Item 1. Report to Shareholders
T. Rowe Price Tax-Free Income Fund
- --------------------------------------------------------------------------------
August 31, 2003
Certified
Semiannual
Report
This report is certified under the Sarbanes-Oxley Act of 2002, which requires
that public companies, including mutual funds, affirm that the information
provided in their annual and semiannual shareholder reports fully and fairly
represents their financial position.
T. Rowe Price Tax-Free Income Fund
- --------------------------------------------------------------------------------
Certified Semiannual Report (Unaudited)
Financial Highlights For a share outstanding throughout each period
- --------------------------------------------------------------------------------
Tax-Free Income shares
- --------------------------------------------------------------------------------
6 Months Year
Ended Ended
8/31/03 2/28/03 2/28/02 2/28/01 2/29/00 2/28/99
- --------------------------------------------------------------------------------
NET ASSET VALUE
Beginning
of period $ 10.05 $ 9.81 $ 9.72 $ 9.10 $ 9.94 $ 9.95
Investment
activities
Net investment
income (loss) 0.22 0.47 0.48 0.49 0.49 0.50
Net realized
and unrealized
gain (loss) (0.26) 0.24 0.09 0.62 (0.83) 0.03
Total from
investment
activities (0.04) 0.71 0.57 1.11 (0.34) 0.53
Distributions
Net investment
income (0.22) (0.47) (0.48) (0.49) (0.49) (0.50)
Net realized
gain -- -- -- -- (0.01) (0.04)
Total
distributions (0.22) (0.47) (0.48) (0.49) (0.50) (0.54)
NET ASSET VALUE
End of period $ 9.79 $ 10.05 $ 9.81 $ 9.72 $ 9.10 $ 9.94
-----------------------------------------------------------------
Ratios/Supplemental Data
Total return^ (0.38)% 7.42% 5.99% 12.55% (3.42)% 5.48%
Ratio of total
expenses to
average
net assets 0.54%! 0.55% 0.54% 0.54% 0.55% 0.55%
Ratio of net
investment
income
(loss) to
average
net assets 4.50%! 4.78% 4.95% 5.25% 5.24% 5.06%
Portfolio
turnover rate 33.4%! 24.4% 28.2% 28.6% 44.3% 34.1%
Net assets,
end of period
(in millions) $ 1,443 $ 1,501 $ 1,442 $ 1,403 $1,311 $ 1,483
^ 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 Tax-Free Income Fund
- --------------------------------------------------------------------------------
Certified Semiannual Report (Unaudited)
Financial Highlights For a share outstanding throughout each period
- --------------------------------------------------------------------------------
Tax-Free Income-Advisor Class shares
- --------------------------------------------------------------------------------
6 Months 9/30/02
Ended Through
8/31/03 2/28/03
- --------------------------------------------------------------------------------
NET ASSET VALUE
Beginning of period $ 10.05 $ 10.13
Investment activities
Net investment income 0.21 0.18*
Net realized and
unrealized gain (loss) (0.25) (0.08)**
Total from investment activities (0.04) 0.10
Distributions
Net investment income (0.21) (0.18)
NET ASSET VALUE
End of period $ 9.80 $ 10.05
-------------------------------------
Ratios/Supplemental Data
Total return^ (0.43)% 1.02%*
Ratio of total expenses to
average net assets 0.74%! 0.90%*!
Ratio of net investment
income (loss) to average
net assets 4.08%! 4.48%*!
Portfolio turnover rate 33.4%! 24.4%
Net assets, end of period
(in thousands) $ 92,967 $ 147
* Excludes expenses in excess of a 0.90% contractual expense limitation in
effect through 6/30/04.
** The amount presented is calculated pursuant to a methodology prescribed by
the Securities and Exchange Commission for a share outstanding throughout
the period. This amount is inconsistent with the fund's aggregate gains and
losses because of the timing of sales and redemptions of fund shares in
relation to fluctuating market values for the investment portfolio.
^ 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 Tax-Free Income Fund
- --------------------------------------------------------------------------------
Certified Semiannual Report (Unaudited) August 31, 2003
Statement of Net Assets Par Value
- --------------------------------------------------------------------------------
In thousands
ALABAMA 1.6%
Alabama Water Pollution Control Auth.
6.75%, 8/15/17 (AMBAC Insured) $ 2,685 $ 2,934
Alexander Special Care Fac. Fin.,
Russell Hosp.
6.00%, 12/1/22 1,000 944
Baldwin County Eastern Shore Hosp. Auth.
Thomas Hosp.
5.75%, 4/1/27 2,175 1,939
6.75%, 4/1/21 1,450 1,466
Camden Ind. Dev. Board, Weyerhaeuser,
6.125%, 12/1/24 2,500 2,514
Jefferson County Sewer Revenue
5.00%, 2/1/41
(Prerefunded 8/1/12!) (FGIC Insured) 5,385 5,846
Phoenix County IDB, PCR, MeadWestvaco,
6.10%, 5/15/30 3,750 3,765
Tuscaloosa County Board of Ed.,
VRDN (Currently 0.85%) 5,635 5,635
Total Alabama (Cost $24,966) 25,043
ALASKA 0.9%
Alaska HFC
5.30%, 12/1/17 2,760 2,832
5.85%, 12/1/14 (MBIA Insured) 1,705 1,740
5.875%, 12/1/24 (MBIA Insured) 5,510 5,613
Valdez Marine, Phillips Petroleum,
2.00%, 1/1/04 4,000 4,010
Total Alaska (Cost $13,683) 14,195
ARIZONA 1.6%
Arizona School Fac. Board, 5.50%, 7/1/18 5,000 5,385
Arizona Transportation Board, 5.00%, 7/1/13 5,000 5,376
Salt River Agricultural Improvement & Power
5.00%, 1/1/04 8,300 8,413
5.00%, 1/1/08 2,250 2,467
Scottsdale IDA, Scottsdale Healthcare,
5.80%, 12/1/31 2,000 2,007
Yavapai County IDA, Yavapai
Regional Medical Center
6.00%, 8/1/33 1,100 1,102
Total Arizona (Cost $24,292) 24,750
ARKANSAS 0.5%
Little Rock Health Fac. Board,
Baptist Health
6.85%, 11/1/08 $ 2,495 $ 2,878
North Little Rock, 6.50%, 7/1/15
(MBIA Insured) 4,000 4,795
Total Arkansas (Cost $6,478) 7,673
CALIFORNIA 7.4%
California, GO, 5.00%, 2/1/31
(MBIA Insured) 5,000 4,890
California Dept. of Water Resources
5.375%, 5/1/21 2,000 2,028
5.50%, 5/1/14 (AMBAC Insured) 5,000 5,484
5.75%, 5/1/17 3,000 3,218
Central Valley Project
5.00%, 12/1/13 (FGIC Insured) 8,000 8,588
California Infrastructure
& Economic Dev. Bank
Bay Area Toll
5.00%, 7/1/36 (AMBAC Insured) 10,700 10,464
California Statewide CDA
Community Hosp. of Monterey Peninsula
5.25%, 6/1/23 (FSA Insured) 2,000 2,024
Sutter Health
5.625%, 8/15/42 3,850 3,858
Foothill / Eastern Transportation
Corridor Agency
Zero Coupon, 1/1/15
(Escrowed to Maturity) 5,000 2,975
Zero Coupon, 1/1/17
(Escrowed to Maturity) 18,000 9,462
Zero Coupon, 1/1/26
(Escrowed to Maturity) 5,000 1,491
Los Angeles, GO
6.00%, 9/1/14 (Prerefunded 9/1/04!)
