 300 311
- --------------------------------------------------------------------------------
Union Planters, Sub. Notes, 6.25%, 11/1/03 225 226
- --------------------------------------------------------------------------------
Westamerica Bank, Sub. Notes, (144a), 6.99%, 9/30/03 250 247
- --------------------------------------------------------------------------------
4,737
--------------
Building and Real Estate 1.1%
Rouse, Sub. Deb., 8 00%, 4/30/09 600 603
- --------------------------------------------------------------------------------
603
--------------
Consumer Products and Services 10.7%
Amvescap, Sr. Notes, (144a), 6.375%, 5/15/03 400 395
- --------------------------------------------------------------------------------
Beckman Instruments, 7.10%, 3/4/03 500 496
- --------------------------------------------------------------------------------
Coca Cola Femsa, 8.95%, 11/1/06 275 276
- --------------------------------------------------------------------------------
Comcast Cable Communications, 6.20%, 11/15/08 400 390
- --------------------------------------------------------------------------------
Disney, 5.25%, 11/10/03 500 488
- --------------------------------------------------------------------------------
Federated Department Stores, Sr. Notes, 8.125%, 10/15 500 531
- --------------------------------------------------------------------------------
Grand Metropolitan Investment, Zero Coupon, 1/6/04 750 563
- --------------------------------------------------------------------------------
Hospital Corporation of America, Zero Coupon, 6/1/01 500 424
- --------------------------------------------------------------------------------
Nabisco, 6.125%, 2/1/33 300 296
- --------------------------------------------------------------------------------
Pepsico, MTN, 5.75%, 1/2/03 250 250
- --------------------------------------------------------------------------------
Philip Morris, 7.25%, 9/15/01 325 334
- --------------------------------------------------------------------------------
Safeway, 5.75%, 11/15/00 500 500
- --------------------------------------------------------------------------------
Sony, 6.125%, 3/4/03 $ 375 $ 375
- --------------------------------------------------------------------------------
Viacom, 6.75%, 1/15/03 250 255
- --------------------------------------------------------------------------------
Watson Pharmaceuticals, 7.125%, 5/15/08 275 273
- --------------------------------------------------------------------------------
5,846
--------------
Energy 0.8%
PDV America, Sr. Notes, 7.875%, 8/1/03 225 207
- --------------------------------------------------------------------------------
YPF Sociedad Anonima, 7.25%, 3/15/03 225 220
- --------------------------------------------------------------------------------
427
--------------
Industrials 9.3%
Allied Signal, 5.75%, 3/15/01 350 347
- --------------------------------------------------------------------------------
Delphi Automotive Systems, 6.125%, 5/1/04 175 174
- --------------------------------------------------------------------------------
Eaton Offshore, Gtd Notes, 9.00%, 2/15/01 400 422
- --------------------------------------------------------------------------------
Hertz, 7.00%, 7/1/04 450 462
- --------------------------------------------------------------------------------
Hutchison Whampoa Finance, (144a), 6.95%, 8/1/07 600 592
- --------------------------------------------------------------------------------
Lockheed Martin, 6.75%, 3/15/03 475 484
- --------------------------------------------------------------------------------
Parker Hannifin, MTN, 5.65%, 9/15/03 500 495
- --------------------------------------------------------------------------------
Praxair, 6.15%, 4/15/03 350 348
- --------------------------------------------------------------------------------
Raytheon, 5.70%, 11/1/03 500 494
- --------------------------------------------------------------------------------
Toyota Motor Credit, 5.625%, 11/13/03 500 494
- --------------------------------------------------------------------------------
USA Waste Services, Sr. Notes, 6.50%, 12/15/02 375 379
- --------------------------------------------------------------------------------
Waste Management, 6 625%, 7/15/02 350 355
- --------------------------------------------------------------------------------
5,046
--------------
Media and Communications 2.7%
NWCG Holdings, Sr. Secured Disc. Notes
Zero Coupon, 6/15/99 300 298
- --------------------------------------------------------------------------------
Seagram, 6.40%, 12/15/03 500 499
- --------------------------------------------------------------------------------
Sprint Capital, 5.70%, 11/15/03 375 369
- --------------------------------------------------------------------------------
Worldcom, Sr. Notes, 6.25%, 8/15/03 325 326
- --------------------------------------------------------------------------------
1,492
--------------
Transportation 2.5%
Delta Air Lines, ETC, 9.60%, 5/26 - 6/1/00 197 204
- --------------------------------------------------------------------------------
ERAC USA Finance, (144a), 6.375%, 5/15/03 375 369
- --------------------------------------------------------------------------------
Norfolk Southern, 6 95%, 5/1/02 500 514
- --------------------------------------------------------------------------------
Northwest Airlines, 8.375%, 3/15/04 250 244
- --------------------------------------------------------------------------------
1,331
--------------
Utilities 7.8%
CE Electric UK Funding, Sr. Notes, (144a), 6.853%, 12 400 406
- --------------------------------------------------------------------------------
Cleveland Electric, 7.19%, 7/1/00 250 252
- --------------------------------------------------------------------------------
Entergy Mississippi, 6.45%, 4/1/08 $ 375 $ 375
- --------------------------------------------------------------------------------
Midamerican Energy, Sr. Notes, 6.50%, 12/15/01 250 251
- --------------------------------------------------------------------------------
National Rural Utilities Cooperative Finance, 5.00%, 500 489
- --------------------------------------------------------------------------------
Niagara Mohawk Power
7.375%, 8/1/03 275 288
----------------------------------------------------------------------------
Sr. Notes, 7.25%, 10/1/02 375 381
- --------------------------------------------------------------------------------
Pacific Gas & Electric, 1st Mtg. Bonds, 8.75%, 1/1/01 250 262
- --------------------------------------------------------------------------------
Progress Capital Holdings, MTN, (144a), 6.88%, 8/1/01 250 255
- --------------------------------------------------------------------------------
Public Service Electric & Gas, Mtg. Bonds, 8.875%, 6/1/03 325 352
- --------------------------------------------------------------------------------
Texas NM Power
1st Mtg. Notes, 9.25%, 9/15/00 200 208
------------------------------------------------------------------------------
Secured Deb., 10.75%, 9/15/03 225 237
- --------------------------------------------------------------------------------
United Illuminating, 6.25%, 12/15/02 190 189
- --------------------------------------------------------------------------------
Williams Cos, 6.125%, 2/15/02 275 273
- --------------------------------------------------------------------------------
4,218
--------------
Total Corporate Bonds and Notes (Cost $23,791) 23,700
--------------
WARRANTS 0.0%
Consumer Products & Services 0.0%
President Casinos, (144a), 9/30/99 *!+ 1 0
- --------------------------------------------------------------------------------
Total Warrants (Cost $4) 0
--------------
U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES 15.2%
U.S. Government Agency Obligations 12.1%
Federal Home Loan Mortgage
6.00%, 2/15/08 - 5/15/16 1,500 1,504
----------------------------------------------------------------------------
6.40%, 1/15/08 500 501
----------------------------------------------------------------------------
10.75%, 12/1/09 100 109
----------------------------------------------------------------------------
5 year balloon, 5.00%, 6/1/99 18 18
------------------------------------------------------------------------------
7 year balloon, 6.50%, 12/1/99 219 219
------------------------------------------------------------------------------
CMO, 6.92%, 1/25/12 187 188
------------------------------------------------------------------------------
REMIC
6.00%, 8/15/06 - 1/15/08 1,332 1,329
----------------------------------------------------------------------------
7.50%, 9/15/06 56 56
- --------------------------------------------------------------------------------
Federal National Mortgage Assn.
6.00%, 6/1/13 - 1/1/14 $ 1,451 $ 1,438
----------------------------------------------------------------------------
7.00%, 4/1/09 259 264
----------------------------------------------------------------------------
9.00%, 5/1/05 - 1/25/08 870 905
----------------------------------------------------------------------------
REMIC, 7.50%, 8/25/05 41 41
- --------------------------------------------------------------------------------
6,572
--------------
U.S. Government Guaranteed Obligations 3.1%
Government National Mortgage Assn.
