Item 1. Report to Shareholders
T. Rowe Price Tax-Free Income Fund
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August 31, 2004
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
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Certified Semiannual Report
Performance Comparison
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This chart shows the value of a hypothetical $10,000 investment in the fund over
the past 10 fiscal year periods or since inception (for funds lacking 10-year
records). The result is compared with benchmarks, which may include a
broad-based market index and a peer group average or index. Market indexes do
not include expenses, which are deducted from fund returns as well as mutual
fund averages and indexes.
[Graphic Omitted]
TAX-FREE INCOME FUND
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As of 8/31/04
Tax-Free Income Fund $18,182
Lipper General Municipal Debt Funds Average $17,207
Lehman Brothers Muni Bond Index $18,871
Lipper General
Lehman Brothers Municipal Debt Tax-Free
Muni Bond Index Funds Average Income Fund
8/94 $10,000 $10,000 $10,000
8/95 10,887 10,742 10,810
8/96 11,457 11,264 11,400
8/97 12,516 12,289 12,423
8/98 13,599 13,328 13,525
8/99 13,667 13,104 13,370
8/00 14,592 13,754 14,183
8/01 16,080 15,098 15,695
8/02 17,083 15,765 16,485
8/03 17,619 16,120 16,994
8/04 18,871 17,207 18,182
Note: Performance for the Advisor Class will vary due to the differing fee
structure. See returns table below.
Average Annual Compound Total Return
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Since Inception
Periods Ended 8/31/04 1 Year 5 Years 10 Years Inception Date
Tax-Free Income Fund 6.99% 6.34% 6.16% -- --
Lipper General Municipal
Debt Funds Average 6.44 5.54 5.56 -- --
Tax-Free Income Fund--
Advisor Class 6.53 -- -- 3.67% 9/30/02
Lipper General Municipal
Debt Funds Average 6.44 -- -- 3.31 --
Returns do not reflect taxes that the shareholder may pay on fund distributions
or the redemption of fund shares. Past performance cannot guarantee future
results.
T. Rowe Price Tax-Free Income Fund
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Certified Semiannual Report (Unaudited)
Fund Profile
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Portfolio Characteristics
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Periods Ended 8/31/03 8/31/04
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Tax-Free Income Fund Share Price $ 9.79 $ 10.03
Dividends Per Share (12 Months) 0.46 0.43
30-Day Standardized Yield to Maturity 3.66% 3.39%
Tax-Free Income Fund--Advisor Class Share Price $ 9.80 $ 10.03
Dividends Per Share (12 Months) -- 0.40
30-Day Standardized Yield to Maturity 3.43% 3.07%
Weighted Average Maturity (years) 14.1 14.3
Weighted Average Effective Duration (years) 6.4 5.4
Note: Yields will vary and are not guaranteed.
Fund Profile (continued)
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Portfolio Diversification
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Percent of Percent of
Net Assets Net Assets
Periods Ended 8/31/03 8/31/04
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Hospital Revenue 13.6% 13.6%
Electric Revenue 13.8 11.1
Prerefunded Bonds 10.8 9.9
Dedicated Tax Revenue 8.7 9.4
Lease Revenue 4.1 8.9
General Obligation -- Local 6.6 7.8
Water and Sewer Revenue 7.0 6.5
Escrowed to Maturity 6.7 5.9
General Obligation -- State 5.7 5.6
Educational Revenue 5.7 4.8
Housing Finance Revenue 4.3 3.6
Industrial and Pollution Control Revenue 3.7 3.3
Air and Sea Transportation Revenue 2.6 2.5
Ground Transportation Revenue 2.2 2.2
Life Care/Nursing Home Revenue 2.2 2.0
All Other Sectors 1.9 2.3
Other Assets Less Liabilities 0.4 0.6
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Total 100.0% 100.0%
Fund Profile (continued)
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Quality Diversification
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Percent of Percent of
Net Assets Net Assets
Periods Ended 8/31/03 8/31/04
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AAA 55.0% 49.7%
AA 22.1 22.0
A 9.7 15.4
BBB 8.3 7.7
BB and Below 1.9 2.8
Not Rated 3.0 2.4
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Total 100.0% 100.0%
Source: Standard & Poor's; if Standard & Poor's does not rate a security, then
Moody's Investors Service is used as a secondary source.
T. Rowe Price Tax-Free Income Fund
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Certified Semiannual Report (Unaudited)
Fund Expense Example
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As a mutual fund shareholder, you may incur two types of costs: (1) transaction
costs such as redemption fees or sales loads and (2) ongoing costs, including
management fees, distribution and service (12b-1) fees, and other fund expenses.
