Item 1: Report to Shareholders
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Tax-Free Income Fund | February 28, 2007 |
Fellow Shareholders
• The funds produced moderate returns during the past 6- and 12-month periods.
• The Fed has kept the fed funds rate at 5.25% since June 2006.
• Municipal bonds continue to be an appealing alternative for investors in higher tax brackets.
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Long-term municipals outperformed shorter-term issues in the last six months, as they have throughout our fiscal year. High-yield securities maintained their performance advantage as investors seeking higher returns continued to embrace risk, despite the diminishing yield advantage provided by high-yield over investment-grade securities. However, high yield’s performance advantage has been dwindling as lower-quality bond valuations reach more expensive levels.
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Tax-Free Short-Intermediate Fund
The fund outpaced its Lipper peer group average during the 6- and 12-month periods ended February 28, 2007, with returns of 1.69% and 3.31% versus Lipper’s 1.61% and 3.14%, respectively. Dividends per share went up $0.01 over the last six months, and the portfolio’s 30-day standardized yield to maturity and net asset value remained stable. The fund’s favorable performance relative to the benchmark is a result of our duration (a measure of sensitivity to changes in interest rates; see Glossary for a more detailed definition) and our investments in lower-quality, higher-yielding securities.
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Tax-Free High Yield Fund
Returns for the Tax-Free High Yield Fund were essentially in line with the Lipper average for the six-month period and slightly lagged for the one-year period. Lower-quality municipals again outperformed their AAA counterparts over both periods. Valuations in these sectors remain expensive by historical standards, as investors continued to add incremental yield in a range-bound, low-volatility interest rate environment.
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Our toll-road positions in the Southeast generated strong results for the year. Connector 2000 Association bonds (SC) implemented a toll increase, bolstering revenues for the system. The bonds continued to recover from their distressed levels earlier in the decade. The State of Virginia completed its sale of the Pocahontas Parkway in 2006, and the existing debt was escrowed in AAA securities.OUTLOOKWe thank you for your continued support.
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Joseph K. Lynagh
Chairman of the Investment Advisory Committee
Tax-Exempt Money Fund
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Charles B. Hill
Chairman of the Investment Advisory Committees
Tax-Free Short-Intermediate Fund
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Mary J. Miller
Chairman of the Investment Advisory Committee
Tax-Free Income Fund
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James M. Murphy
Chairman of the Investment Advisory Committee
Tax-Free High Yield Fund
Basis points: One hundred basis points equal one percentage point.
Lehman Brothers U.S. Aggregate Index: An unmanaged index made up of the Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed Securities Index, and Asset-Backed Securities Index, including securities of investment-grade quality or better, with at least one year to maturity, and an outstanding par value of at least $250 million.Libor rate: The London Interbank Offered Rate, which is a benchmark for short-term taxable rates.
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GROWTH OF $10,000 |
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AVERAGE ANNUAL COMPOUND TOTAL RETURN |
FUND EXPENSE EXAMPLE |
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The accompanying notes are an integral part of these financial statements.
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The accompanying notes are an integral part of these financial statements.
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The accompanying notes are an integral part of these financial statements.
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The accompanying notes are an integral part of these financial statements.
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The accompanying notes are an integral part of these financial statements.
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The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS |
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Tax-Free Income Fund, Inc. (the fund), is registered under the Investment Company Act of 1940 (the 1940 Act) as a diversified, open-end management investment company. The fund seeks to provide a high level of income exempt from federal income taxes by investing primarily in long-term investment-grade municipal securities. The fund has two classes of shares: the Tax-Free Income Fund original share class, referred to in this report as the Investor Class, offered since October 26, 1976, and Tax-Free Income Fund—Advisor Class (Advisor Class), offered since September 30, 2002. Advisor Class shares are sold only through unaffiliated brokers and other unaffiliated financial intermediaries that are compensated by the class for distribution, shareholder servicing, and/or certain administrative services under a Board-approved Rule 12b-1 plan. Each class has exclusive voting rights on matters related solely to that class, separate voting rights on matters that relate to both classes, and, in all other respects, the same rights and obligations as the other class.