(MBIA Insured) 5,000 5,348
Los Angeles County, Marina del Rey,
COP, 6.50%, 7/1/08 3,250 3,348
Los Angeles Dept. of Water & Power
5.00%, 7/1/23 (MBIA Insured) 5,000 5,003
Los Angeles Harbor, 7.60%, 10/1/18
(Escrowed to Maturity) 3,440 4,256
Los Angeles Unified School Dist., GO
5.00%, 7/1/21 (FSA Insured) $ 7,500 $ 7,581
North Orange County Community College Dist.
5.00%, 2/1/27 (MBIA Insured) 7,000 6,922
Orange County
Residual Interest Bond / Inverse Floater
(Currently 10.62%), 7/1/19
(MBIA Insured) 3,000 3,651
San Francisco Public Utility Comm.
5.00%, 11/1/27 (FSA Insured) 8,000 7,892
Southern California Public Power Auth.,
6.75%, 7/1/11 4,050 4,808
Union Elementary School Dist., GO
Zero Coupon, 9/1/12 (FGIC Insured) 2,945 1,991
Zero Coupon, 9/1/13 (FGIC Insured) 3,520 2,238
Univ. of California Regents
5.125%, 5/15/15 (AMBAC Insured) 5,900 6,302
Total California (Cost $107,092) 113,822
COLORADO 0.7%
Colorado HFA
Adventist Health System, 6.50%, 11/15/31 2,500 2,671
Catholic Health Initiatives
VRDN (Currently 0.90%) 3,000 3,000
5.25%, 9/1/21 1,860 1,864
Covenant Retirement Communities,
6.125%, 12/1/33 2,000 1,942
E-470 Public Highway Auth.
Zero Coupon, 8/31/26
(Prerefunded 8/31/05!) 5,500 1,112
Total Colorado (Cost $10,259) 10,589
CONNECTICUT 1.4%
Connecticut
Special Tax Obligation
4.00%, 9/1/05 (FGIC Insured) 10,000 10,513
7.125%, 6/1/10 7,350 8,943
Mohegan Tribe Indians, 6.00%, 1/1/16 2,250 2,362
Total Connecticut (Cost $20,097) 21,818
DELAWARE 0.2%
Delaware HFA, Beebe Medical Center,
6.75%, 6/1/14 $ 3,500 $ 3,635
Total Delaware (Cost $3,444) 3,635
DISTRICT OF COLUMBIA 1.8%
District of Columbia, GO
5.25%, 6/1/27 (MBIA Insured) 8,645 8,718
6.00%, 6/1/14 (MBIA Insured) 4,400 5,043
6.00%, 6/1/15 (MBIA Insured) 1,550 1,783
6.00%, 6/1/17 (MBIA Insured) 3,250 3,738
District of Columbia
5.25%, 6/1/27 (Prerefunded 6/1/08!)
(MBIA Insured) 1,330 1,494
6.00%, 6/1/14 (Escrowed to Maturity)
(MBIA Insured) 2,305 2,687
District of Columbia Tobacco Corp.,
5.25%, 5/15/09 5,000 4,749
Total District of Columbia (Cost $25,808) 28,212
FLORIDA 2.9%
Dade County, Zero Coupon, 2/1/09
(MBIA Insured) 12,185 9,923
Florida Board of Ed., GO
5.00%, 6/1/05 1,425 1,515
5.00%, 1/1/15 (MBIA Insured) 10,185 10,835
5.50%, 7/1/14 (AMBAC Insured) 4,470 4,909
Highlands County HFA,
Adventist Health System/Sunbelt
6.00%, 11/15/31 2,750 2,862
Hillsborough IDA, Tampa Electric,
5.50%, 10/1/23 1,955 1,897
Jacksonville HFA, Genesis Rehabilitation Hosp.
VRDN (Currently 0.85%) 4,200 4,200
Orange County HFA, Westminster Community Care
6.75%, 4/1/34 2,500 1,910
Port St. Lucie Utility
Zero Coupon, 9/1/16
(Prerefunded 9/1/06!) (FGIC Insured) 5,000 2,651
Zero Coupon, 9/1/26
(Prerefunded 9/1/06!) (FGIC Insured) 5,000 1,392
Santa Rosa HFA, Baptist Health Care
VRDN (Currently 0.85%) $ 3,000 $ 3,000
Total Florida (Cost $43,715) 45,094
GEORGIA 6.5%
Albany-Dougherty County Hosp. Auth.
Phoebe Putney Memorial Hosp.
VRDN (Currently 0.81%) (AMBAC Insured) 1,700 1,700
Athens-Clarke County Unified Gov't. Dev. Auth.
Univ. of Georgia Athletic Assoc.
VRDN (Currently 0.85%) 4,500 4,500
Atlanta Airport
VRDN (Currently 0.80%) (MBIA Insured) 2,500 2,500
VRDN (Currently 0.82%) (MBIA Insured) 5,000 5,000
Atlanta Water & Sewer, VRDN (Currently 0.85%)
(FSA Insured) 1,000 1,000
Chatham County Hosp. Auth.
Memorial Univ. Medical Center,
6.125%, 1/1/24 4,000 4,206
Coweta County Residential Care Fac.
for the Elderly Wesley Woods
of Newnan-Peachtree City
8.20%, 10/1/16 1,350 1,411
8.25%, 10/1/26 1,800 1,885
DeKalb County Hosp. Auth.