The following example is intended to help you understand your ongoing costs (in
dollars) of investing in the fund and to compare these costs with the ongoing
costs of investing in other mutual funds. The example is based on an investment
of $1,000 invested at the beginning of the most recent six-month period and held
for the entire period.
Please note that the fund has two share classes: The original share class
("investor class") charges no distribution and service (12b-1) fee. Advisor
Class shares are offered only through brokers and other financial intermediaries
and charge a 0.25% 12b-1 fee. Each share class is presented separately in the
table.
Actual Expenses
The first line of the following table ("Actual") provides information about
actual account values and expenses based on the fund's actual returns. You may
use the information in this line, together with your account balance, to
estimate the expenses that you paid over the period. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number in the first line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
Hypothetical Example for Comparison Purposes
The information on the second line of the table ("Hypothetical") is based on
hypothetical account values and expenses derived from the fund's actual expense
ratio and an assumed 5% per year rate of return before expenses (not the fund's
actual return). You may compare the ongoing costs of investing in the fund with
other funds by contrasting this 5% hypothetical example and the 5% hypothetical
examples that appear in the shareholder reports of the other funds. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period.
Note: T. Rowe Price charges an annual small-account maintenance fee of $10,
generally for accounts with less than $2,000 ($500 for UGMA/UTMA). The fee is
waived for any investor whose T. Rowe Price mutual fund accounts total $25,000
or more, accounts employing automatic investing, and IRAs and other retirement
plan accounts that utilize a prototype plan sponsored by T. Rowe Price (although
a separate custodial or administrative fee may apply to such accounts). This fee
is not included in the accompanying table. If you are subject to the fee, keep
it in mind when you are estimating the ongoing expenses of investing in the fund
and when comparing the expenses of this fund with other funds.
You should also be aware that the expenses shown in the table highlight only
your ongoing costs and do not reflect any transaction costs, such as redemption
fees or sales loads. Therefore, the second line of the table is useful in
comparing ongoing costs only and will not help you determine the relative total
costs of owning different funds. To the extent a fund charges transaction costs,
however, the total cost of owning that fund is higher.
Fund Expense Example (continued)
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T. Rowe Price Tax-Free Income Fund
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Beginning Ending Expenses Paid
Account Value Account Value During Period*
3/1/04 8/31/04 3/1/04 to 8/31/04
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Investor Class
Actual $1,000.00 $1,003.90 $2.71
Hypothetical (assumes 5%
return before expenses) $1,000.00 $1,022.50 $2.73
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Advisor Class
Actual $1,000.00 $1,002.40 $4.22
Hypothetical (assumes 5%
return before expenses) $1,000.00 $1,020.99 $4.26
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* Expenses are equal to the fund's annualized expense ratio for the six-month
period (0.54%), multiplied by the average account value over the period,
multiplied by the number derived by dividing the number of days in most
recent fiscal half-year (184) by days in the year (365) to reflect the
half-year period. Annualized expense ratio of the Advisor Class was (0.84%).
T. Rowe Price Tax-Free Income Fund
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Certified Semiannual Report (Unaudited)
Financial Highlights For a share outstanding throughout each period
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Investor Class
6 Months Year
Ended Ended
8/31/04 2/29/04 2/28/03 2/28/02 2/28/01 2/29/00
NET ASSET VALUE
Beginning of
period $ 10.21 $ 10.05 $ 9.81 $ 9.72 $ 9.10 $ 9.94
Investment
activities
Net investment
income (loss) 0.24 0.44 0.47 0.48 0.49 0.49
Net realized
and unrealized
gain (loss) (0.20) 0.16 0.24 0.09 0.62 (0.83)
Total from
investment
activities 0.04 0.60 0.71 0.57 1.11 (0.34)
Distributions
Net investment
income (0.22) (0.44) (0.47) (0.48) (0.49) (0.49)
Net realized gain -- -- -- -- -- (0.01)
Total
distributions (0.22) (0.44) (0.47) (0.48) (0.49) (0.50)
NET ASSET VALUE
End of period $ 10.03 $ 10.21 $ 10.05 $ 9.81 $ 9.72 $ 9.10
-----------------------------------------------------------
Ratios/Supplemental
Data
Total return^ 0.39% 6.17% 7.42% 5.99% 12.55% (3.42%)
Ratio of total
expenses to
average net assets 0.54%! 0.54% 0.55% 0.54% 0.54% 0.55%
Ratio of net
investment
income (loss)
to average
net assets 4.32%! 4.47% 4.78% 4.95% 5.25% 5.24%
Portfolio turnover
rate 34.3%! 26.9% 24.4% 28.2% 28.6% 44.3%
Net assets,
end of period
(in millions) $ 1,444 $ 1,509 $ 1,501 $ 1,442 $ 1,403 $ 1,311
^ 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
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Certified Semiannual Report (Unaudited)
Financial Highlights For a share outstanding throughout each period
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Advisor Class
6 Months Year 9/30/02
Ended Ended Through
8/31/04 2/29/04 2/28/03
NET ASSET VALUE
Beginning of period $ 10.21 $ 10.05 $ 10.13
Investment activities
Net investment income 0.22 0.41 0.18*
Net realized and
unrealized gain (loss) (0.20) 0.16 (0.08)**
Total from
investment activities 0.02 0.57 0.10
Distributions
Net investment income (0.20) (0.41) (0.18)
NET ASSET VALUE
End of period $ 10.03 $ 10.21 $ 10.05
------------------------------------------
Ratios/Supplemental Data
Total return^ 0.24% 5.82% 1.02%*
Ratio of total expenses to
average net assets 0.84%! 0.86% 0.90%*!