I
8.00%, 5/15/07 899 939
----------------------------------------------------------------------------
10.00%, 11/15/09 - 10/15/21 343 376
----------------------------------------------------------------------------
II, 10.00%, 10/20/20 92 101
------------------------------------------------------------------------------
Midget, I
9.00%, 4/15 - 12/15/01 31 32
----------------------------------------------------------------------------
10.00%, 1/15/00 - 4/15/01 170 173
----------------------------------------------------------------------------
10.50%, 1/15/00 - 2/15/01 75 75
- --------------------------------------------------------------------------------
1,696
--------------
Total U.S. Government Mortgage-Backed Securities (Cost $8,329) 8,268
--------------
U.S. GOVERNMENT OBLIGATIONS/AGENCIES 22.6%
U.S. Government Agency Obligations 8.3%
Federal Home Loan Banks, 5.125%, 9/15/03 3,000 2,943
- --------------------------------------------------------------------------------
Federal National Mortgage Assn.
MTN
4.625%, 10/15/01 550 541
----------------------------------------------------------------------------
7.15%, 4/11/07 275 294
----------------------------------------------------------------------------
7.65%, 10/6/06 500 505
- --------------------------------------------------------------------------------
U.S. Department Housing & Urban Development, 6.49%, 8 240 247
- --------------------------------------------------------------------------------
4,530
--------------
U.S. Treasury Obligations 14.3%
U.S. Treasury Notes
4.25%, 11/15/03 4,495 4,316
----------------------------------------------------------------------------
6.375%, 8/15/02 1,250 1,293
----------------------------------------------------------------------------
6.50%, 10/15/06 2,000 2,130
- --------------------------------------------------------------------------------
7,739
--------------
Total U.S. Government Obligations/Agencies (Cost $12,342) 12,269
--------------
ASSET-BACKED SECURITIES 11.6%
Amresco Residential Securities, 6.925%, 6/25/25 $ 375 $ 381
- --------------------------------------------------------------------------------
Banc One Auto Grantor Trust, 6.27%, 11/20/03 120 121
- --------------------------------------------------------------------------------
California Infrastructure
6.25%, 6/25/04 175 177
----------------------------------------------------------------------------
6.38%, 9/25/08 600 613
- --------------------------------------------------------------------------------
Ciesco, MTN, (144a), 7.38%, 4/19/00 250 252
- --------------------------------------------------------------------------------
Comed Transitional Funding Trust, 5.44%, 3/25/07 650 636
- --------------------------------------------------------------------------------
Fingerhut Master Trust, 6.07%, 2/15/05 375 377
- --------------------------------------------------------------------------------
First USA Secured Notes Trust, 6.50%, 1/18/06 500 501
- --------------------------------------------------------------------------------
Harley Davidson Eaglemark
5.94%, 2/15/04 125 125
----------------------------------------------------------------------------
(144a), 6.35%, 10/15/02 85 85
- --------------------------------------------------------------------------------
IMC Home Equity Loan Trust, VR, 6.36%, 8/20/22 375 370
- --------------------------------------------------------------------------------
Neiman Marcus Credit Master Trust, 7.60%, 6/15/03 500 511
- --------------------------------------------------------------------------------
Newcourt Equipment Trust, 5.393%, 5/20/04 500 495
- --------------------------------------------------------------------------------
NPF Receivables Trust, (144a), 6.22%, 6/1/02 375 377
- --------------------------------------------------------------------------------
Onyx Acceptance Owner Trust, 5.83%, 3/15/04 500 502
- --------------------------------------------------------------------------------
Peco Energy Transport Trust, 5.63%, 3/1/05 300 298
- --------------------------------------------------------------------------------
Sears Credit Account Master Trust, 5.25%, 10/16/08 500 487
- --------------------------------------------------------------------------------
Total Asset-Backed Securities (Cost $6,335) 6,308
--------------
NON-U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES 1.4%
Prudential Securities, 6.074%, 1/15/08 747 741
- --------------------------------------------------------------------------------
Total Non-U.S. Government
Mortgage-Backed Securities (Cost $750) 741
--------------
MUNICIPAL BONDS 0.2%
Taxable Municipal 0.2%
University of Miami, GO, 6.90%, 4/1/04 85 88
- --------------------------------------------------------------------------------
Total Municipal Bonds (Cost $85) 88
--------------
MONEY MARKET FUNDS 5.4%
Reserve Investment Fund, 5.01% # 2,958 2,958
- --------------------------------------------------------------------------------
Total Money Market Funds (Cost $2,958) 2,958
--------------
Total Investments in Securities
100.0% of Net Assets (Cost $54,594) $54,332
Other Assets Less Liabilities (16)
--------------
NET ASSETS $ 54,316
--------------
Net Assets Consist of:
Accumulated net investment income - net of distributions $ (193)
Accumulated net realized gain/loss - net of distributions (1,300)
Net unrealized gain (loss) (262)
Paid-in-capital applicable to 11,823,563 shares
of $0.0001 par value capital stock outstanding;
4,000,000,000 shares of the Corporation authorized 56,071
--------------
NET ASSETS $ 54,316
--------------
NET ASSET VALUE PER SHARE $ 4.59
--------------
! Private Placement
* Non-income producing
+ Securities contain some restrictions as to public resale-total of
such securities at period-end amounts to 0.0% of net assets.
# Seven-day yield
ETC Equipment Trust Certificate
GO General Obligation
CMO Collateralized Mortgage Obligation
MTN Medium Term Note
REMIC Real Estate Mortgage Investment Conduit
VR Variable Rate
144a Security was purchased pursuant to Rule 144a under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers - total of such securities at period-end amounts to
7.61% of net assets.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Summit GNMA Fund
- --------------------------------------------------------------------------------
Unaudited April 30, 1999
Statement of Net Assets Par/Shares Value
- --------------------------------------------------------------------------------
In thousands
U.S. GOVERNMENT MORTGAGE-BACKED
SECURITIES 98.5%
U.S. Government Guaranteed Obligations 93.8%
Government National Mortgage Assn.
I
6.00%, 4/15/28 - 2/15/29 $ 3,984 $ 3,864
----------------------------------------------------------------------------
6.50%, 1/15/24 - 3/15/34 8,732 8,690
----------------------------------------------------------------------------
6.75%, 11/15/01 54 53
----------------------------------------------------------------------------
7.00%, 4/15/24 - 4/15/29 12,235 12,431
----------------------------------------------------------------------------
7.50%, 6/15/22 - 4/15/99 6,267 6,467
----------------------------------------------------------------------------
8.00%, 4/15/17 - 3/15/29 5,072 5,294
----------------------------------------------------------------------------
8.50%, 6/15/16 - 5/15/29 3,062 3,243
----------------------------------------------------------------------------
9.00%, 8/15/08 - 8/15/21 424 455
----------------------------------------------------------------------------
9.50%, 6/15/09 - 7/15/20 320 348
----------------------------------------------------------------------------
10.00%, 12/15/17 - 3/15/26 1,451 1,588
----------------------------------------------------------------------------
10.50%, 7/15/15 - 11/15/19 583 648
----------------------------------------------------------------------------
11.00%, 12/15/09 - 12/15/15 79 88
----------------------------------------------------------------------------
11.50%, 7/15 - 12/15/15 27 30
----------------------------------------------------------------------------
II
6.50%, 11/20/28 969 964
----------------------------------------------------------------------------
9.00%, 5/20/22 - 3/20/25 228 244
----------------------------------------------------------------------------
9.50%, 2/20/17 - 12/20/20 134 146
----------------------------------------------------------------------------
10.00%, 1/20/14 - 3/20/21 125 136
----------------------------------------------------------------------------
11.00%, 9/20/17 16 18
----------------------------------------------------------------------------
Construction Loan, I
6.67%, 2/15/01 336 329
----------------------------------------------------------------------------
6.75%, 3/1 - 5/1/29 1,082 1,069
----------------------------------------------------------------------------
7.00%, 12/15/99 - 4/15/00 983 994
----------------------------------------------------------------------------
GPM, I
9.25%, 7/15/16 - 7/15/17 12 12
----------------------------------------------------------------------------
9.50%, 7/15/09 33 36
----------------------------------------------------------------------------
10.00%, 8/15/13 4 4
----------------------------------------------------------------------------
Project Loan, I
6.30%, 11/15/33 309 300
----------------------------------------------------------------------------
6.70%, 5/1/29 469 470
----------------------------------------------------------------------------
7.05%, 5/1/29 500 513
----------------------------------------------------------------------------
7.75%, 3/15/20 295 308
----------------------------------------------------------------------------
8.00%, 11/15/17 391 409
----------------------------------------------------------------------------
Government National Mortgage Assn.