DeKalb Regional Healthcare System
VRDN (Currently 0.85%) 2,000 2,000
DeKalb County Water & Sewage,
5.125%, 10/1/31 3,000 3,009
Forsyth County School Dist., GO,
5.75%, 2/1/18 2,800 3,078
Fulton-Dekalb Hosp. Auth.
Grady Memorial Hosp.
6.80%, 1/1/07 (Escrowed to Maturity)
(AMBAC Insured) 5,530 6,341
6.80%, 1/1/08 (Escrowed to Maturity)
(AMBAC Insured) 5,905 6,921
6.85%, 1/1/09 (Escrowed to Maturity)
(AMBAC Insured) 6,310 7,511
6.85%, 1/1/10 (Escrowed to Maturity)
(AMBAC Insured) 6,745 8,069
Georgia Private Colleges & Univ. Auth.
Emory Univ., 5.50%, 11/1/24 6,225 6,495
Gwinnett County School Dist., GO,
6.40%, 2/1/11 $ 1,905 $ 2,242
Metropolitan Atlanta Rapid Transit Auth.
6.90%, 7/1/16 (Prerefunded 7/1/04!)
(MBIA Insured) 5,655 6,046
Municipal Electric Auth. of Georgia
5.50%, 1/1/20 3,000 3,240
5.70%, 1/1/19 (FGIC Insured) 5,100 5,671
6.40%, 1/1/07 (Escrowed to Maturity)
(AMBAC Insured) 7,500 8,478
7.25%, 1/1/24 (AMBAC Insured) 6,500 8,402
Total Georgia (Cost $90,165) 99,705
HAWAII 0.5%
Hawaii Airport System, 5.75%,
7/1/21 (FGIC Insured) 4,000 4,268
Hawaii Dept. of Budget & Fin.,
Hawaii Pacific Health
6.25%, 7/1/21 4,000 4,078
Total Hawaii (Cost $7,814) 8,346
IDAHO 0.2%
Nez Perce County IDRB, PCR, Potlatch,
7.00%, 12/1/14 2,600 2,616
Total Idaho (Cost $2,600) 2,616
ILLINOIS 3.7%
Chicago
6.75%, 1/1/35 (Prerefunded 7/1/10!)
(FGIC Insured) 5,000 6,040
Chicago, GO
5.50%, 1/1/14 (FSA Insured) 5,000 5,514
5.50%, 1/1/18 (AMBAC Insured) 3,880 4,239
Chicago O'Hare Int'l. Airport,
United Airlines
6.30%, 5/1/16 * 4,555 1,002
Chicago Water, 5.75%, 11/1/30
(AMBAC Insured) 1,400 1,551
Illinois
5.50%, 6/15/16 2,000 2,164
6.125%, 6/15/16 2,000 2,260
Illinois EFA, Northwestern Univ.,
5.25%, 11/1/14 4,000 4,335
Illinois HFA
Herman M. Finch Univ.
VRDN (Currently 0.85%) $ 3,000 $ 3,000
Glen Oaks Medical Center
7.00%, 11/15/19 (Escrowed to Maturity) 3,300 3,402
Metropolitan Pier & Expo Auth.
Zero Coupon, 6/15/08 (FGIC Insured) 130 112
Zero Coupon, 6/15/18 (FGIC Insured) 14,160 6,616
Zero Coupon, 12/15/24 (MBIA Insured) 10,000 3,060
Regional Transportation Auth.
6.70%, 11/1/21 (FGIC Insured) 5,000 6,129
7.75%, 6/1/19 (FGIC Insured) 5,350 7,133
Total Illinois (Cost $54,759) 56,557
INDIANA 1.2%
Goshen, Greencroft Obligated Group,
5.75%, 8/15/19 3,000 2,723
Indiana HFFA, Clarian Health Partners,
5.50%, 2/15/16 6,705 6,908
Indiana State Office Building Commission, GO
5.50%, 7/1/20 (AMBAC Insured) 4,500 4,681
Indiana Transportation Fin. Auth.,
5.375%, 12/1/25 4,000 4,102
Total Indiana (Cost $17,554) 18,414
IOWA 0.7%
Iowa Fin. Auth.
Single Family Mortgage, 5.70%, 1/1/27 4,150 4,241
Wesley Retirement Services, 6.25%, 2/1/12 2,400 2,362
Scott County, Ridgecrest Village,
7.25%, 11/15/26 4,000 4,044
Total Iowa (Cost $10,248) 10,647
LOUISIANA 0.4%
Calcasieu Parish, PCR, Entergy,
5.45%, 7/1/10 1,750 1,698
West Feliciana Parish PCR, Entergy,
5.65%, 9/1/04 5,000 5,098
Total Louisiana (Cost $6,750) 6,796
MAINE 0.2%
Maine Housing Auth., 6.10%, 11/15/15
(AMBAC Insured) 3,000 3,148
Total Maine (Cost $3,000) 3,148
MARYLAND 3.4%
Baltimore City, Convention Center
6.00%, 9/1/17 (Prerefunded 9/1/04!)
(FGIC Insured) $ 1,750 $ 1,837
Baltimore County, GO, VRDN
(Currently 0.90%) 1,000 1,000
Baltimore County Mortgage, Springhill Housing
VRDN (Currently 0.85%)
(GNMA Guaranteed) 1,000 1,000
Baltimore IDA, GO, VRDN (Currently 0.83%) 1,300 1,300
Calvert County Economic Dev.