Ratio of net investment
income (loss) to average
net assets 4.00%! 4.10% 4.48%*!
Portfolio turnover rate 34.3%! 26.9% 24.4%
Net assets, end of period
(in thousands) $ 298,233 $ 165 $ 147
** 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.
* Excludes expenses in excess of a 0.90% contractual expense limitation in
effect through 6/30/06.
! Annualized
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free Income Fund
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Certified Semiannual Report (Unaudited) August 31, 2004
Portfolio of Investments (1) $ Par Value
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(Amounts in 000s)
ALABAMA 1.9%
Alabama, GO, 5.00%, 9/1/16 5,810 6,267
Alabama Water Pollution Control Auth.
6.75%, 8/15/17 (Prerefunded 8/15/05!) (AMBAC Insured) 2,685 2,819
Baldwin County Eastern Shore Hosp. Auth.
Thomas Hosp.
5.75%, 4/1/27 880 838
6.75%, 4/1/21 1,450 1,493
Camden Ind. Dev. Board, IDRB
Weyerhaeuser, 6.125%, 12/1/24 2,500 2,672
Jefferson County, Sewer, 1.45%, 2/1/42 (FGIC Insured) 10,000 10,000
Phoenix IDB, PCR, MeadWestvaco, 6.10%, 5/15/30 3,750 3,918
Tuscaloosa County Board of Ed., VRDN (Currently 1.32%) 5,330 5,330
Total Alabama (Cost $32,677) 33,337
ALASKA 0.6%
Alaska HFC, Single Family
5.30%, 12/1/17 2,760 2,869
5.85%, 12/1/14 (MBIA Insured) 1,705 1,766
5.875%, 12/1/24 (MBIA Insured) 5,510 5,679
Total Alaska (Cost $9,687) 10,314
ARIZONA 0.8%
Arizona School Fac. Board, 5.50%, 7/1/18 5,000 5,632
Maricopa County PCR, 1.875%, 5/1/29 (Tender 3/1/05) 3,000 2,997
Salt River Agricultural Improvement & Power,
5.00%, 1/1/08 2,250 2,441
Scottsdale IDA, Healthcare, 5.80%, 12/1/31 2,000 2,049
Yavapai County IDA, Regional Medical Center
6.00%, 8/1/33 1,100 1,124
Total Arizona (Cost $13,568) 14,243
ARKANSAS 0.4%
Little Rock Health Fac. Board, Baptist Health,
6.85%, 11/1/08 2,495 2,857
North Little Rock, 6.50%, 7/1/15 (MBIA Insured) 4,000 4,885
Total Arkansas (Cost $6,479) 7,742
CALIFORNIA 12.7%
Anaheim PFA, 5.00%, 10/1/34 (MBIA Insured) 3,380 3,429
California, Economic Recovery
5.00%, 7/1/23 (Tender 7/1/07) 4,000 4,322
5.00%, 7/1/23 (Tender 7/1/08) 5,500 6,016
California, GO
5.00%, 2/1/10 5,520 6,053
5.00%, 2/1/33 3,750 3,775
5.125%, 6/1/31 10,540 10,704
5.25%, 4/1/29 5,000 5,171
5.25%, 4/1/34 5,500 5,670
5.50%, 11/1/33 7,500 7,931
5.65%, 6/1/30 2,500 2,686
California CDA
Community Hosp. of Monterey Peninsula
5.25%, 6/1/23 (FSA Insured) 2,000 2,121
Kaiser Permanente, 2.30%, 4/1/34 (Tender 5/1/07) 7,500 7,489
Sutter Health, 5.625%, 8/15/42 3,850 3,986
California Dept. of Water Resources
Central Valley Project, 5.00%,12/1/13(FGIC Insured) 8,000 8,830
Power Supply
5.375%, 5/1/21 2,000 2,144
5.75%, 5/1/17 3,000 3,381
California Public Works Board
Dept. of Corrections, 5.25%, 6/1/28 14,810 15,179
Mental Health, 5.50%, 6/1/23 3,000 3,183
Capistrano Unified School Dist. No. 90-2, 5.875%, 9/1/23 1,415 1,457
Folsom, Community Fac. Dist. No. 10, 5.875%, 9/1/28 3,000 3,018
Foothill/Eastern Transportation Corridor Agency
Zero Coupon, 1/1/15 (Escrowed to Maturity) 5,000 3,247
Zero Coupon, 1/1/17 (Escrowed to Maturity) 18,000 10,473
Golden State Tobacco Securitization Corp.