REMIC, 7.00%, 5/16/24 $ 3,000 $ 3,026
------------------------------------------------------------------------------
Government National Mortgage Assn.
TBA, I
7.50%, 12/15/99 2,000 2,064
----------------------------------------------------------------------------
Construction Loan, 6.67%, 6/15/38 334 327
- --------------------------------------------------------------------------------
U.S. Department of Veteran Affairs,
REMIC, 6.75%, 8/15/20 1,354 1,374
- --------------------------------------------------------------------------------
55,942
--------------
Stripped Mortgage Securities 1.2%
Federal National Mortgage Assn.
CMO, Interest Only, 8.50%, 4/1/22 ** 337 62
----------------------------------------------------------------------------
REMIC, Principal Only, Zero Coupon, 10/25/21 723 683
----------------------------------------------------------------------------
745
--------------
U.S. Government Agency Obligations 3.5%
Federal Home Loan Mortgage
REMIC
5.85%, 11/15/17 95 95
----------------------------------------------------------------------------
6.50%, 8/15/25 1,500 1,500
----------------------------------------------------------------------------
Federal National Mortgage Assn.
6.50%, 1/1/26 332 330
----------------------------------------------------------------------------
REMIC
5.00%, 8/25/22 16 15
----------------------------------------------------------------------------
Inverse Floater, 13.838%, 6/25/99 141 142
----------------------------------------------------------------------------
2,082
--------------
Total U.S. Government Mortgage-Backed Securities (Cost $58,623) 58,769
--------------
U.S. GOVERNMENT OBLIGATIONS 0.6%
U.S. Treasury Obligations 0.6%
U.S. Treasury Bond Strip, Zero Coupon, 2/15/16 1,000 366
- --------------------------------------------------------------------------------
Total U.S. Government Obligations/Agencies (Cost $371) 366
--------------
ASSET-BACKED SECURITIES 3.4%
Home Equity Loans-Backed 3.4%
GE Capital Mortgage Services, 6.75%, 8/25/28 1,987 1,985
- --------------------------------------------------------------------------------
Prudential Home Mortgage Securities, 6.00%, 10/25/07 14 13
- --------------------------------------------------------------------------------
Total Asset-Backed Securities (Cost $1,998) 1,998
--------------
MONEY MARKET FUNDS 8.1%
Reserve Investment Fund, 5.01% # $ 4,845 $ 4,845
- --------------------------------------------------------------------------------
Total Money Market Funds (Cost $4,845) 4,845
--------------
Total Investments in Securities
110.6% of Net Assets (Cost $65,837) $65,978
--------------
Other Assets Less Liabilities
Including $7,396 Payable for Investments Securities Purchased (6,319)
--------------
NET ASSETS $ 59,659
--------------
Net Assets Consist of:
Accumulated net investment income - net of distributions $ (244)
Accumulated net realized gain/loss - net of distributions (148)
Net unrealized gain (loss) 141
Paid-in-capital applicable to 6,133,266 shares
of $0.0001 par value capital stock outstanding;
4,000,000,000 shares of the Corporation authorized 59,910
--------------
NET ASSETS $59,659
--------------
NET ASSET VALUE PER SHARE $9.73
--------------
** For Interest Only securities, par amount represents
notional principal, on which the fund receives interest
# Seven-day yield
CMO Collateralized Mortgage Obligation
GPM Graduated Payment Mortgage
Inverse Floater Inverse Floating rate note; interest rate is inversely
tied to a published index - rate shown reflects current
rate at period-end
REMIC Real Estate Mortgage Investment Conduit
VR Variable Rate
TBA To be announced security was purchased on a forward
commitment basis
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Summit Income Funds
- --------------------------------------------------------------------------------
Unaudited
Statement of Operations
- --------------------------------------------------------------------------------
In thousands Cash Reserves Limited-Term GNMA
Fund Bond Fund Fund
6 Months 6 Months 6 Months
Ended Ended Ended
4/30/99 4/30/99 4/30/99
Investment Income
Income
Interest income $52,412 $1,534 $1,796
Expenses
Investment management and
administrative 4,505 137 156
-------------------------------------------------
Net investment income 47,907 1,397 1,640
-------------------------------------------------
Realized and Unrealized
Gain (Loss)
Net realized gain (loss)
on securities 7 61 300
Change in net unrealized
gain or loss
on securities - (990) (1,061)
-------------------------------------------------
Net realized and unrealized
gain (loss) 7 (929) (761)
-------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $47,914 $468 $879
-------------------------------------------------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Summit Cash Reserves Fund
- --------------------------------------------------------------------------------
Unaudited
Statement of Changes in Net Assets
In thousands
6 Months Year
Ended Ended
4/30/99 10/31/98
Increase (Decrease) in Net Assets
Operations
Net investment income $ 47,907 $ 79,152
Net realized gain (loss) 7 27
---------------------------
Increase (decrease) in net assets from operations 47,914 79,179
---------------------------
Distributions to shareholders
Net investment income (47,907) (79,152)
---------------------------
Capital share transactions*
Shares sold 1,733,899 2,913,215
Distributions reinvested 46,119 75,564
Shares redeemed (1,502,887) (2,407,379)
---------------------------
Increase (decrease) in net assets from capital
share transactions 277,131 581,400
---------------------------
Net Assets
Increase (decrease) during period 277,138 581,427
Beginning of period 1,884,547 1,303,120
---------------------------
End of period $2,161,685 $1,884,547
*Share information
Shares sold 1,733,899 2,913,215
Distributions reinvested 46,119 75,564
Shares redeemed (1,502,887) (2,407,379)
---------------------------
Increase (decrease) in shares outstanding 277,131 581,400
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Summit Limited-Term Bond Fund
- --------------------------------------------------------------------------------
Unaudited
Statement of Changes in Net Assets
In thousands
6 Months Year
Ended Ended
4/30/99 10/31/98
Increase (Decrease) in Net Assets
Operations
Net investment income $ 1,397 $ 2,064
Net realized gain (loss) 61 159
Change in net unrealized gain or loss (990) 485
---------------------------
Increase (decrease) in net assets from operations 468 2,708
---------------------------
Distributions to shareholders
Net investment income (1,397) (2,064)
---------------------------
Capital share transactions*
Shares sold 20,429 20,167
Distributions reinvested 1,008 1,635
Shares redeemed (7,096) (11,162)
---------------------------
Increase (decrease) in net assets from capital
share transactions 14,341 10,640
---------------------------
Net Assets
Increase (decrease) during period 13,412 11,284
Beginning of period 40,904 29,620
---------------------------
End of period $54,316 $40,904
---------------------------
*Share information
Shares sold 4,409 4,358
Distributions reinvested 218 353
Shares redeemed (1,532) (2,411)
---------------------------
Increase (decrease) in shares outstanding 3,095 2,300
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Summit GNMA Fund
- --------------------------------------------------------------------------------
Unaudited
Statement of Changes in Net Assets
In thousands
6 Months Year
Ended Ended
4/30/99 10/31/98
Increase (Decrease) in Net Assets
Operations
Net investment income $ 1,640 $ 2,499
Net realized gain (loss) 300 (115)
Change in net unrealized gain or loss (1,061) 200
---------------------------
Increase (decrease) in net assets from operations 879 2,584
---------------------------
Distributions to shareholders
Net investment income (1,640) (2,499)
---------------------------
Capital share transactions*
Shares sold 20,943 28,082
Distributions reinvested 1,253 1,904
Shares redeemed (8,347) (13,030)
---------------------------
Increase (decrease) in net assets from capital
share transactions 13,849 16,956
---------------------------
Net Assets
Increase (decrease) during period 13,088 17,041
Beginning of period 46,571 29,530
---------------------------
End of period $ 59,659 $ 46,571
---------------------------
*Share information
Shares sold 2,138 2,838
Distributions reinvested 128 193
Shares redeemed (851) (1,317)
---------------------------
Increase (decrease) in shares outstanding 1,415 1,714
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Summit Income Funds
- --------------------------------------------------------------------------------
Unaudited April 30, 1999
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Summit Income Funds, Inc. (the corporation) is registered
under the Investment Company Act of 1940. The Summit Cash Reserves Fund
(the Cash Reserves Fund), the Summit Limited-Term Bond Fund (the
Limited-Term Bond Fund), and the Summit GNMA Fund (the GNMA Fund),
diversified, open-end management investment companies, are the three
portfolios established by the corporation and commenced operations on
October 29, 1993.