Asbury Solomons Obligation Group
VRDN (Currently 0.85%) 2,700 2,700
Frederick County EFA, Hood College
VRDN (Currently 0.85%) 1,660 1,660
Maryland CDA
Single Family
5.95%, 4/1/16 5,000 5,219
6.45%, 4/1/14 2,000 2,054
Maryland HHEFA
Catholic Health Initiatives,
VRDN (Currently 0.90%) 2,100 2,100
Charlestown Community Health
VRDN (Currently 0.84%) 1,030 1,030
Johns Hopkins Hosp., Zero Coupon, 7/1/19 7,675 3,409
Loyola College
VRDN (Currently 0.92%) (MBIA Insured) 400 400
Mercy Ridge Retirement Community
6.00%, 4/1/35 2,535 2,437
Sheppard & Enoch Pratt Foundation
Residual Interest Bond / Inverse Floater
(Currently 1.05%), 7/1/28 (RAA Insured) 5,000 5,000
Univ. of Maryland Medical System
7.00%, 7/1/22 (FGIC Insured) 1,500 1,857
Prince George's County, Dimensions Health,
5.30%, 7/1/24 6,685 4,336
Univ. of Maryland, 5.75%, 4/1/17
(Prerefunded 4/1/06!) 5,000 5,546
Washington Suburban Sanitary District, GO
VRDN (Currently 0.83%) 10,000 10,000
Total Maryland (Cost $52,129) 52,885
MASSACHUSETTS 5.8%
Massachusetts, GO
5.25%, 8/1/16 $ 10,000 $ 10,660
Central Artery
VRDN (Currently 0.87%) 4,750 4,750
Massachusetts Bay Transportation Auth., GO
7.00%, 3/1/14 3,150 3,869
7.00%, 3/1/21 6,200 7,732
Massachusetts Dev. Fin. Agency, Boston Univ.
5.375%, 5/15/39 (XLCA Insured) 5,000 5,058
Massachusetts HEFA
Harvard Univ.
5.00%, 7/15/22 7,450 7,594
6.00%, 7/1/35 (Prerefunded 7/1/10!) 3,500 4,093
6.25%, 4/1/20 5,000 5,892
Partners Healthcare System, 5.75%, 7/1/32 4,400 4,525
Massachusetts Housing Fin. Agency,
6.30%, 12/1/14 2,900 3,009
Massachusetts Municipal Wholesale Electric
5.25%, 7/1/04 (MBIA Insured) 7,000 7,244
Massachusetts Port Auth., 5.75%, 7/1/29 5,000 5,143
Massachusetts Water Pollution Abatement Trust
5.00%, 8/1/32 5,000 4,954
5.25%, 8/1/20 3,750 3,882
5.75%, 8/1/29 5,000 5,337
6.00%, 8/1/19 5,000 5,772
Total Massachusetts (Cost $83,615) 89,514
MICHIGAN 1.7%
Michigan Building Auth., GO,
5.50%, 10/15/19 5,000 5,354
Michigan Hosp. Fin. Auth.
Ascension Health, 5.25%, 11/15/26 3,570 3,509
Trinity Health, 6.00%, 12/1/20 1,500 1,611
Michigan Public Power Agency, 5.25%, 1/1/18
(MBIA Insured) 2,750 2,945
Michigan Strategic Fund, IDRB, Detroit Edison,
5.45%, 9/1/29 5,750 5,788
Univ. of Michigan Board of Trustees
VRDN (Currently 0.80%) 3,300 3,300
Univ. of Michigan
Univ. of Michigan Hosp.
VRDN (Currently 0.80%) $ 2,300 $ 2,300
Univ. of Michigan Medical Savings Plan
VRDN (Currently 0.85%) 800 800
Total Michigan (Cost $25,227) 25,607
MINNESOTA 0.7%
Minneapolis & St. Paul Metropolitan Airport
5.25%, 1/1/32 (FGIC Insured) 10,000 10,066
Total Minnesota (Cost $9,741) 10,066
MISSISSIPPI 1.1%
Gulfport Hosp. Fac., Memorial Hosp.
at Gulfport
5.75%, 7/1/31 3,500 3,552
Mississippi, GO, 5.25%, 11/1/14 4,000 4,386
Mississippi Business Fin., PCR, Entergy,
5.90%, 5/1/22 7,000 6,883
Warren County, PCR, Entergy, 7.00%, 4/1/22 1,500 1,524
Total Mississippi (Cost $16,281) 16,345
MISSOURI 0.3%
Good Shepherd Nursing Home Dist.,
5.90%, 8/15/23 2,000 1,749
Missouri Environmental Improvement
& Energy Resource Auth.
5.375%, 7/1/18 2,595 2,836
Total Missouri (Cost $4,795) 4,585
MONTANA 0.6%
Forsyth PCR, Puget Sound Energy
5.00%, 3/1/31 (AMBAC Insured) 10,000 9,897
Total Montana (Cost $10,288) 9,897
NEBRASKA 0.5%
Lincoln Electric Systems, 5.00%, 9/1/23 4,060 4,063
Omaha Public Power Dist.
6.20%, 2/1/17 (Escrowed to Maturity) 3,000 3,502
Total Nebraska (Cost $7,190) 7,565
NEVADA 1.9%
Clark County, Fuel Tax, 5.125%, 7/1/16
(AMBAC Insured) $ 10,870 $ 11,530
Clark County Airport, McCarran
Int'l. Airport
4.75%, 7/1/22 (MBIA Insured) 2,970 2,873
Clark County IDRB, PCR, Southwest Gas,
5.45%, 3/1/13 5,000 5,024
Clark County School Dist., GO, 7.00%,
6/1/11 (MBIA Insured) 3,500 4,245
Nevada, GO, 7.25%, 11/1/10
(Escrowed to Maturity) 3,050 3,094
Truckee Meadows Water Auth., 5.50%,
7/1/19 (FSA Insured) 2,500 2,670
Total Nevada (Cost $28,083) 29,436
NEW HAMPSHIRE 2.2%
New Hampshire Business Fin. Auth., PCR
Public Service Co. of New Hampshire
5.45%, 5/1/21 (MBIA Insured) 14,500 15,183
New Hampshire HHEFA
Covenant Health System, 6.00%, 7/1/22 3,400 3,480
Dartmouth-Hitchcock Obligation Group
5.50%, 8/1/27 (FSA Insured) 7,930 8,271
Wentworth-Douglas Hosp.
5.375%, 1/1/15 (MBIA Insured) 5,600 6,030
Total New Hampshire (Cost $31,960) 32,964
NEW JERSEY 0.8%
New Jersey Economic Dev. Auth., Harrogate
5.875%, 12/1/26 3,500 3,309
New Jersey HFFA
Pascack Valley Hosp. Assoc.
6.50%, 7/1/23 3,000 2,991
6.625%, 7/1/36 1,000 995
New Jersey Sports & Exhibition Auth.,
Monmouth Park
8.00%, 1/1/25 (Prerefunded 1/1/05!) 4,500 4,990
Total New Jersey (Cost $11,303) 12,285
NEW MEXICO 0.7%
Farmington PCR
El Paso Electric, 6.375%,
8/1/05 $ 2,500 $ 2,585
Public Service of New Mexico,
2.75%, 4/1/04 7,500 7,485
Total New Mexico (Cost $10,101) 10,070
NEW YORK 15.6%
Dormitory Auth. of the State of New York
VRDN (Currently 0.85%)
(FGIC Insured) 3,921 3,921
5.75%, 7/1/13 10,000 11,238
5.75%, 7/1/18 (AMBAC Insured) 5,000 5,677
5.75%, 5/15/19 (Prerefunded 5/15/10!)