The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of estimates made by fund management. Fund management believes that estimates and security valuations are appropriate; however, actual results may differ from those estimates, and the security valuations reflected in the financial statements may differ from the value the fund ultimately realizes upon sale of the securities.
Valuation The fund values its investments and computes its net asset value per share at the close of the New York Stock Exchange (NYSE), normally 4 p.m. ET, each day that the NYSE is open for business. Debt securities are generally traded in the over-the-counter market. Securities with original maturities of one year or more are valued at prices 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 valued at amortized cost in local currency, which approximates fair value when combined with accrued interest.
Options on futures contracts are valued at the last sale price. Financial futures contracts are valued at closing settlement prices. Swap agreements are valued at prices furnished by dealers who make markets in such securities.
Other investments, including restricted securities, and those 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 the T. Rowe Price Valuation Committee, established by the fund’s Board of Directors.
Class Accounting The Advisor Class pays distribution, shareholder servicing, and/or certain administrative expenses in the form of Rule 12b-1 fees, in an amount not exceeding 0.25% of the class’s average daily net assets. Shareholder servicing, prospectus, and shareholder report expenses incurred by each class are charged directly to the class to which they relate. Expenses common to both classes and investment income are allocated to the classes based upon the relative daily net assets of each class’s settled shares; realized and unrealized gains and losses are allocated based upon the relative daily net assets of each class’s outstanding shares.
Credits The fund earns credits on temporarily uninvested cash balances at the custodian that reduce the fund’s custody charges. Custody expense in the accompanying financial statements is presented before reduction for credits, which are reflected as expenses paid indirectly.
Investment Transactions, Investment Income, and Distributions Income and expenses are recorded on the accrual basis. Premiums and discounts on debt securities are amortized for financial reporting purposes. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Payments (“variation margin”) made or received to settle the daily fluctuations in the value of futures contracts are recorded as unrealized gains or losses until the contracts are closed. Net periodic receipts or payments required by swaps are accrued daily and recorded as realized gain or loss in the accompanying financial statements. Fluctuations in the fair value of swaps are reflected in change in net unrealized gain or loss and are reclassified to realized gain or loss upon termination prior to maturity. Distributions to shareholders are recorded on the ex-dividend date. Income distributions are declared by each class on a daily basis and paid monthly. Capital gain distributions, if any, are declared and paid by the fund, typically on an annual basis.
New Accounting Pronouncements In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes, a clarification of FASB Statement No. 109, Accounting for Income Taxes. FIN 48 establishes financial reporting rules regarding recognition and measurement of tax positions taken or expected to be taken on a tax return. Management is evaluating the anticipated impact, if any, that FIN 48 will have on the fund upon adoption, which, pursuant to a delay granted by the U.S. Securities and Exchange Commission, is expected to be on the last business day of the fund’s semi-annual period, August 31, 2007.
In September 2006, the FASB released the Statement of Financial Accounting Standard No. 157 (“FAS 157”), Fair Value Measurements. FAS 157 clarifies the definition of fair value and establishes the framework for measuring fair value, as well as proper disclosure of this methodology in the financial statements. It will be effective for the fund’s fiscal year beginning March 1, 2008. Management is evaluating the effects of FAS 157; however, it is not expected to have a material impact on the fund’s net assets or results of operations.
NOTE 2 - INVESTMENT TRANSACTIONS
Consistent with its investment objective, the fund engages in the following practices to manage exposure to certain risks or to enhance performance. The investment objective, policies, program, and risk factors of the fund are described more fully in the fund’s prospectus and Statement of Additional Information.
Futures Contracts During the year ended February 28, 2007, the fund was a party to futures contracts, which provide for the future sale by one party and purchase by another of a specified amount of a specific financial instrument at an agreed upon price, date, time, and place. Risks arise from possible illiquidity of the futures market and from movements in security values and/or interest rates.