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. Except for securities held by the Cash Reserves Fund, investments
in securities with original 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 original
maturities of less than one year are stated at fair value, which is
determined by using a matrix system that establishes a value for each
security based on money market yields. Securities held by the Cash Reserves
Fund are valued at amortized cost.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation.
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 that fund, as authorized by the Board of Directors.
Premiums and Discounts Premiums and discounts on debt securities, other
than mortgage-backed securities (MBS), are amortized for both financial
reporting and tax purposes. Premiums and discounts on all MBS are
recognized upon disposition or principal repayment as gain or loss for
financial reporting purposes. For tax purposes, premiums and discounts on
MBS acquired on or before June 8, 1997, are recognized upon disposition or
principal repayment as ordinary income. For MBS acquired after June 8,
1997, premiums are recognized as gain or loss; discounts are recognized as
gain or loss, except to the extent of accrued market discount.
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 each fund on the ex-dividend date. Income and capital gain
distributions are determined in accordance with federal income tax
regulations and may differ from those determined in accordance with
generally accepted accounting principles.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term
securities, for the six months ended April 30, 1999, were as follows:
- --------------------------------------------------------------------------------
Limited-Term
Bond Fund GNMA Fund
U.S. government securities
Purchases $14,229,000 $43,622,000
Sales 5,362,000 28,502,000
Other securities
Purchases 9,567,000 -
Sales 5,221,000 21,000
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since each fund intends
to continue to qualify as a regulated investment company and distribute all
of its taxable income. As of October 31, 1998, the Limited-Term Bond Fund
had capital loss carryforwards for federal income tax purposes of
$1,367,000, of which $808,000 expires in 2002, $354,000 in 2003, and
$205,000 thereafter through 2005. The GNMA Fund had capital loss
carryforwards for federal income tax purposes of $447,000, of which
$173,000 expires in 2003, $142,000 in 2004, and $132,000 in 2005. Each fund
intends to retain gains realized in future periods that may be offset by
available capital loss carryforwards.
At April 30, 1999, the costs of investments for the Cash Reserves,
Limited-Term Bond, and GNMA Funds for federal income tax purposes was
substantially the same as for financial reporting and totaled
$2,150,003,000, $54,594,000, and $65,837,000, respectively. For the Cash
Reserves Fund, amortized cost is equivalent to value; and for the
Limited-Term Bond and GNMA Funds, net unrealized gain (loss) on investments
was as follows:
Limited-Term
Bond Fund GNMA Fund
Appreciated investments $234,000 $496,000
Depreciated investments (496,000) (355,000)
-------------------------------------
Net unrealized gain (loss) $(262,000) $141,000
-------------------------------------
NOTE 4 - RELATED PARTY TRANSACTIONS
The investment management and administrative agreement between each fund
and T. Rowe Price Associates, Inc. (the manager) provides for an
all-inclusive annual fee, of which $660,000, $5,000, and $5,000 were
payable at April 30, 1999 by the Cash Reserves, Limited-Term Bond, and GNMA
Funds, respectively. The fee, computed daily and paid monthly, is equal to
0.45% of average daily net assets for the Cash Reserves Fund, 0.55% of
average daily net assets for the Limited-Term Bond Fund, and 0.60% of
average daily net assets for the GNMA Fund. Pursuant to the agreement,
investment management, shareholder servicing, transfer agency, accounting,
and custody services are provided to each fund, and interest, taxes,
brokerage commissions, and extraordinary expenses are paid directly by each
fund.
Additionally, the Cash Reserves Fund is one of several T. Rowe
Price-sponsored mutual funds (underlying funds) in which the T. Rowe Price
Spectrum Funds (Spectrum) may invest. Spectrum does not invest in the
underlying funds for the purpose of exercising management or control.
Expenses associated with the operation of Spectrum are borne by each
underlying fund to the extent of estimated savings to it and in proportion
to the average daily value of its shares owned by Spectrum, pursuant to
special servicing agreements between and among Spectrum, the underlying
funds, T. Rowe Price, and, in the case of T. Rowe Price Spectrum
International, Rowe Price-Fleming International. Spectrum Income Fund held
approximately 0.02% of the outstanding shares of the Cash Reserves Fund at
April 30, 1999. For the six months then ended, the fund was allocated
$25,000 of Spectrum expenses, $7,000 of which was payable at period-end.
The Limited-Term Bond and GNMA Funds may invest in the Reserve Investment
Fund and Government Reserve Investment Fund (collectively, the Reserve
Funds), open-end management investment companies managed by T. Rowe Price
Associates, Inc. The Reserve Funds are offered as cash management options
only to mutual funds and other accounts managed by T. Rowe Price and its
affiliates and are not available to the public. The Reserve Funds pay no
investment management fees. Distributions from the Reserve Funds to the
Limited-Term Bond and the GNMA Funds for the six months ended April 30,
1999, totaled $14,000 and $23,000, respectively, and are reflected as
interest income in the accompanying Statement of Operations.
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.
T. Rowe Price Mutual Funds
- --------------------------------------------------------------------------------
STOCK FUNDS
- ------------------------------
Domestic
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Diversified Small-Cap Growth
Dividend Growth
Equity Income
Equity Index 500
Extended Equity Market Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Media & Telecommunications
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons*
Real Estate
Science & Technology
Small-Cap Stock
Small-Cap Value
Spectrum Growth
Total Equity Market Index
Value
International/Global
Emerging Markets Stock
European Stock
Global Stock
International Discovery
International Growth & Income
International Stock
Japan
Latin America
New Asia
Spectrum International
BOND FUNDS
- ------------------------------
Domestic Taxable
Corporate Income
GNMA
High Yield
New Income
Short-Term Bond
Short-Term U.S. Government
Spectrum Income
Summit GNMA
Summit Limited-Term Bond
U.S. Treasury Intermediate
U.S. Treasury Long-Term
Domestic Tax-Free
California Tax-Free Bond
Florida Intermediate Tax-Free**
Georgia Tax-Free Bond
Maryland Short-Term Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Summit Municipal Intermediate
Tax-Free High Yield
Tax-Free Income
Tax-Free Intermediate Bond***
Tax-Free Short-Intermediate
Virginia Short-Term Tax-Free Bond
Virginia Tax-Free Bond
International/Global
Emerging Markets Bond
Global Bond
International Bond
MONEY MARKET FUNDS!