Tobacco Settlement
5.50%, 6/1/33 7,500 7,703
5.625%, 6/1/38 8,500 8,793
Los Angeles, GO, 6.00%, 9/1/14
(Prerefunded 9/1/04!) (MBIA Insured) 5,000 5,100
Los Angeles County, Marina Del Rey, COP, 6.50%, 7/1/08 2,680 2,737
Los Angeles Dept. of Water & Power
5.00%, 7/1/23 (MBIA Insured) 5,000 5,210
5.00%, 7/1/43 (FGIC Insured) 12,170 12,237
Los Angeles Harbor, 7.60%, 10/1/18 (Escrowed to Maturity) 3,440 4,363
Orange County, 10.12%, 7/1/19 (MBIA Insured) 3,000 3,512
Palm Springs Fin. Auth., 5.50%, 11/1/29 (MBIA Insured) 3,100 3,376
San Diego Unified School Dist.
5.50%, 7/1/25 (MBIA Insured) 4,745 5,403
San Francisco Public Utility,5.00%, 11/1/27 (FSA Insured) 8,000 8,149
San Jose Airport, 5.00%, 3/1/28 (MBIA Insured) 3,500 3,558
Southern California Public Power Auth., 6.75%, 7/1/11 4,050 4,827
Union Elementary School Dist., GO
Zero Coupon, 9/1/12 (FGIC Insured) 2,945 2,166
Zero Coupon, 9/1/13 (FGIC Insured) 3,520 2,447
Univ. of California Regents
5.125%, 5/15/15 (AMBAC Insured) 6,900 7,615
5.125%, 5/15/17 (AMBAC Insured) 10,000 10,912
West Hollywood Community Dev.
East Side Redev., 5.625%, 9/1/28 2,015 2,045
Total California (Cost $207,201) 220,418
COLORADO 0.5%
Arapahoe County, Zero Coupon
8/31/26 (Prerefunded 8/31/05!) 5,500 1,131
Colorado HFA
Adventist Health, 6.50%, 11/15/31 2,500 2,727
Catholic Health Initiatives, VRDN (Currently 1.36%) 2,955 2,955
Covenant Retirement Communities, 6.125%, 12/1/33 2,000 2,049
Total Colorado (Cost $8,455) 8,862
CONNECTICUT 0.8%
Connecticut, 7.125%, 6/1/10 7,350 8,830
Mohegan Tribe Indians
5.25%, 1/1/33 3,000 2,936
6.00%, 1/1/16 2,250 2,444
Total Connecticut (Cost $12,482) 14,210
DISTRICT OF COLUMBIA 2.5%
District of Columbia
5.25%, 6/1/27 (Prerefunded 6/1/08!)
(MBIA Insured) 1,330 1,477
6.00%, 6/1/14 (Escrowed to Maturity)
(MBIA Insured) 2,305 2,760
District of Columbia, GO
5.125%, 6/1/17 (AMBAC Insured) 12,720 13,778
5.25%, 6/1/27 (MBIA Insured) 8,645 8,948
6.00%, 6/1/14 (MBIA Insured) 4,400 5,208
6.00%, 6/1/15 (MBIA Insured) 1,550 1,849
6.00%, 6/1/17 (MBIA Insured) 4,250 5,087
District of Columbia Tobacco Corp., 5.25%, 5/15/09 5,000 5,010
Total District of Columbia (Cost $40,444) 44,117
FLORIDA 2.8%
Coral Gables HFA, Baptist Health
5.25%, 8/15/24 (FSA Insured) 5,000 5,335
Dade County, Zero Coupon, 2/1/09 (MBIA Insured) 12,185 10,323
Florida Board of Ed.