Options Call and put options on futures contracts give the holder the right to purchase or sell, respectively, a particular futures contract at a specified price on a certain date. Risks arise from possible illiquidity of the options market and from movements in underlying futures prices. Purchased options are reflected in the accompanying Portfolio of Investments at market value.
Swaps During the year ended February 28, 2007, the fund was a party to interest rate swaps under which it is obligated to exchange cash flows based on the difference between specified interest rates applied to a notional principal amount for a specified period of time. Risks arise from the possible inability of counterpar-ties to meet the terms of their agreements and from movements in interest rates.
Other Purchases and sales of portfolio securities, other than short-term securities, aggregated $577,168,000 and $489,967,000, respectively, for the year ended February 28, 2007.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code and distribute to shareholders all of its income and gains. Federal income tax regulations differ from generally accepted accounting principles; therefore, distributions determined in accordance with tax regulations may differ significantly in amount or character from net investment income and realized gains for financial reporting purposes. Financial reporting records are adjusted for permanent book/tax differences to reflect tax character. Financial records are not adjusted for temporary differences.
Distributions during the year ended February 28, 2007, totaled $78,528,000 and were characterized as tax-exempt income for tax purposes. At February 28, 2007, the tax-basis components of net assets were as follows:
Federal income tax regulations require the fund to defer recognition of capital losses realized on certain covered option and or futures transactions; accordingly, $2,399,000 of realized losses reflected in the accompanying financial statements have not been recognized for tax purposes as of February 28, 2007. For federal income tax purposes, market discount is recognized as income at the time of sale in the amount of the lesser of gain or scheduled amortization. Accordingly, at February 28, 2007, amortization of $2,200,000 that has been recognized as income for financial reporting purposes is treated as unrealized appreciation for tax purposes.
For the year ended February 28, 2007, the fund recorded the following permanent reclassifications to reflect tax character. Reclassifications to paid-in capital relate primarily to a tax practice that treats a portion of the proceeds from each redemption of capital shares as a distribution of taxable net investment income and/or realized capital gain. Results of operations and net assets were not affected by these reclassifications.
At February 28, 2007, the cost of investments for federal income tax purposes was $1,732,299,000.
NOTE 4 - RELATED PARTY TRANSACTIONS
The fund is managed by T. Rowe Price Associates, Inc. (the manager or Price Associates), a wholly owned subsidiary of T. Rowe Price Group, Inc. The investment management agreement between the fund and the manager provides for an annual investment management fee, which is computed daily and paid monthly. The fee consists of an individual fund fee, equal to 0.15% of the fund’s average daily net assets, and a group fee. The group fee rate is calculated based on the combined net assets of certain mutual funds sponsored by Price Associates (the group) applied to a graduated fee schedule, with rates ranging from 0.48% for the first $1 billion of assets to 0.29% for assets in excess of $160 billion. The fund’s group fee is determined by applying the group fee rate to the fund’s average daily net assets. At February 28, 2007, the effective annual group fee rate was 0.31%.
In addition, the fund has entered into service agreements with Price Associates and a wholly owned subsidiary of Price Associates (collectively, Price). Price Associates computes the daily share prices and provides certain other administrative services to the fund. T. Rowe Price Services, Inc., provides shareholder and administrative services in its capacity as the fund’s transfer and dividend disbursing agent. For the year ended February 28, 2007, expenses incurred pursuant to these service agreements were $123,000 for Price Associates and $439,000 for T. Rowe Price Services. The total amount payable at period-end pursuant to these service agreements is reflected as Due to Affiliates in the accompanying financial statements.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
To the Board of Directors and Shareholders of T. Rowe Price Tax-Free Income Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of T. Rowe Price Tax-Free Income Fund, Inc. (the “Fund”) at February 28, 2007, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at February 28, 2007 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
April 11, 2007
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED 2/28/07 |
We are providing this information as required by the Internal Revenue Code. The amounts shown may differ from those elsewhere in this report because of differences between tax and financial reporting requirements.