(FGIC Insured) 4,945 5,691
State Univ. Ed. Fac.
5.25%, 5/15/19 3,325 3,551
6.00%, 7/1/14 10,000 11,383
State Univ. of New York
5.25%, 5/15/15 (AMBAC Insured) 3,600 3,929
Long Island Power Auth., 5.00%, 9/1/24 2,000 1,944
Metropolitan Transportation Auth.
5.00%, 4/1/29 (Prerefunded 10/1/14!)
(FSA Insured) 7,290 7,910
5.125%, 11/15/31 7,000 6,861
5.25%, 11/15/31 2,945 2,915
5.25%, 11/15/32 10,000 9,896
5.75%, 7/1/21 (Prerefunded 1/1/08!)
(MBIA Insured) 12,750 14,587
New York City, GO
5.50%, 6/1/21 7,500 7,728
6.00%, 12/1/18 (Escrowed to Maturity) 5,000 5,053
6.00%, 2/15/25 (Prerefunded 2/15/05!) 1,990 2,146
6.00%, 10/15/26 1,950 2,033
6.00%, 5/15/30 2,880 3,067
6.25%, 8/1/09 5,050 5,594
New York City Municipal Water Fin. Auth.
5.00%, 6/15/32 10,000 9,805
5.50%, 6/15/33 $ 9,000 $ 9,323
6.00%, 6/15/33 (Prerefunded 6/15/10!) 2,220 2,591
New York City Transitional Fin. Auth.
STEP, 5.25%, 2/1/29 16,640 17,842
5.75%, 11/15/20 4,990 5,454
5.75%, 11/15/20 (Prerefunded 5/15/10!) 510 587
6.00%, 8/15/17 (Prerefunded 8/15/09!) 4,000 4,692
New York State Environmental Fac. Corp., PCR
6.90%, 11/15/15 215 232
6.90%, 11/15/15 (Prerefunded 11/15/04!) 5,150 5,613
New York State Medical Care Fac.
6.50%, 8/15/24 (Prerefunded 8/15/04!) 5,895 6,319
6.50%, 8/15/29 (Prerefunded 2/15/05!)
(AMBAC Insured) 4,625 5,064
New York State Mortgage Agency,
5.70%, 4/1/16 4,090 4,244
New York State Thruway Auth.
5.00%, 4/1/19 (AMBAC Insured) 5,000 5,123
5.50%, 3/15/20 3,000 3,182
New York State Urban Dev. Corp.,
5.50%, 7/1/26 10,000 10,384
Tobacco Settlement Fin. Corp.,
5.50%, 6/1/19 2,500 2,572
Triborough Bridge & Tunnel Auth.
5.25%, 1/1/28 (Prerefunded 1/1/07!) 10,000 10,556
5.50%, 1/1/17 (Escrowed to Maturity) 18,275 20,365
Total New York (Cost $219,309) 239,072
NORTH CAROLINA 1.6%
Cumberland County, Civic Center
6.40%, 12/1/24 (Prerefunded 12/1/04!)
(AMBAC Insured) 2,750 2,986
North Carolina, GO, VRDN (Currently 0.88%) 960 960
North Carolina Eastern Municipal Power Agency
5.30%, 1/1/15 1,000 1,015
5.375%, 1/1/16 2,000 2,025
6.70%, 1/1/19 3,965 4,269
7.50%, 1/1/10 4,330 5,053
7.50%, 1/1/10 (Escrowed to Maturity) 4,650 5,763
North Carolina Municipal Power Agency,
Catawba Electric
5.50%, 1/1/13 2,250 2,390
Total North Carolina (Cost $21,966) 24,461
NORTH DAKOTA 0.3%
Mercer County, PCR, Basin Electric
Power Co-Op.
6.05%, 1/1/19 (AMBAC Insured) $ 4,500 $ 4,817
Total North Dakota (Cost $4,532) 4,817
OHIO 2.0%
Cuyahoga County, Cleveland Clinic
Obligation Group
6.00%, 1/1/32 5,000 5,218
Montgomery County Hosp.,
Catholic Health Initiatives
6.00%, 12/1/19 6,500 6,918
Ohio Air Quality Dev. Auth., PCR,
FirstEnergy, 5.80%, 12/1/04 5,950 6,091
Ohio State Univ.
5.25%, 6/1/14 3,005 3,260
5.25%, 12/1/16 5,000 5,314
Ohio Water Dev. Auth., PCR, FirstEnergy,
7.70%, 8/1/25 3,950 4,258
Total Ohio (Cost $30,097) 31,059
OKLAHOMA 0.5%
Jackson County Memorial Hosp. Auth.
Jackson County Memorial Hosp.
7.30%, 8/1/15 2,000 1,892
Tulsa County Home Fin. Auth.
6.90%, 8/1/10 (Escrowed to Maturity)
(FGIC Insured) 4,250 5,125
Total Oklahoma (Cost $6,039) 7,017
OREGON 0.5%
Oregon Housing & Community Services Dept.,
6.00%, 7/1/20 4,450 4,662
Umatilla County Hosp. Fac. Auth.
Catholic Health Initiatives,
5.50%, 3/1/22 2,210 2,256
Total Oregon (Cost $6,641) 6,918
PENNSYLVANIA 2.6%
Allegheny County Hosp. Dev. Auth.
West Penn Allegheny Health System
9.25%, 11/15/22 3,000 2,913
9.25%, 11/15/30 $ 200 $ 194
Beaver County IDA, PCR, FirstEnergy,
7.75%, 7/15/25 3,900 4,202
Chester County HEFA, Jefferson Health System
5.375%, 5/15/27 12,000 11,801
Cumberland County Municipal Auth.,
Wesley Affiliated Services
7.125%, 1/1/25 3,000 2,956
Pennsylvania Convention Center Auth.
6.70%, 9/1/14 (FSA Insured) 5,000 5,350
Pennsylvania Intergov't. Cooperative Auth.
6.75%, 6/15/21 (Prerefunded 6/15/05!)