GO, 5.00%, 6/1/05 1,425 1,462
Lottery, 5.50%, 7/1/14 (AMBAC Insured) 5,470 6,236
Highlands County HFA
Adventist Health System/Sunbelt
VRDN (Currently 1.32%) 1,400 1,400
5.875%, 11/15/29 7,000 7,420
6.00%, 11/15/31 2,750 2,932
Jacksonville HFA
Genesis Rehabilitation Hosp., VRDN (Currently 1.37%) 1,400 1,400
Mayo Foundation, TECP, 1.10%, 9/2/04 6,500 6,500
Orange County HFA, Westminster Community Care
6.75%, 4/1/34 2,500 2,148
Port St. Lucie Utility
Zero Coupon, 9/1/16 (Prerefunded 9/1/06!)
(FGIC Insured) 5,000 2,705
Zero Coupon, 9/1/26 (Prerefunded 9/1/06!)
(FGIC Insured) 5,000 1,420
Total Florida (Cost $47,261) 49,281
GEORGIA 4.9%
Atlanta Airport, 5.25%, 1/1/33 (FSA Insured) 5,000 5,250
Atlanta Water & Sewer, VRDN (Currently 1.35%)
(FSA Insured) 2,100 2,100
Chatham County Hosp. Auth.
Memorial Univ. Medical Center
5.75%, 1/1/29 3,500 3,641
6.125%, 1/1/24 4,000 4,256
Coweta County Residential Care Fac. for the Elderly
Wesley Woods of Newnan-Peachtree City
8.20%, 10/1/16 1,350 1,404
8.25%, 10/1/26 1,800 1,873
Forsyth County School Dist., GO, 5.75%, 2/1/18
(Prerefunded 2/1/10!) 2,800 3,179
Fulton-DeKalb Hosp. Auth., Grady Memorial Hosp.
6.80%, 1/1/07 (Escrowed to Maturity)
(AMBAC Insured) 5,530 6,137
6.80%, 1/1/08 (Escrowed to Maturity)
(AMBAC Insured) 5,905 6,751
6.85%, 1/1/09 (Escrowed to Maturity)
(AMBAC Insured) 6,310 7,400
6.85%, 1/1/10 (Escrowed to Maturity)
(AMBAC Insured) 6,745 8,062
Georgia Private Colleges & Univ. Auth.
Emory Univ., 5.50%, 11/1/24 6,225 6,716
Gwinnett County School Dist., GO, 6.40%, 2/1/11 1,905 2,273
Municipal Electric Auth. of Georgia
5.50%, 1/1/20 3,000 3,391
5.70%, 1/1/19 (FGIC Insured) 5,100 5,953
6.40%, 1/1/07 (AMBAC Insured) 6,655 7,318
6.40%, 1/1/07 (Escrowed to Maturity)
(AMBAC Insured) 845 930
7.25%, 1/1/24 (AMBAC Insured) 6,500 8,791
Total Georgia (Cost $75,539) 85,425
HAWAII 0.5%
Hawaii Airport, 5.75%, 7/1/21 (FGIC Insured) 4,000 4,474
Hawaii Dept. of Budget & Fin., Hawaii Pacific Health
B&F Kapiolani, 6.25%, 7/1/21 4,000 4,150
Total Hawaii (Cost $7,820) 8,624
IDAHO 0.2%
Nez Perce County IDRB, PCR, Potlatch, 7.00%, 12/1/14 2,600 2,794
Total Idaho (Cost $2,600) 2,794
ILLINOIS 5.6%
Chicago, 6.75%, 1/1/35 (Prerefunded 7/1/10!)
(FGIC Insured) 5,000 6,062
Chicago, GO
5.50%, 1/1/14 (FSA Insured) 5,000 5,700
5.50%, 1/1/18 (AMBAC Insured) 3,880 4,464
Chicago Board of Ed., GO, 1.375%, 3/1/14 3,525 3,525
Chicago O'Hare Int'l. Airport, United Airlines,
6.30%, 5/1/16 * 3,555 658
Chicago Wastewater, VRDN (Currently 1.11%)
(MBIA Insured) 10,000 10,000
Illinois
5.50%, 6/15/16 2,000 2,236
6.125%, 6/15/16 2,000 2,302
Illinois, GO, 5.25%, 4/1/06 7,000 7,382
Illinois EFA, Northwestern Univ., 5.25%, 11/1/32
(Tender 11/1/14) 4,000 4,425
Illinois Fin. Auth., Northwestern Memorial Hosp.