- ------------------------------
Taxable
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
Tax-Free
California Tax-Free Money
New York Tax-Free Money
Summit Municipal
Money Market
Tax-Exempt Money
BLENDED ASSET FUNDS
- ------------------------------
Balanced
Personal Strategy Balanced
Personal Strategy Growth
Personal Strategy Income
Tax-Efficient Balanced
T. ROWE PRICE NO-LOAD
VARIABLE ANNUITY
- ------------------------------
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
Mid-Cap Growth Portfolio
New America Growth Portfolio
Personal Strategy Balanced Portfolio
Prime Reserve Portfolio
* Closed to new investors. ** Formerly named Florida Insured Intermediate
Tax-Free. *** Formerly named Tax-Free Insured Intermediate Bond.
! Investments in the funds are not insured or guaranteed by the FDIC or any
other government agency. Although the funds seek to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
funds.
Please call for a prospectus. Read it carefully before investing.
The T. Rowe Price No-Load Variable Annuity [#V6021] is issued by Security
Benefit Life Insurance Company. In New York, it [#FSB201(11-96)] is issued by
First Security Benefit Life Insurance Company of New York, White Plains, NY.
T. Rowe Price refers to the underlying portfolios' investment managers and the
distributors, T. Rowe Price Investment Services, Inc.; T. Rowe Price Insurance
Agency, Inc.; and T. Rowe Price Insurance Agency of Texas, Inc. The Security
Benefit Group of Companies and the T. Rowe Price companies are not affiliated.
The variable annuity may not be available in all states. The contract has
limitations. Call a representative for costs and complete details of the
coverage.
For yield, price, last transaction,
current balance, or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access(registered trademark):
1-800-638-2587 toll free
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
410-625-6500 Baltimore area
To open a brokerage account
or obtain information, call:
1-800-638-5660 toll free
Internet address:
www.troweprice.com
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus appropriate
to the fund or funds covered in this
report.
Investor Centers:
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
4200 West Cypress St.
10th Floor
Tampa, FL 33607
4410 ArrowsWest Drive
Colorado Springs, CO 80907
Warner Center Plaza 5
Mezzanine Level
21800 Oxnard Street, Suite 270
Woodland Hills, CA 91367
(opens mid-June)
Invest With Confidence(registered trademark)
T. Rowe Price
T. Rowe Price Investment Services, Inc., Distributor. C09-051 4/30/99
THE SHAREHOLDER LETTER AND REPORT FOR THE COMBINED TAX-FREE FUNDS ARE ATTACHED
HERE BY ACCESSING THE FOLLOWING:
Annual Report
Tax-Free
Funds
February 28, 1999
T. Rowe Price
Report Highlights
- --------------------------------------------------------------------------------
Tax-Free Funds
o Municipal bonds were relatively unscathed by the turmoil in other fixed
income markets and were less volatile than Treasuries.
o The Tax-Exempt Money, Tax-Free Short-Intermediate, Tax-Free Intermediate
Bond, Tax-Free Income, and Tax-Free High Yield Funds outpaced their
respective Lipper benchmarks for both the 6- and 12-month periods.
o The funds' good performances were due primarily to management decisions and
low fund expenses.
o All funds benefited from their longer relative maturities and durations
when interest rates fell, and also from careful credit selection.
o We expect continued low inflation and slowing economic growth to benefit
municipal securities, which still carry attractive yields relative to other
fixed income investments.
Fellow Shareholders
The fixed income markets and your funds generated good returns for the 6- and
12-month periods ended February 28, 1999. The Tax-Exempt Money, Tax-Free
Short-Intermediate, Tax-Free Intermediate Bond, Tax-Free Income, and Tax-Free
High Yield Funds surpassed their respective benchmarks in both periods, a
reflection of our management decisions and below-average expenses.
Municipal bonds moved through the past year relatively unscathed by the turmoil
that hit other fixed income markets. The municipal market was far less volatile
than the Treasury market, which benefited from a massive flight to quality that
drove 30-year yields to a record low of 4.72% in October from 5.92% last
February. Municipal yields also fell, but the decline was more muted as
long-term rates dropped to 4.64% in October from 5.08% last February. As a
result, municipal yields approached parity with Treasury yields especially in
longer maturities, an unusual event in a year when major tax reform was not
under discussion.
MARKET ENVIRONMENT
Municipal Bond and Note Yields
- --------------------------------------------------------------------------------
30-Year AAA 5-Year AAA 1-Year Moody's
General General Investment
Obligation Obligation Grade 1Note
2/28/98 5.08 4.05 3.60
5.13 4.10 3.65
5.20 4.30 3.85
5/98 5.05 4.10 3.75
5.05 4.10 3.60
5.10 4.10 3.70
8/98 4.93 3.85 3.50
4.82 3.70 3.30
4.92 3.70 2.95
11/98 4.89 3.75 3.05
4.94 3.75 3.05
4.87 3.65 2.95
2/99 4.99 3.78 3.00
Source: T. Rowe Price Associates
Major economic developments here and overseas during the fiscal year affected
the fixed income markets. In the first half, many economists expected the global
turmoil to have a negative impact on the U.S. economy, causing interest rates to
fall. Russia's debt default last summer created havoc in many markets, leading
to a global liquidity crisis that contributed to the flight to U.S. Treasuries.
In response, the Federal Reserve cut short-term rates three times last fall to
cushion the domestic economy from weakness abroad and restore investor
confidence. In December, yields began to move up following signs of
stronger-than-expected U.S. growth and a growing sense that the global liquidity
crisis had abated. Robust GDP growth of 6.1% in the fourth quarter added fuel to
the fire, and by the end of February 30-year Treasury yields were nearly 100
basis points (one percentage point) higher than in October. Municipal yields
also rose but, once again, they were far less volatile.
Lower-quality municipal bonds also escaped major damage. In response to the
liquidity crisis, the taxable markets-including corporate, mortgage, and
emerging market bonds-came under severe pressure in the third quarter, and
differences in yield between high- and low-quality bonds (yield spreads) widened
abruptly. Lower-quality, high-yield municipals experienced only a modest
widening in yield spreads, mainly because of limited supply in this area of the
market and less sensitivity to global events. While high-yield returns suffered
modestly, this followed several years of above-average returns.
Overall, municipal yields did not change significantly from February 1998 to
February 1999 except for one-year rates, as can be seen in the chart on page 1.
In the money market area, solid cash flow and the lowest level of new issuance
in nine years led to lower yields. A steeper yield curve resulted as money
market and short-term bonds reacted to the Federal Reserve's rate cuts and to
strong demand, while long-term rates were more affected by heavy bond sales.
During the past six months, intermediate-term bonds turned in the best
performance. For the calendar year, new bond issuance reached $284 billion, up
29% from 1997, a level surpassed only in 1993.
High Ratings for Risk-Adjusted Returns
- --------------------------------------------------------------------------------
The four bond funds received a high Morningstar Rating(trademark) for their
risk-adjusted performance, which reflects the degree of volatility experienced
in earning a particular return. (Money funds are not rated.) As of February 28,
1999, the Tax-Free High Yield Fund had five stars overall, and the Tax- Free
Short-Intermediate Fund, Tax-Free Intermediate Bond Fund, and Tax-Free Income
Fund all received four stars. The top 10% of the funds in each investment
category receive five stars, the next 22.5% receive four stars, and the next 35%
receive three stars. The funds were rated among 1,576, 1,109, and 369 municipal
fixed income funds for the 3-, 5-, and 10-year periods ended February 28, 1999,
respectively. Of course, past trends may not continue.
Morningstar proprietary ratings reflect historical risk-adjusted performance as
of 2/28/99 and may change monthly. Ratings are calculated from the funds' 3-,
5-, and 10-year average annual returns in excess of 90-day Treasury bill returns
with appropriate fee adjustments and a risk factor that reflects fund
performance below 90-day Treasury bill returns. The Tax-Free High Yield Fund
received 5 stars for the 3-, 5-, and 10-year periods; Tax-Free Income 4 stars
for the 3- and 5- year periods and 3 stars for the 10-year period; Tax-Free
Intermediate Bond 3 and 4 stars for the 3- and 5-year periods; and Tax-Free
Short-Intermediate 4, 5, and 4 stars for the 3-, 5-, and 10-year periods,
respectively.