(FGIC Insured) 4,750 5,205
Pennsylvania Turnpike Commission
5.50%, 7/15/33 (AMBAC Insured) 3,500 3,648
West Shore Area Auth., Holy Spirit Hosp.,
6.20%, 1/1/26 3,250 3,283
Total Pennsylvania (Cost $37,653) 39,552
RHODE ISLAND 0.1%
Tobacco Settlement Fin. Corp.,
6.125%, 6/1/32 2,500 1,987
Total Rhode Island (Cost $2,410) 1,987
SOUTH CAROLINA 2.7%
Connector 2000 Assoc.
Zero Coupon, 1/1/09 2,700 1,325
Zero Coupon, 1/1/10 3,400 1,516
Zero Coupon, 1/1/11 2,200 508
Zero Coupon, 1/1/29 20,500 925
Georgetown County PCR, Int'l. Paper,
5.70%, 4/1/14 4,000 4,181
Piedmont Municipal Power Agency
6.50%, 1/1/14 3,000 3,524
6.50%, 1/1/14 (Escrowed to Maturity)
(FGIC Insured) 500 602
South Carolina Public Service Auth.
5.875%, 1/1/23 (FGIC Insured) 8,030 8,717
6.25%, 1/1/22 (AMBAC Insured) 17,750 19,497
Total South Carolina (Cost $42,219) 40,795
TENNESSEE 1.6%
Chattanooga Health Ed.
& Housing Fac. Board
6.625%, 9/1/07 (Escrowed to Maturity)
(MBIA Insured) $ 2,950 $ 3,433
6.625%, 9/1/08 (Escrowed to Maturity)
(MBIA Insured) 3,150 3,731
Clarksville Public Building Auth., GO
VRDN (Currently 0.85%) 2,680 2,680
Metropolitan Nashville & Davidson Counties
Water & Sewer
7.70%, 1/1/12 (FGIC Insured) 6,250 7,829
Sevier County Public Building Auth., GO
VRDN (Currently 0.82%) (FSA Insured) 1,685 1,685
Shelby County Health Ed. & Housing Board
Le Bonhuer Children's Medical Center
5.50%, 8/15/12 (Escrowed to Maturity)
(MBIA Insured) 4,000 4,416
Total Tennessee (Cost $21,325) 23,774
TEXAS 8.3%
Abilene Health Fac. Dev. Corp.
Sears Methodist Retirement System
7.00%, 11/15/33 3,500 3,375
Amarillo Health Fac. Dev. Corp.
Sears Panhandle Retirement
7.75%, 8/15/26 (Prerefunded 8/15/06!) 5,000 5,936
Austin, 5.125%, 5/15/27 (FSA Insured) 10,955 10,942
Bell County Health Fac. Dev. Corp.
Scott & White Memorial Hosp.
VRDN (Currently 0.80%) (MBIA Insured) 2,000 2,000
Brazos River Auth., PCR, Centerpoint Energy,
7.75%, 12/1/18 4,000 4,317
Denison Hosp. Auth., Texoma Medical Center,
7.00%, 8/15/14 4,245 4,259
Harris County, GO, Zero Coupon,
8/15/04 (MBIA Insured) 6,000 5,939
Harris County Health Fac. Dev.
7.125%, 6/1/15 (Prerefunded 6/1/02!) 1,110 1,161
Memorial Hermann Healthcare System
6.375%, 6/1/29 4,000 4,234
St. Luke's Episcopal Hosp.
5.375%, 2/15/26 $ 5,500 $ 5,475
Texas Childrens Hosp.
VRDN (Currently 0.87%)
(MBIA Insured) 5,200 5,200
5.25%, 10/1/19 5,000 5,036
Harris County Hosp. Dist.
7.40%, 2/15/10 (Escrowed to Maturity)
(AMBAC Insured) 625 704
Houston
6.40%, 6/1/27 4,250 4,601
GO, 5.50%, 3/1/18 (FSA Insured) 2,750 2,937
Houston Airport Systems
5.50%, 7/1/18 (FSA Insured) 2,265 2,417
5.50%, 7/1/19 (FSA Insured) 2,000 2,120
Houston Higher Ed. Fin. Corp., Rice Univ.
5.375%, 11/15/29 11,450 11,685
Houston Independent School Dist., GO
5.00%, 7/15/20 (FSA Insured) 3,000 3,035
Houston Water & Sewer System
5.75%, 12/1/18 (AMBAC Insured) 3,000 3,284
Lower Colorado River Auth., 6.00%,
5/15/12 (FSA Insured) 6,095 6,886
Sabine River Auth., PCR
TXU Energy
4.00%, 11/1/03 3,500 3,507
5.50%, 11/1/11 4,580 4,732
5.80%, 7/1/22 1,500 1,450
Intl. Paper, 6.20%, 2/1/25 2,500 2,537
San Antonio Electric & Gas, VRDN
(Currently 0.95%) 5,000 5,000
Texas A&M Univ.
5.375%, 5/15/16 4,750 5,087
5.375%, 5/15/18 2,570 2,719
Texas Dept. of Housing & Community Affairs
6.40%, 1/1/27 3,500 3,552
Texas Water Dev. Board, VRDN
(Currently 0.85%) 295 295
Univ. of Texas, Board of Regents,
5.25%, 8/15/17 2,925 3,160
Total Texas (Cost $122,081) 127,582
VERMONT 0.4%
Vermont Ed. & Health Buildings Fin. Agency
Fletcher Allen Healthcare
VR, 6.15%, 9/1/13 (FGIC Insured) $ 4,650 $ 4,760
VR, 6.25%, 9/1/23 (FGIC Insured) 2,000 2,047
Total Vermont (Cost $6,650) 6,807
VIRGINIA 2.6%
Chesapeake IDA, PCR, Virginia
Electric & Power
5.25%, 2/1/08 3,000 3,104
Fairfax County Water Auth.
6.00%, 4/1/22 3,835 4,236
6.00%, 4/1/22 (Prerefunded 4/1/07!) 3,815 4,373
Fredericksburg IDA, Medicorp Health System,
5.25%, 6/15/27 2,750 2,663
Greater Richmond Convention Center,
6.125%, 6/15/29 8,550 9,236
Henrico County Economic Dev. Auth.
Bon Secours Health System
5.75%, 11/15/04 (Prerefunded 11/15/04!) 10,000 10,556
Virginia Resources Auth.