5.50%, 8/15/43 5,000 5,118
Illinois HFA
Central Dupage Health, VRDN (Currently 1.46%) 5,000 5,000
Glen Oaks Medical Center, 7.00%, 11/15/19
(Escrowed to Maturity) 3,300 3,598
Illinois Unemployment Insurance Fund
5.00%, 12/15/06 (FSA Insured) 15,000 16,000
Metropolitan Pier & Expo Auth.
Zero Coupon, 6/15/18 (FGIC Insured) 14,160 7,502
Regional Transportation Auth.
6.70%, 11/1/21 (FGIC Insured) 5,000 6,387
7.75%, 6/1/19 (FGIC Insured) 5,350 7,272
Total Illinois (Cost $92,988) 97,631
INDIANA 1.1%
Goshen, Greencroft Obligated Group, 5.75%, 8/15/19 3,000 2,950
Indiana HFFA, Clarian Health Partners, 5.50%, 2/15/16 6,705 7,026
Indiana Office Building Commission, 5.50%, 7/1/20
(Prerefunded 7/1/05!) (AMBAC Insured) 4,500 4,739
Indiana Transportation Fin. Auth., 5.375%, 12/1/25 4,000 4,254
Total Indiana (Cost $17,580) 18,969
IOWA 0.6%
Iowa Fin. Auth.
Single Family, 5.70%, 1/1/27 3,015 3,087
Wesley Retirement Services
6.25%, 2/1/12 (Prerefunded 8/1/05!) 2,400 2,519
Scott County, Ridgecrest Village, 7.25%, 11/15/26 4,000 4,110
Total Iowa (Cost $9,173) 9,716
KANSAS 0.9%
Burlington, PCR, Gas & Electric, 5.30%, 6/1/31
(MBIA Insured) 15,000 15,759
Total Kansas (Cost $15,127) 15,759
KENTUCKY 0.0%
Breckinridge County, Kentucky Assoc.
of Counties Leasing Trust
VRDN (Currently 1.35%) 130 130
Total Kentucky (Cost $130) 130
LOUISIANA 0.5%
Calcasieu Parish, PCR, Entergy, 5.45%, 7/1/10 1,750 1,789
Sabine River Auth., PCR, Intl. Paper, 6.20%, 2/1/25 2,500 2,633
West Feliciana Parish, PCR, Entergy
5.65%, 9/1/28 (Tender 9/1/04) 5,000 5,000
Total Louisiana (Cost $9,250) 9,422
MAINE 0.1%
Maine Housing Auth., Single Family
6.10%, 11/15/15 (AMBAC Insured) 1,120 1,120
Total Maine (Cost $1,120) 1,120
MARYLAND 2.8%
Baltimore City, Convention Center
6.00%, 9/1/17 (Prerefunded 9/1/04!) (FGIC Insured) 1,750 1,750
Baltimore County, Quail Ridge Apartments
VRDN (Currently 1.38%) 4,450 4,450
Maryland CDA, Single Family, 5.95%, 4/1/16 5,000 5,228
Maryland HHEFA
Beth Tfiloh Dahan Community School, VRDN
(Currently 1.33%) 3,300 3,300
Johns Hopkins Hosp., Zero Coupon, 7/1/19 7,675 3,749
Mercy Ridge Retirement Community, 6.00%, 4/1/35 2,535 2,567
Sheppard & Enoch Pratt Foundation
1.45%, 7/1/28 (RAA Insured) 9,500 9,500
Univ. of Maryland Medical System
7.00%, 7/1/22 (FGIC Insured) 1,500 1,959
Maryland National Capital Park & Planning Commission, GO
Prince Georges County, 1.40%, 5/1/22 6,425 6,425
Prince George's County Hosp., Dimensions Health
5.30%, 7/1/24 6,685 5,127
Univ. of Maryland, Auxiliary Fac. & Tuition
5.75%, 4/1/17 (Prerefunded 4/1/06!) 5,000 5,365
Total Maryland (Cost $47,839) 49,420
MASSACHUSETTS 4.4%
Massachusetts
5.25%, 8/1/16 (Prerefunded 8/1/13!) 10,000 11,271
5.75%, 1/1/32 (FGIC Insured) 6,000 6,648
Massachusetts, GO, VRDN (Currently 1.35%) 100 100
Massachusets Bay Transportation Auth., 5.25%, 7/1/30 8,150 8,565
Massachusetts Bay Transportation Auth., GO
7.00%, 3/1/14 3,150 3,921
7.00%, 3/1/21 6,200 7,954
Massachusetts HEFA, Harvard Univ.