As mentioned, each fund was in the lowest expense quartile (25%) of its Lipper
category as of February 28. For a discussion of the new Tax-Exempt Money Fund
PLUS Class shares, see the shaded box on page 4.
TAX-EXEMPT MONEY FUND AND PLUS SHARES
Performance Comparison
- --------------------------------------------------------------------------------
Since Inception*
Periods Ended 2/28/99 6 Months 12 Months (PLUS Shares)
- --------------------------------------------------------------------------------
Tax-Exempt Money Fund 1.38% 2.97% -
Tax-Exempt Money Fund
PLUS Class - - 0.74%
Lipper Tax-Exempt Money
Market Funds Average 1.31 2.81 0.82
*11/1/98
The Tax-Exempt Money Fund posted good results relative to its peer group average
for both the 6- and 12-month periods ended February 28. Since its inception on
November 1, 1998, the Tax-Exempt Money Fund PLUS shares returned 0.74%, behind
the return of the Lipper average due to the higher expenses that accompany their
additional services.
Three consecutive easings in the fall by the Federal Reserve, amounting to a
total of 75 basis points, set the tone for the short-term tax-exempt market. At
the end of the fiscal year, the one-year yield was 60 basis points lower than it
was a year earlier, with most of the move occurring in the last six months.
Tax-Exempt Money Fund PLUS Class
- --------------------------------------------------------------------------------
Starting November 1, 1998, we created a new class of shares called The Tax-
Exempt Money - PLUS Class. The share class is offered as part of our new Asset
Manager Account, which incorporates a number of additional services, such as
unlimited checkwriting and a debit card. Both the Tax-Exempt Money Fund and
Tax-Exempt Money - PLUS are based on the same portfolio, and as such will be
reported on together in future annual and semiannual reports. However,
performance will differ because the classes of shares have different expense
ratios. Tax-Exempt Money - PLUS will have no impact on the expenses, share
price, or yield of the original Tax-Exempt Money Fund.
Note: To request a prospectus for any T. Rowe Price fund, please call 1-800-
638-5660. Read the prospectus carefully before investing.
Money market funds benefited from the volatility in other markets. As investors
shifted assets to safer havens, total money fund assets ballooned to a record
$1.4 trillion, an increase of 26% during the fiscal year. However, tax-exempt
money funds expanded at half the rate of the total industry-a result of reduced
demand due to lower tax-exempt money yields versus comparable taxable yields.
The improved financial condition of many municipalities, along with low
long-term rates, drastically reduced the short-term borrowing needs of issuers.
Annual municipal note issuance dipped to its lowest level since 1989. Reduced
supply and steady demand kept rates low versus taxable alternatives, which meant
that the tax-exempt money market appealed mostly to investors in high tax
brackets.
Throughout the fiscal year, we maintained a fairly long weighted average
maturity-53 days at the end of February, which was 11 days longer than our peer
group average. We continue to believe that the imbalance between supply and
demand in our specific market, combined with a stable monetary policy and
possible further easing by the Fed if economic growth slows later in the year,
supports our more aggressive stance.
TAX-FREE SHORT-INTERMEDIATE FUND
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 2/28/99 6 Months 12 Months
- --------------------------------------------------------------------------------
Tax-Free Short-Intermediate Fund 2.39% 4.90%
Lipper Short-Intermediate
Municipal Debt Funds Average 2.08 4.43
Your fund posted solid results that surpassed the Lipper Short-Intermediate
Municipal Debt Funds Average for both the 6- and 12-month periods ended February
28, 1999. Maintaining a slightly longer duration and a low expense ratio
enhanced returns. (Duration is a measure of a bond fund's sensitivity to
interest rates. For example, a fund with a duration of three years would fall or
rise about 3% in price in response to a one-percentage-point rise or fall in
interest rates.)
Our duration strategy reflected several factors: the absence of any inflationary
pressures, the global demand for U.S. Treasuries resulting from problems
overseas, and the exceptional value offered in the municipal market due to
imbalances in supply and demand. Our long position was rewarded in the fall when
the Federal Reserve cut short-term interest rates. As economic growth in the
fourth quarter exceeded expectations and global turmoil subsided, Treasury
yields began to rise. Maturities within five years, which had been yielding less
than the federal funds rate, rose above the fed funds rate and resulted in a
positively sloped yield curve. This shift reflected the change in investor focus
from the global crisis to an accommodative Fed and a potential pickup in
inflation.
Nevertheless, we maintained our relatively long duration even as Treasury yields
were rising from their October lows. Municipal yields had not fallen as far and
looked exceptionally attractive. In addition, we anticipated increasing demand
for municipals and a drop in supply over the holiday season; supply has remained
below expectations during the first two months of 1999.
Recently, relative yields have moved closer to historic averages as municipals
outperformed Treasuries. While we had a fairly long duration at the end of the
period, we have since been reducing it. However, we expect to take advantage of
any increase in yields to extend it again, since we anticipate continued low
inflation and interest rates in the months ahead.
TAX-FREE INTERMEDIATE BOND FUND
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 2/28/99 6 Months 12 Months
- --------------------------------------------------------------------------------
Tax-Free Intermediate Bond Fund 2.26% 5.37%
Lipper Intermediate
Municipal Debt Funds Average 2.15 5.05
Your fund posted good returns and outperformed the Lipper Intermediate Municipal
Debt Funds Average for both the 6- and 12-month periods. Our duration strategy
over the past six months was similar to that of the Tax-Free Short-Intermediate
Fund (see report on that fund for an explanation). As short-term rates fell more
than long-term rates, short bonds appreciated while longer bonds actually
depreciated, but the changes were modest. Five-year general obligation (GO)
yields were down seven basis points while 30-year GO yields rose six, which
meant that a fund's return was largely determined by its position along the
yield curve. In our case, we favored five-year bonds because we thought 10-year
maturities were overvalued, and the steepening yield curve was beneficial to
five-year maturities. Since the yield curve has recently begun to steepen even
further, we anticipate buying bonds with longer maturities and have begun to
favor 10-year bonds.
At the annual shareholders meeting in October, we received approval to remove
the insurance requirement for the fund and changed the fund's name to reflect
the new policy. We will continue to hold 95% of assets rated AAA or AA by at
least one national rating organization (Standard & Poor's, Moody's, or a similar
service), and up to 5% may be rated A at the time of purchase. We believe this
will allow for more prudent diversification among a variety of high-quality
issuers.
Our current strategy is to reduce exposure to insured bonds over time in a
manner that neither reduces income nor results in significant realized capital
gains. We sold three insured credits-hospital, solid-waste facility, and
start-up toll road securities-primarily because they allowed us to reach our
duration goals and we considered them overvalued compared with other bonds.
TAX-FREE INCOME FUND
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 2/28/99 6 Months 12 Months
- --------------------------------------------------------------------------------
Tax-Free Income Fund 1.91% 5.48%
Lipper General Municipal
Debt Funds Average 1.76 4.88
The fund had several goals for the past year: managing exposure to interest
rates with steady, gradual shifts in duration; preserving tax-free income as
lower rates and maturing older, higher-yielding bonds eroded the fund's yield;
and seeking good diversification among issuers and bond insurers in the
portfolio. The strategy along with low expenses paid off, and performance
surpassed the Lipper average for both periods shown in the table.
The fund's duration (defined in the Tax-Free Short-Intermediate Fund section),
which was extended last June to a more aggressive range, was reduced to neutral
in January. Recent concerns about continued economic strength and a shift in the
Federal Reserve's position, from a bias toward easing to a neutral stance, drove
our strategy. We were also aware that, historically, the first quarter has often
not been strong for municipal bonds as supply starts to grow and demand weakens
in anticipation of tax-payment season.
The fund's credit quality remains high at an overall level of AA-. A year ago we
regretted not having more exposure to lower-quality bonds, which had performed
well in a strong economy. However, this sector did not do as well in the past
year, and we saw a modest widening of yield spreads between lower- and
higher-rated bonds. As this trend continues, we are looking for opportunities to
add some lower-rated securities to the portfolio.