The fund’s distributions to shareholders included:
• $2,246,000 from short-term capital gains.
• $3,391,000 from long-term capital gains, subject to the 15% rate gains category.
• $78,341,000 which qualified as exempt-interest dividends.
INFORMATION ON PROXY VOTING POLICIES, PROCEDURES, AND RECORDS |
A description of the policies and procedures used by T. Rowe Price funds and portfolios to determine how to vote proxies relating to portfolio securities is available in each fund’s Statement of Additional Information, which you may request by calling 1-800-225-5132 or by accessing the SEC’s Web site, www.sec.gov. The description of our proxy voting policies and procedures is also available on our Web site, www.troweprice.com. To access it, click on the words “Company Info” at the top of our homepage for individual investors. Then, in the window that appears, click on the “Proxy Voting Policy” navigation button in the top left corner.
Each fund’s most recent annual proxy voting record is available on our Web site and through the SEC’s Web site. To access it through our Web site, follow the directions above, then click on the words “Proxy Voting Record” at the bottom of the Proxy Voting Policy page.
HOW TO OBTAIN QUARTERLY PORTFOLIO HOLDINGS |
The fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available electronically on the SEC’s Web site (www.sec.gov); hard copies may be reviewed and copied at the SEC’s Public Reference Room, 450 Fifth St. N.W., Washington, DC 20549. For more information on the Public Reference Room, call 1-800-SEC-0330.
ABOUT THE FUND’S DIRECTORS AND OFFICERS |
Your fund is governed by a Board of Directors that meets regularly to review a wide variety of matters affecting the fund, including performance, investment programs, compliance matters, advisory fees and expenses, service providers, and other business affairs. The Board of Directors elects the fund’s officers, who are listed in the final table. At least 75% of Board members are independent of T. Rowe Price Associates, Inc. (T. Rowe Price), and T. Rowe Price International, Inc. (T. Rowe Price International); “inside” or “interested” directors are employees or officers of T. Rowe Price. The business address of each director and officer is 100 East Pratt Street, Baltimore, Maryland 21202. The Statement of Additional Information includes additional information about the fund directors and is available without charge by calling a T. Rowe Price representative at 1-800-225-5132.
Independent Directors | |
Name | |
(Year of Birth) | Principal Occupation(s) During Past 5 Years and Directorships of |
Year Elected * | Other Public Companies |
Jeremiah E. Casey | Director, Allfirst Financial Inc. (previously First Maryland Bankcorp) |
(1940) | (1983 to 2002); Director, National Life Insurance (2001 to 2005); |
2006 | Director, The Rouse Company, real estate developers (1990 to 2004) |
Anthony W. Deering | Chairman, Exeter Capital, LLC, a private investment firm (2004 to |
(1945) | present); Director, Vornado Real Estate Investment Trust (3/04 to |
1983 | present); Director, Mercantile Bankshares (4/03 to present); Member, |
Advisory Board, Deutsche Bank North America (2004 to present); | |
Director, Chairman of the Board, and Chief Executive Officer, The | |
Rouse Company, real estate developers (1997 to 2004) | |
Donald W. Dick, Jr. | Principal, EuroCapital Advisors, LLC, an acquisition and management |
(1943) | advisory firm; Chairman, The Haven Group, a custom manufacturer of |
2001 | modular homes (1/04 to present) |