Harvard Univ.
6.00%, 7/1/35 (Prerefunded 7/1/10!) 3,500 4,108
6.25%, 4/1/20 5,000 6,242
Partners Healthcare, 5.75%, 7/1/32 4,400 4,665
Massachusetts Housing Fin. Agency, Single Family
6.30%, 12/1/14 1,795 1,856
Massachusetts Port Auth., 5.75%, 7/1/29 5,000 5,417
Massachusetts Water Pollution Abatement Trust
5.25%, 8/1/20 3,750 4,103
5.75%, 8/1/29 5,000 5,523
6.00%, 8/1/19 5,000 6,058
Total Massachusetts (Cost $67,759) 76,431
MICHIGAN 1.1%
Cornell Township Economic Dev., PCR
MeadWestvaco, 5.875%, 5/1/18 2,000 2,080
Michigan Building Auth., 5.50%, 10/15/19 5,000 5,602
Michigan Hosp. Fin. Auth.
Ascension Health, 5.25%, 11/15/26 3,570 3,672
Trinity Health, 6.00%, 12/1/20 1,500 1,658
Michigan Strategic Fund
Detroit Edison, IDRB, PCR, 5.45%, 9/1/29 5,000 5,129
Ford Motor, 7.10%, 2/1/06 1,180 1,254
Total Michigan (Cost $18,366) 19,395
MINNESOTA 0.6%
Minneapolis & St. Paul Metropolitan Airport Commission
5.25%, 1/1/32 (FGIC Insured) 10,000 10,375
Total Minnesota (Cost $9,745) 10,375
MISSISSIPPI 0.5%
Mississippi Business Fin., PCR, Entergy Corp.,
5.90%, 5/1/22 7,000 7,069
Warren County, PCR, Entergy, 7.00%, 4/1/22 1,500 1,526
Total Mississippi (Cost $8,433) 8,595
MISSOURI 0.2%
Good Shepherd Nursing Home Dist., 5.90%, 8/15/23 2,000 1,773
Missouri HEFA, Washington Univ., VRDN (Currently 1.34%) 2,000 2,000
Total Missouri (Cost $4,000) 3,773
NEBRASKA 0.2%
Omaha Public Power Dist., 6.20%, 2/1/17
(Escrowed to Maturity) 3,000 3,611
Total Nebraska (Cost $2,991) 3,611
NEVADA 1.9%
Clark County, Fuel Tax, 5.125%, 7/1/16 (AMBAC Insured) 10,870 11,883
Clark County Airport, McCarran Int'l.
4.75%, 7/1/22 (MBIA Insured) 2,970 3,004
Clark County IDRB, PCR
Nevada Power, 5.30%, 10/1/11 2,000 1,930
Southwest Gas, 5.45%, 3/1/38 (Tender 3/1/13) 5,000 5,304
Clark County School Dist., GO,
7.00%, 6/1/11 (MBIA Insured) 3,500 4,297
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 2,791
Total Nevada (Cost $30,025) 32,303
NEW HAMPSHIRE 2.0%
New Hampshire Business Fin. Auth., PCR, Public Service
5.45%, 5/1/21 (MBIA Insured) 14,500 15,802
New Hampshire HEFA
Covenant Health, 6.00%, 7/1/22 3,400 3,595
Dartmouth-Hitchcock Obligation Group
5.50%, 8/1/27 (FSA Insured) 7,930 8,495
Elliot Hosp., 5.60%, 10/1/22 1,000 1,016
Wentworth-Douglas Hosp., 5.375%, 1/1/15
(MBIA Insured) 5,600 6,203
Total New Hampshire (Cost $32,898) 35,111
NEW JERSEY 2.0%
Middlesex County, PCR, Amerada Hess, 6.05%, 9/15/34 2,000 2,067
Middlesex County Improvement Auth.
Student Housing Urban Renewal, 5.00%, 8/15/18 1,000 1,037
New Jersey Economic Dev. Auth.
Harrogate, 5.875%, 12/1/26 3,500 3,504
Motor Vehicle Surcharge
Zero Coupon, 7/1/20 (MBIA Insured) 2,500 1,189
5.25%, 7/1/25 (MBIA Insured) 4,000 4,374
5.25%, 7/1/31 (MBIA Insured) 5,000 5,234
Winchester Gardens at Ward Homestead, 5.75%, 11/1/24 2,000 2,008
New Jersey HFFA, Pascak Valley Hosp. Assoc.