Goochland County Water & Sewer
Zero Coupon, 11/1/18 1,680 777
Zero Coupon, 11/1/21 1,615 616
Virginia Transportation Board,
5.25%, 5/15/20 4,620 4,797
Total Virginia (Cost $37,721) 40,358
WASHINGTON 5.4%
Chelan County Public Utility Dist.,
Rock Island Hydro
Zero Coupon, 6/1/18 (MBIA Insured) 10,100 4,618
King County Public Hosp.,
Valley Medical Center
5.75%, 9/1/20 (AMBAC Insured) 9,950 10,906
King County Water & Sewer, 5.00%, 1/1/35
(FSA Insured) 10,000 9,757
Port of Seattle, 5.50%, 2/1/26
(MBIA Insured) 5,000 5,170
Snohomish County Housing Auth.,
Millwood Estates
5.50%, 6/1/29 3,750 3,714
Tacoma Electric System
6.25%, 1/1/15 (Prerefunded 1/1/04!)
(FGIC Insured) ** 7,550 7,835
Tacoma Solid Waste Utility
5.50%, 12/1/17 (AMBAC Insured) $ 12,080 $ 12,997
5.50%, 12/1/17 (Prerefunded 12/1/07!)
(AMBAC Insured) 2,420 2,749
Washington, GO
5.70%, 10/1/15 14,000 15,665
6.625%, 1/1/25 6,100 6,985
Washington Public Power Supply System
5.25%, 7/1/16 (FSA Insured) 3,000 3,161
Total Washington (Cost $77,420) 83,557
WEST VIRGINIA 1.8%
Mason County PCR, Appalachian Power Company
5.50%, 10/1/22 8,000 7,770
West Virginia Building Commission, GO
5.375%, 7/1/18 (AMBAC Insured) 2,915 3,143
West Virginia Building Commission
5.375%, 7/1/21 (AMBAC Insured) 5,500 5,848
West Virginia Hosp. Fin. Auth.
Charleston Area Medical Center
5.75%, 9/1/13 (MBIA Insured) 4,200 4,525
Oak Hill Hosp.
6.75%, 9/1/22 (Prerefunded 9/1/10!) 5,000 6,053
Total West Virginia (Cost $25,824) 27,339
WISCONSIN 0.8%
Wisconsin HEFA
Froedert & Community Health
5.625%, 10/1/14 1,000 1,050
5.625%, 10/1/15 1,100 1,149
5.625%, 10/1/17 3,725 3,838
United Health, 5.50%, 12/15/16
(MBIA Insured) 6,540 6,861
Total Wisconsin (Cost $12,312) 12,898
WYOMING 0.7%
Wyoming CDA
5.30%, 6/1/17 $ 4,600 $ 4,711
5.70%, 12/1/35 5,175 5,295
Total Wyoming (Cost $9,764) 10,006
Total Investments in Securities
99.6% of Net Assets (Cost $1,447,400) $1,530,278
Futures Contracts
Contract Unrealized
Expiration Value Gain (Loss)
----------- ----------- -----------
In thousands
Short, 100 ten year
U.S. Treasury
contracts, $233,000
par of 6.25% Tacoma
Electric System bonds
pledged
as initial margin 9/03 $ (11,153) $ 15
Short, 50 thirty year
U.S. Treasury
contracts, $117,000
par of 6.25% Tacoma
Electric System bonds
pledged as initial
margin 9/03 (5,370) (9)
Net payments (receipts)
of variation
margin to date 22
Variation margin
receivable (payable)
on open futures
contracts 28
Other Assets
Less Liabilities 5,659
NET ASSETS $ 1,535,965
-----------
Value
- --------------------------------------------------------------------------------
In thousands
Net Assets Consist of:
Undistributed net
investment
income (loss) $ 2,983
Undistributed net
realized
gain (loss) 468
Net unrealized
gain (loss) 82,884
Paid-in-capital
applicable to
156,848,392 shares
of $1.00 par value
capital stock
outstanding; 500,000,000
shares authorized 1,449,630
NET ASSETS $ 1,535,965
-----------
NET ASSET VALUE PER SHARE
Tax-Free Income shares
($1,442,997,389/147,359,675 shares outstanding) $ 9.79
-----------
Tax-Free Income-Advisor Class shares
($92,967,306/9,488,717 shares outstanding) $ 9.80
-----------
** All or a portion of this security is pledged to cover margin
requirements on futures contracts at August 31, 2003
! Used in determining portfolio maturity
* Non-income producing
AMBAC Ambac Assurance Corp.
CDA Community Development Administration
COP Certificates of Participation
EFA Educational Facility Authority
FGIC Financial Guaranty Insurance Company
FSA Financial Security Assurance Inc.
GNMA Government National Mortgage Association
GO General Obligation
HEFA Health & Educational Facility Authority
HFA Health Facility Authority
HFC Housing Finance Corp.
HFFA Health Facility Financing Authority
HHEFA Health & Higher Educational Facility Authority
IDA Industrial Development Authority/Agency
IDB Industrial Development Bond
IDRB Industrial Development Revenue Bond
MBIA MBIA Insurance Corp.
PCR Pollution Control Revenue
RAA Radian Asset Assurance Inc.