During the past six months, we reduced our exposure to hospital bonds and
increased our holdings of general obligation bonds. The hospital industry is
suffering from cost recovery pressures, while tax-supported debt is benefiting
from the strong economy. As always, we are seeking good diversification among
solid credits. While the insurance industry continues to penetrate the municipal
bond market (more than 50% of new issues were insured in 1998), we are also
focused on diversifying exposure among the bond insurers.
TAX-FREE HIGH YIELD FUND
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 2/28/99 6 Months 12 Months
- --------------------------------------------------------------------------------
Tax-Free High Yield Fund 1.57% 4.80%
Lipper High Yield Municipal
Debt Funds Average 1.46 4.51
The municipal high-yield market trailed the higher-quality market from the
summer of 1998 through the end of February. Total returns were still positive,
however, unlike those of our counterparts in the corporate bond market.
Performance for the year was bolstered by our strategy of steadily increasing
duration (see the report for the Tax-Free Short-Intermediate Fund for an
explanation of duration) to benefit from the drop in interest rates, and the
fund surpassed the average performance of its Lipper peer group in both periods.
Quality Diversification
- --------------------------------------------------------------------------------
Tax-Free High Yield Fund
AAA AA A BBB BB and below
6 25 21 26 22
Based on net assets as of 2/28/99.
Moderate returns in this sector of the municipal market have presented an
opportunity for investors. Compared with our peers, we have been underweighted
in below-investment-grade bonds and can now add selectively to our favorite
issuers at a time when yield spreads are wider than they have been during the
past two to three years. Currently, these holdings represent about 22% of total
assets, and the percentage should rise gradually. We are focusing specifically
on the long-term care, education, and corporate-backed sectors for new purchases
that should benefit from a strong domestic economy.
We are closely watching developments in the hospital sector as it comes under
pressure from increased competition and general overcapacity. Our percentage of
hospital holdings is among the lowest in the fund's history, and we will look to
increase it as opportunities unfold. Our overall strategy is designed to
increase the tax-free yield of the fund in a prudent manner.
Taxable vs. Tax-Exempt Yields
- --------------------------------------------------------------------------------
As of 2/28/99
Treasury Yield Treasury Yield Tax-Exempt
After Paying After Paying AAA General
Income Taxes Income Taxes Obligation
of 31% of 36% Yield
1 Yr 3.34 3.10 2.95
5 Yr 3.59 3.33 3.78
10 Yr 3.64 3.38 4.20
30 Yr 3.85 3.57 4.99
Source: T. Rowe Price Associates
OUTLOOK
Despite the economy's strong momentum from the fourth quarter of 1998 through
the early part of this year, we expect a decline in growth toward a more modest
and sustainable level later this year. We also believe the forces sustaining low
inflation are still in place. The Federal Reserve appears to have adopted a
neutral monetary bias in the belief that the economy contains an equal measure
of upside and downside risks.
So far this year, a decreasing supply of municipal issues combined with strong
demand has helped move tax-exempt yields into more normal relationships with
taxable yields. While Treasury yields across maturities have risen 50 to 60
basis points since the beginning of 1999, municipal yields were mostly
unchanged. The chart on the previous page shows the after-tax yield on Treasury
securities as of February 28, 1999, after paying federal income taxes at various
levels. Overall, municipal securities are still appealing relative to other
fixed income securities, and we are optimistic about their outlook for the rest
of the year.
Respectfully submitted,
Mary J. Miller
Director
Municipal Bond Department
March 19, 1999
- --------------------------------------------------------------------------------
Change in Management
C. Stephen Wolfe stepped down as manager of the Tax-Free High Yield Fund on
March 1, 1999, to devote himself full-time to research on high-yield securities.
He remains a member of the fund's Investment Advisory Committee. William F.
Snider, associate portfolio manager of this fund, has been appointed chairman of
the Tax-Free High Yield Fund's Investment Advisory Committee. He and Patricia S.
Deford will be co-managers of the fund responsible for day-to-day management of
the portfolio. Mr. Snider joined T. Rowe Price in 1991 and also serves as
portfolio manager of the New York and New Jersey Tax-Free Bond Funds. Ms.
Deford, who joined T. Rowe Price in 1990, served as research director for the
firm's municipal department and is vice president of all tax-free funds. Other
members of the fund's Investment Advisory Committee include Konstantine B.
Mallas, Mary J. Miller, William T. Reynolds, and Arthur S. Varnado.
The preceding updates the Tax-Free Funds prospectus of July 1, 1998.
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
KEY STATISTICS
8/31/98 2/28/99
Tax-Exempt Money Fund
- --------------------------------------------------------------------------------
Price Per Share $ 1.00 $ 1.00
Dividends Per Share
For 6 months 0.016 0.014
For 12 months 0.032 0.029
Dividend Yield (7-Day Compound) * 2.98% 2.54%
Weighted Average Maturity (days) 59 53
Weighted Average Quality ** First Tier First Tier
Tax-Exempt Money Fund PLUS Class Shares
- --------------------------------------------------------------------------------
Price Per Share $ -- $ 1.00
Dividends Per Share
For 6 months -- 0.007!
For 12 months -- --
Dividend Yield (7-Day Compound) * -- 2.07%
Weighted Average Maturity (days) -- 53
Weighted Average Quality ** -- First Tier
(continued on next page)
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
KEY STATISTICS
x 8/31/98 2/28/99
Tax-Free Short-Intermediate Fund
- --------------------------------------------------------------------------------
Price Per Share $ 5.39 $ 5.39
Dividends Per Share
For 6 months 0.11 0.11
For 12 months 0.22 0.22
Dividend Yield*
For 6 months 4.13% 4.07%
For 12 months 4.24 4.12
30-Day Standardized Yield 3.59 3.16
Weighted Average Maturity (years) 4.4 4.0
Weighted Average Effective Duration (years) 2.9 3.0
Weighted Average Quality *** AA AA
Tax-Free Intermediate Bond Fund
- --------------------------------------------------------------------------------
Price Per Share $ 11.13 $ 11.13
Dividends Per Share
For 6 months 0.24 0.24
For 12 months 0.48 0.48
Dividend Yield *
For 6 months 4.39% 4.39%
For 12 months 4.49 4.42
30-Day Standardized Yield 3.78 3.36
Weighted Average Maturity (years) 8.8 8.5
Weighted Average Effective Duration (years) 5.6 5.4
Weighted Average Quality *** AA AA
(continued on next page)
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
KEY STATISTICS
8/31/98 2/28/99
Tax-Free Income Fund
- --------------------------------------------------------------------------------
Price Per Share $ 10.03 $ 9.94
Dividends Per Share
For 6 months 0.25 0.25
For 12 months 0.51 0.50
Dividend Yield *
For 6 months 5.15% 5.13%
For 12 months 5.31 5.19
30-Day Standardized Yield 4.35 4.11
Weighted Average Maturity (years) 17.1 16.1
Weighted Average Effective Duration (years) 7.6 7.3
Weighted Average Quality *** AA- AA-
Tax-Free High Yield Fund
- --------------------------------------------------------------------------------
Price Per Share $ 12.72 $ 12.53
Dividends Per Share
For 6 months 0.34 0.33
For 12 months 0.68 0.66
Dividend Yield *
For 6 months 5.38% 5.34%
For 12 months 5.55 5.45
30-Day Standardized Yield 4.59 4.46
Weighted Average Maturity (years) 19.4 19.3
Weighted Average Effective Duration (years) 7.3 7.6
Weighted Average Quality *** A- A-
* Dividends earned and reinvested for the periods indicated are annualized
and divided by the average daily net asset values per share for the same
period.
** All securities purchased in the money fund are rated in the two highest
categories (tiers) as established by national rating agencies or, if
unrated, are deemed of comparable quality by T. Rowe Price.