David K. Fagin | Chairman and President, Nye Corporation (6/88 to present); Director, |
(1938) | Canyon Resources Corp. (5/00 to present); Director, Golden Star |
2001 | Resources Ltd. (5/92 to present); Director, Pacific Rim Mining |
Corp. (2/02 to present) | |
Karen N. Horn | Director, Federal National Mortgage Association (9/06 to present); |
(1943) | Managing Director and President, Global Private Client Services, Marsh |
2003 | Inc. (1999 to 2003); Managing Director and Head of International |
Private Banking, Bankers Trust (1996 to 1999); Director, Georgia Pacific | |
(5/04 to 12/05), Eli Lilly and Company, and Simon Property Group | |
Theo C. Rodgers | President, A&R Development Corporation (1977 to present) |
(1941) | |
2005 |
John G. Schreiber | Owner/President, Centaur Capital Partners, Inc., a real estate invest- |
(1946) | ment company; Partner, Blackstone Real Estate Advisors, L.P. |
1992 | |
* Each independent director oversees 118 T. Rowe Price portfolios and serves until retirement, resignation, or | |
election of a successor. |
Inside Directors | |
Name | |
(Year of Birth) | |
Year Elected * | |
[Number of T. Rowe Price | Principal Occupation(s) During Past 5 Years and |
Portfolios Overseen] | Directorships of Other Public Companies |
Edward C. Bernard | Director and Vice President, T. Rowe Price and T. Rowe Price Group, |
(1956) | Inc.; Chairman of the Board, Director, and President, T. Rowe Price |
2006 | Investment Services, Inc.; Chairman of the Board and Director, |
[118] | T. Rowe Price Retirement Plan Services, Inc., T. Rowe Price Services, |
Inc., and T. Rowe Price Savings Bank; Director, T. Rowe Price Global | |
Asset Management Limited, T. Rowe Price Global Investment Services | |
Limited, and T. Rowe Price International, Inc.; Chief Executive Officer, | |
Chairman of the Board, Director, and President, T. Rowe Price Trust | |
Company; Chairman of the Board, all funds | |
Mary J. Miller, CFA | Director, T. Rowe Price Trust Company; Director and Vice President, |
(1955) | T. Rowe Price; Vice President, T. Rowe Price Group, Inc.; President, |
2004 | Tax-Free Income Fund; Vice President, Tax-Exempt Money, Tax-Free |
[37] | High Yield, and Tax-Free Short-Intermediate Funds |
* Each inside director serves until retirement, resignation, or election of a successor. |
Officers | |
Name (Year of Birth) | |
Title and Fund(s) Served | Principal Occupation(s) |
R. Lee Arnold, Jr. (1970) | Vice President, T. Rowe Price, T. Rowe Price |
Executive Vice President, Tax-Free High | Group, Inc., and T. Rowe Price International, Inc. |
Yield Fund | |
Steven G. Brooks, CFA (1954) | Vice President, T. Rowe Price and T. Rowe Price |
Vice President, Tax-Exempt Money Fund | Group, Inc. |
Joseph A. Carrier, CPA (1960) | Vice President, T. Rowe Price, T. Rowe Price |
Treasurer, all tax-free funds | Group, Inc., T. Rowe Price Investment Services, |
Inc., and T. Rowe Price Trust Company | |
Jonathan M. Chirunga (1966) | Vice President, T. Rowe Price |
Vice President, Tax-Free Income Fund | |
M. Helena Condez (1962) | Assistant Vice President, T. Rowe Price |
Assistant Vice President, Tax-Exempt | |
Money Fund | |
G. Richard Dent (1960) | Vice President, T. Rowe Price and T. Rowe Price |
Vice President, Tax-Exempt Money, Tax-Free | Group, Inc. |
High Yield, and Tax-Free Income Funds | |
Roger L. Fiery III, CPA (1959) | Vice President, T. Rowe Price, T. Rowe Price |
Vice President, all tax-free funds | Group, Inc., T. Rowe Price International, Inc., |
and T. Rowe Price Trust Company | |