STEP Stepped coupon bond for which the coupon rate of interest will adjust on
specified future date(s)
VR Variable Rate
VRDN Variable-Rate Demand Note
XLCA XL Capital Assurance Inc.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free Income Fund
- --------------------------------------------------------------------------------
Certified Semiannual Report (Unaudited)
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
6 Months
Ended
8/31/03
- --------------------------------------------------------------------------------
Investment Income (Loss)
Interest income $ 38,654
Expenses
Investment management 3,603
Shareholder servicing
Tax-Free Income shares 341
Tax-Free Income-Advisor Class shares 4
Custody and accounting 122
Registration 36
Prospectus and shareholder reports
Tax-Free Income shares 30
Distribution-Tax-Free Income-Advisor Class shares 30
Legal and audit 10
Directors 5
Miscellaneous 5
Total expenses 4,186
Net investment income (loss) 34,468
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 2,498
Futures (380)
Written options 96
Net realized gain (loss) 2,214
Change in net unrealized gain (loss)
Securities (42,955)
Futures 88
Change in net unrealized gain (loss) (42,867)
Net realized and unrealized gain (loss) (40,653)
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ (6,185)
----------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free Income Fund
- --------------------------------------------------------------------------------
Certified Semiannual Report (Unaudited)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
6 Months Year
Ended Ended
8/31/03 2/28/03
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 34,468 $ 70,062
Net realized gain (loss) 2,214 3,207
Change in net unrealized gain (loss) (42,867) 30,869
Increase (decrease) in net
assets from operations (6,185) 104,138
Distributions to shareholders
Net investment income
Tax-Free Income shares (33,598) (69,358)
Tax-Free Income-Advisor Class shares (537) (2)
Decrease in net assets
from distributions (34,135) (69,360)
Capital share transactions *
Shares sold
Tax-Free Income shares 94,627 190,501
Tax-Free Income-Advisor Class shares 98,188 145
Distributions reinvested
Tax-Free Income shares 22,488 46,518
Tax-Free Income-Advisor Class shares 548 2
Shares redeemed
Tax-Free Income shares (136,791) (213,110)
Tax-Free Income-Advisor Class shares (3,498) --
Increase (decrease) in net assets from
capital share transactions 75,562 24,056
Net Assets
Increase (decrease) during period 35,242 58,834
Beginning of period 1,500,723 1,441,889
End of period $1,535,965 $1,500,723
---------- ----------
T. Rowe Price Tax-Free Income Fund
- --------------------------------------------------------------------------------
Certified Semiannual Report (Unaudited)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
6 Months Year
Ended Ended
8/31/03 2/28/03
- --------------------------------------------------------------------------------
*Share information
Shares sold
Tax-Free Income shares 9,433 19,343
Tax-Free Income-Advisor Class shares 9,772 14
Distributions reinvested
Tax-Free Income shares 2,250 4,713
Tax-Free Income-Advisor Class shares 56 --
Shares redeemed
Tax-Free Income shares (13,676) (21,619)
Tax-Free Income-Advisor Class shares (354) --
Increase (decrease) in shares outstanding 7,481 2,451
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free Income Fund
- --------------------------------------------------------------------------------
Certified Semiannual Report (Unaudited) August 31, 2003
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: Tax-Free Income Fund (Tax-Free Income class), offered since
October 26, 1976, and Tax-Free Income Fund-Advisor Class (Advisor Class),
which was first offered on September 30, 2002. Advisor Class shares are
sold only through brokers and other financial intermediaries that are
compensated by the class for distribution and 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.
Valuation
Investments are valued 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
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. Purchased
and written options on futures contracts are valued at the last sale price.
Financial futures contracts are valued at closing settlement prices.
Other investments 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 or under the supervision of the
officers of the fund, as authorized by the Board of Directors.
Premiums and Discounts
Premiums and discounts on municipal securities are amortized for financial
reporting purposes.
Class Accounting
The Advisor Class pays distribution and administrative expenses in the form
of Rule 12b-1 fees, in an amount not exceeding 0.25% of the class's average
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 shares
outstanding. Income distributions are declared by each class on a daily
basis and paid monthly.
Expenses Paid Indirectly
Credits earned on temporarily uninvested cash balances at the custodian are
used to reduce the fund's custody charges.
Other
Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses
are reported on the identified cost basis. Distributions to shareholders
are recorded by the fund on the ex-dividend date. Payments ("variation
margin") made or received by the fund to settle the daily fluctuations in
the value of futures contracts are recorded as unrealized gains or losses
until the contracts are closed. Unrealized gains and losses on futures
contracts are included in Change in net unrealized gain or loss in the
accompanying financial statements.
NOTE 2 - INVESTMENT TRANSACTIONS
Consistent with its investment objective, the fund engages in the following
practices to manage exposure to certain risks or 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 six months ended August 31, 2003, 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.
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.
Transactions in options written and related premiums received during the
six months ended August 31, 2003, were as follows:
Number of
Contracts Premiums
- --------------------------------------------------------------------------------
Outstanding at beginning
of period -- $ --
Written 100 99,000
Expired (100) (99,000)
Outstanding
at end of period -- $ --
- --------------------------------------------------------------------------------
Other
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $266,381,000 and $241,430,000, respectively, for the
six months ended August 31, 2003.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute 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 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. Temporary
differences are not adjusted. The amount and character of tax-basis
distributions and composition of net assets are finalized at fiscal
year-end; accordingly, tax-basis balances have not been determined as of
August 31, 2003.
At August 31, 2003, the cost of investments for federal income tax purposes
was $1,445,907,000. Net unrealized gain aggregated $84,377,000 at
period-end, of which $98,216,000 related to appreciated investments and
$13,839,000 related to depreciated investments.
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 the fund's pro-rata share of a group
fee. The group fee 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 0.295% for assets in excess of $120 billion. The
fund's portion of the group fee is determined by the ratio of its net
assets to those of the group. At August 31, 2003, the effective annual
group fee rate was 0.32%, and investment management fee payable totaled
$605,000.
Through June 30, 2004, the manager is required to bear any expenses,
excluding interest, taxes, brokerage commissions, and extraordinary
expenses, for the Advisor Class that would cause the class's ratio of total
expenses to average net assets (expense ratio) to exceed 0.90%. Thereafter,
through June 30, 2006, the Advisor Class is required to reimburse the
manager for these expenses, provided that its average net assets have grown
or expenses have declined sufficiently to allow reimbursement without
causing its expense ratio to exceed 0.90% for the Advisor Class. This
agreement had no impact on the fund's total expenses during the six months
ended August 31, 2003 and, at that date, no amounts were subject to future
reimbursement by the fund.
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 maintains the
financial records of the fund. T. Rowe Price Services, Inc. provides
shareholder and administrative services in its capacity as the fund's
transfer and dividend disbursing agent. Expenses incurred pursuant to these
service agreements totaled $282,000 for the six months ended August 31,
2003, of which $51,000 was payable at period-end.
Item 2. Code of Ethics.
Not required at this time.
Item 3. Audit Committee Financial Expert.
Not required at this time.
Item 4. Principal Accountant Fees and Services.
Not required at this time.
Item 5. Audit Committee of Listed Registrants.
Not required at this time.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. [Reserved]
Item 9. 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 changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 10. Exhibits.
(a)(1) Not required at this time.
(a)(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.
(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/ James S. Riepe
James S. Riepe
Principal Executive Officer
Date October 17, 2003
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/ James S. Riepe
James S. Riepe
Principal Executive Officer
Date October 17, 2003
By /s/ Joseph A. Carrier
Joseph A. Carrier
Principal Financial Officer
Date October 17, 2003