*** Based on T. Rowe Price research.
! Dividends for the period 11/1/98 to 2/28/99.
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Performance Comparison
- --------------------------------------------------------------------------------
These charts show the value of a hypothetical $10,000 investment in each fund
over the past 10 fiscal year periods or since inception (for funds lacking 10-
year records). The result is compared with a broad-based average or index. The
index return does not reflect expenses, which have been deducted from the fund's
return.
TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
As of 2/28/99
Lipper
Tax-Exempt
Money Market Tax-Exempt
Funds Average Money Fund
2/28/89 10,000 10,000
2/90 10,591 10,587
2/91 11,162 11,139
2/92 11,598 11,550
2/93 11,878 11,823
2/94 12,105 12,065
2/95 12,414 12,383
2/96 12,828 12,802
2/97 13,204 13,193
2/98 13,613 13,620
2/99 13,999 14,024
TAX-FREE SHORT-INTERMEDIATE FUND
- --------------------------------------------------------------------------------
As of 2/28/99
Lipper Short- Tax-Free
Lehman Intermediate Short-
3-Year Go Municipal Debt Intermediate
Bond Index Funds Average Fund
2/28/89 10,000 10,000 10,000
2/90 10,806 10,750 10,736
2/91 11,710 11,572 11,494
2/92 12,665 12,459 12,291
2/93 13,764 13,548 13,214
2/94 14,243 14,043 13,675
2/95 14,616 14,360 14,073
2/96 15,793 15,376 15,040
2/97 16,520 16,010 15,645
2/98 17,403 16,839 16,470
2/99 18,322 17,626 17,277
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Performance Comparison
- --------------------------------------------------------------------------------
TAX-FREE INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
As of 2/28/99
Lipper
Lehman Intermediate
7-Year Municipal Tax-Free
Municipal Debt Funds Intermediate
Bond Index Average Bond Fund
11/30/92 10,000 10,000 10,000
2/93 10,542 10,537 10,681
2/94 11,008 11,034 11,267
2/95 11,277 11,250 11,566
2/96 12,434 12,276 12,672
2/97 13,050 12,824 13,204
2/98 14,043 13,778 14,168
2/99 14,880 14,500 14,929
TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
As of 2/28/99
Lipper
Lehman General
Municipal Municipal Tax-Free
Bond Debt Funds Income
Index Average Fund
2/28/89 10,000 10,000 10,000
2/90 11,026 10,888 10,815
2/91 12,042 11,781 11,724
2/92 13,245 12,984 12,916
2/93 15,068 14,845 14,838
2/94 15,902 15,654 15,654
2/95 16,202 15,791 15,951
2/96 17,991 17,387 17,595
2/97 18,982 18,217 18,441
2/98 20,717 19,932 21,070
2/99 21,991 20,950 21,275
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Performance Comparison
- --------------------------------------------------------------------------------
TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
As of 2/28/99
Lipper
Lehman High Yield
Revenue Municipal Tax-Free
Bond Debt Funds High Yield
Index Average Fund
2/28/89 10,000 10,000 10,000
2/90 11,076 10,865 10,954
2/91 12,095 11,479 11,823
2/92 13,397 12,669 13,072
2/93 15,345 14,205 14,895
2/94 16,306 15,145 16,010
2/95 16,557 15,372 16,212
2/96 18,434 16,977 17,935
2/97 19,522 17,935 19,051
2/98 21,424 19,799 21,036
2/99 22,707 20,704 22,046
Average Annual Compound Total Return
- --------------------------------------------------------------------------------
This table shows how each fund would have performed each year if its actual (or
cumulative) returns for the periods shown had been earned at a constant rate.
Since Inception
Periods Ended 2/28/99 1 Year 5 Years 10 Years Inception Date
- --------------------------------------------------------------------------------
Tax-Exempt Money 2.97% 3.05% 3.44% - 4/8/81
Tax-Exempt Money PLUS - - - 0.74% 11/1/98
Tax-Free
Short-Intermediate 4.90 4.79 5.62 - 12/23/83
Tax-Free
Intermediate Bond 5.37 5.79 - 6.63 11/30/92
Tax-Free Income 5.48 6.33 7.84 - 10/26/76
Tax-Free High Yield 4.80 6.61 8.23 - 3/1/85
Investment returns represent past performance and will vary. Shares of the bond
funds may be worth more or less at redemption than at original purchase.
Investments in the Money Fund and PLUS Class shares are not insured or
guaranteed by the FDIC or any other government agency. Although they seek to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the fund and PLUS Class shares.
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Annual Meeting Results
The Tax-Free Intermediate Bond Fund held an annual meeting on October 15, 1998,
to elect directors of the fund, to amend the fund's investment objectives, and
to ratify the Board of Directors' selection of PricewaterhouseCoopers LLP as the
fund's independent accountants.
The results of voting were as follows (by number of shares):
For nominees to the Board of
Directors for the Tax-Free
Intermediate Bond Fund:
Calvin W. Burnett
In favor: 6,264,176.601
Withheld: 107,241.379
Anthony W. Deering
In favor: 6,282,061.082
Withheld: 89,356.898
F. Pierce Linaweaver
In favor: 6,269,403.700
Withheld: 102,014.280
William T. Reynolds
In favor: 6,282,440.529
Withheld: 88,977.451
James S. Riepe
In favor: 6,280,032.546
Withheld: 91,385.434
John G. Schreiber
In favor: 6,280,776.004
Withheld: 90,641.976
M. David Testa
In favor: 6,282,440.529
Withheld: 88,977.451
For PricewaterhouseCoopers LLP
as independent accountants:
In favor: 6,209,652.143
Withheld: 63,094.092
Abstained: 98,671.745
Amendment for investment objec-
tives to remove the requirement
that total assets be invested
primarily in insured bonds:
In favor: 4,892,656.486
Against: 851,482.266
Abstained: 434,617.228
Broker Non-Votes: 192,662.000
T. Rowe Price Shareholder Services
- --------------------------------------------------------------------------------
Investment Services And Information
KNOWLEDGEABLE SERVICE REPRESENTATIVES
By Phone 1-800-225-5132 Available Monday through Friday from 8 a.m. to
10 p.m. ET and weekends from 8:30 a.m. to 5 p.m. ET.
In Person Available in T. Rowe Price Investor Centers.
ACCOUNT SERVICES
Checking Available on most fixed income funds ($500 minimum).
Automatic Investing From your bank account or paycheck.
Automatic Withdrawal Scheduled, automatic redemptions.
Distribution Options Reinvest all, some, or none of your distributions.
Automated 24-Hour Services Including Tele*Access(registered trademark) and
the T. Rowe Price Web site on the Internet. Address: www.troweprice.com
BROKERAGE SERVICES*
Individual Investments Stocks, bonds, options, precious metals, and other
securities at a savings over full-service commission rates.
INVESTMENT INFORMATION
Combined Statement Overview of all your accounts with T. Rowe Price.
Shareholder Reports Fund managers' reviews of their strategies and results.
T. Rowe Price Report Quarterly investment newsletter discussing markets and
financial strategies.
Performance Update Quarterly review of all T. Rowe Price fund results.
Insights Educational reports on investment strategies and financial
markets.
Investment Guides Asset Mix Worksheet, College Planning Kit, Diversifying
Overseas: A Guide to International Investing, Personal Strategy Planner,
Retirees Financial Guide, and Retirement Planning Kit.
* T. Rowe Price Brokerage is a division of T. Rowe Price Investment
Services, Inc., Member NASD/SIPC.
For yield, price, last transaction,
current balance, or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access(registered trademark):
1-800-638-2587 toll free
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
410-625-6500 Baltimore area
To open a brokerage account
or obtain information, call:
1-800-638-5660 toll free
Internet address:
www.troweprice.com
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus of the
T. Rowe Price Tax-Free Funds.
Investor Centers:
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Baltimore, MD 21202
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T. Rowe Price
T. Rowe Price Investment Services, Inc., Distributor. C03-050 2/28/99