John R. Gilner (1961) | Chief Compliance Officer and Vice President, |
Chief Compliance Officer, all tax-free funds | T. Rowe Price; Vice President, T. Rowe Price |
Group, Inc., and T. Rowe Price Investment | |
Services, Inc. | |
Gregory S. Golczewski (1966) | Vice President, T. Rowe Price and T. Rowe Price |
Vice President, all tax-free funds | Trust Company |
Charles B. Hill, CFA (1961) | Vice President, T. Rowe Price and T. Rowe Price |
President, Tax-Free Short-Intermediate Fund; | Group, Inc. |
Vice President, Tax-Free High Yield and Tax-Free | |
Income Funds |
Henry H. Hopkins (1942) | Director and Vice President, T. Rowe Price |
Vice President, all tax-free funds | Investment Services, Inc., T. Rowe Price |
Services, Inc., and T. Rowe Price Trust | |
Company; Vice President, T. Rowe Price, | |
T. Rowe Price Group, Inc., T. Rowe Price | |
International, Inc., and T. Rowe Price | |
Retirement Plan Services, Inc. | |
T. Dylan Jones (1971) | Assistant Vice President, T. Rowe Price |
Assistant Vice President, Tax-Exempt | |
Money Fund | |
Philip J. Kligman, CFA (1974) | Assistant Vice President, T. Rowe Price |
Assistant Vice President, Tax-Free High Yield | |
and Tax-Free Short-Intermediate Funds | |
Marcy M. Lash (1963) | Vice President, T. Rowe Price and T. Rowe Price |
Vice President, all tax-free funds | Group, Inc. |
Alan D. Levenson, Ph.D. (1958) | Vice President, T. Rowe Price and T. Rowe Price |
Vice President, Tax-Exempt Money Fund | Group, Inc. |
Patricia B. Lippert (1953) | Assistant Vice President, T. Rowe Price and |
Secretary, all tax-free funds | T. Rowe Price Investment Services, Inc. |
Joseph K. Lynagh, CFA (1958) | Vice President, T. Rowe Price and T. Rowe Price |
President, Tax-Exempt Money Fund | Group, Inc. |
Konstantine B. Mallas (1963) | Vice President, T. Rowe Price and T. Rowe Price |
Vice President, Tax-Free High Yield, Tax-Free | Group, Inc. |
Income, and Tax-Free Short-Intermediate Funds | |
James M. McDonald (1949) | Vice President, T. Rowe Price, T. Rowe Price |
Vice President, Tax-Exempt Money Fund | Group, Inc., and T. Rowe Price Trust Company |
Hugh D. McGuirk, CFA (1960) | Vice President, T. Rowe Price and T. Rowe Price |
Vice President, Tax-Free High Yield, Tax-Free | Group, Inc. |
Income, and Tax-Free Short-Intermediate Funds | |
James M. Murphy, CFA (1967) | Vice President, T. Rowe Price and T. Rowe Price |
President, Tax-Free High Yield Fund; Vice | Group, Inc. |
President, Tax-Free Income Fund |
Timothy G. Taylor, CFA (1975) | Vice President, T. Rowe Price |
Assistant Vice President, Tax-Free High Yield, | |
Tax-Free Income, and Tax-Free Short- | |
Intermediate Funds | |
Julie L. Waples (1970) | Vice President, T. Rowe Price |
Vice President, all tax-free funds | |
Edward A. Wiese, CFA (1959) | Vice President, T. Rowe Price, T. Rowe Price |
Vice President, Tax-Exempt Money and Tax-Free | Group, Inc., and T. Rowe Price Trust Company; |
Short-Intermediate Funds | Chief Investment Officer, Director, and Vice |
President, T. Rowe Price Savings Bank | |
Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe Price International for at | |
least five years. |
Item 2. Code of Ethics.
The registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR, applicable to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of this code of ethics is filed as an exhibit to this Form N-CSR. No substantive amendments were approved or waivers were granted to this code of ethics during the period covered by this report.
Item 3. Audit Committee Financial Expert.
The registrant’s Board of Directors/Trustees has determined that Mr. Donald W. Dick Jr. qualifies as an audit committee financial expert, as defined in Item 3 of Form N-CSR. Mr. Dick is considered independent for purposes of Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
(a) – (d) Aggregate fees billed to the registrant for the last two fiscal years for professional services rendered by the registrant’s principal accountant were as follows:
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Audit fees include amounts related to the audit of the registrant’s annual financial statements and services normally provided by the accountant in connection with statutory and regulatory filings. Audit-related fees include amounts reasonably related to the performance of the audit of the registrant’s financial statements and specifically include the issuance of a report on internal controls and, if applicable, agreed-upon procedures related to fund acquisitions. Tax fees include amounts related to services for tax compliance, tax planning, and tax advice. The nature of these services specifically includes the review of distribution calculations and the preparation of Federal, state, and excise tax returns. Reclassification from tax fees to audit fees of fiscal 2006 amounts related to the auditing of tax disclosures within the registrant’s annual financial statements has been made in order to conform to fiscal 2007 presentation. All other fees include the registrant’s pro-rata share of amounts for agreed-upon procedures in conjunction with service contract approvals by the registrant’s Board of Directors/Trustees.
(e)(1) The registrant’s audit committee has adopted a policy whereby audit and non-audit services performed by the registrant’s principal accountant for the registrant, its investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant require pre-approval in advance at regularly scheduled audit committee meetings. If such a service is required between regularly scheduled audit committee meetings, pre-approval may be authorized by one audit committee member with ratification at the next scheduled audit committee meeting. Waiver of pre-approval for audit or non-audit services requiring fees of a de minimis amount is not permitted.
(2) No services included in (b) – (d) above were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Less than 50 percent of the hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent fiscal year were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees.
(g) The aggregate fees billed for the most recent fiscal year and the preceding fiscal year by the registrant’s principal accountant for non-audit services rendered to the registrant, its investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant were $1,263,000 and $883,000, respectively, and were less than the aggregate fees billed for those same periods by the registrant’s principal accountant for audit services rendered to the T. Rowe Price Funds. Preceding fiscal year amount reflects the reclassification of tax fees described in (a) – (d) above.
(h) All non-audit services rendered in (g) above were pre-approved by the registrant’s audit committee. Accordingly, these services were considered by the registrant’s audit committee in maintaining the principal accountant’s independence.Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
Not applicable. The complete schedule of investments is included in Item 1 of this Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11. Controls and Procedures.
(a) The registrant’s principal executive officer and principal financial officer have evaluated the registrant’s disclosure controls and procedures within 90 days of this filing and have concluded that the registrant’s disclosure controls and procedures were effective, as of that date, in ensuring that information required to be disclosed by the registrant in this Form N-CSR was recorded, processed, summarized, and reported timely.
(b) The registrant’s principal executive officer and principal financial officer are aware of no change in the registrant’s internal control over financial reporting that occurred during the registrant’s second fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Exhibits.
(a)(1) The registrant’s code of ethics pursuant to Item 2 of Form N-CSR is attached.
(2) Separate certifications by the registrant's principal executive officer and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(a) under the Investment Company Act of 1940, are attached.
(3) Written solicitation to repurchase securities issued by closed-end companies: not applicable.
(b) A certification by the registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940, is attached.
SIGNATURES | |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment | |
Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the | |
undersigned, thereunto duly authorized. | |
T. Rowe Price Tax-Free Income Fund, Inc. | |
By | /s/ Edward C. Bernard |
Edward C. Bernard | |
Principal Executive Officer | |
Date | April 16, 2007 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment | |
Company Act of 1940, this report has been signed below by the following persons on behalf of | |
the registrant and in the capacities and on the dates indicated. | |
By | /s/ Edward C. Bernard |
Edward C. Bernard | |
Principal Executive Officer | |
Date | April 16, 2007 |
By | /s/ Joseph A. Carrier |
Joseph A. Carrier | |
Principal Financial Officer | |
Date | April 16, 2007 |