6.50%, 7/1/23 3,000 2,844
6.625%, 7/1/36 3,000 2,768
New Jersey Sports & Exhibition Auth., Monmouth
8.00%, 1/1/25 (Prerefunded 1/1/05!) 4,500 4,688
New Jersey Transportation Trust Fund
5.75%, 6/15/25 (FGIC Insured) 5,000 5,845
Total New Jersey (Cost $34,947) 35,558
NEW MEXICO 0.4%
Farmington PCR, El Paso Electric, 6.375%, 6/1/32
(Tender 8/1/05) 2,500 2,569
Jicarilla Apache Nation, 5.50%, 9/1/23 3,890 4,095
Total New Mexico (Cost $6,516) 6,664
NEW YORK 17.5%
Dormitory Auth. of the State of New York
5.25%, 5/15/19 3,325 3,713
5.75%, 7/1/13 10,000 11,474
5.75%, 7/1/18 (AMBAC Insured) 5,000 5,928
6.00%, 7/1/14 10,000 11,522
State Univ. Ed. Fac., 5.75%, 5/15/19
(Prerefunded 5/15/10!) (FGIC Insured) 4,945 5,739
State Univ. of New York, 5.25%, 5/15/15
(AMBAC Insured) 3,600 4,065
Metropolitan Transportation Auth.
5.00%, 4/1/29 (Prerefunded 10/1/14!)
(FSA Insured) 7,290 8,192
5.125%, 11/15/31 7,000 7,124
5.25%, 11/15/31 2,945 3,026
5.25%, 11/15/32 10,000 10,287
Commuter Fac., 5.75%, 7/1/21
(Prerefunded 1/1/08!) (MBIA Insured) 12,750 14,352
New York City, GO
5.00%, 8/1/06 3,000 3,170
5.00%, 8/1/07 5,000 5,378
5.25%, 8/1/13 5,000 5,543
5.25%, 8/1/15 9,500 10,377
5.25%, 5/15/22 10,000 10,552
5.25%, 8/15/26 5,000 5,200
5.50%, 6/1/21 7,500 8,150
6.00%, 12/1/18 (Escrowed to Maturity)
(FSA Insured) 5,000 5,052
6.00%, 12/15/25 (Prerefunded 2/15/05!) 1,990 2,052
6.00%, 10/15/26 1,670 1,810
6.00%, 10/15/26 (Prerefunded 10/15/07!) 280 316
6.00%, 5/15/30 520 571
6.00%, 5/15/30 (Prerefunded 5/15/10!) 2,360 2,770
6.25%, 8/1/09 4,850 5,266
6.25%, 8/1/09 (Prerefunded 8/1/06!) 200 220
New York City Municipal Water Fin. Auth.
5.00%, 6/15/32 10,000 10,091
Water & Sewer
5.50%, 6/15/33 9,000 9,553
6.00%, 6/15/33 (Prerefunded 6/15/10!) 2,220 2,609
New York City Transitional Fin. Auth.
5.75%, 11/15/20 4,990 5,620
5.75%, 11/15/20 (Prerefunded 5/15/10!) 510 592
6.00%, 8/15/17 (Prerefunded 8/15/09!) 4,000 4,659
STEP, 5.25%, 2/1/29 16,640 18,270
New York State Environmental Fac. Corp., PCR
6.90%, 11/15/15 215 222
New York State Environmental Fac. Corp., PCR
6.90%, 11/15/15 (Prerefunded 11/15/04!) 5,145 5,307
New York State Medical Care Fac., 6.50%, 8/15/29
(Prerefunded 2/15/05!) (AMBAC Insured) 4,625 4,824
New York State Mortgage Agency, Single Family
5.70%, 4/1/16 4,090 4,364
New York State Thruway Auth., 5.50%, 3/15/20 3,000 3,340
New York State Urban Dev. Corp.
5.00%, 1/1/27 (Tender 1/1/09) 3,465 3,746
5.50%, 7/1/26 10,000 10,650
Corrections & Youth Fac.,
5.25%, 1/1/21 (Tender 1/1/09) 15,600 17,017
Tobacco Settlement Fin. Corp.
5.00%, 6/1/06 3,715 3,896
5.00%, 6/1/08 5,720 6,154
5.25%, 6/1/20 (AMBAC Insured) 6,000 6,471
5.25%, 6/1/21 (AMBAC Insured) 2,500 2,677
Triborough Bridge & Tunnel Auth.
5.25%, 1/1/28 (Prerefunded 1/1/22!) 10,000 11,204
5.50%, 1/1/17 (Escrowed to Maturity) 18,275 21,152
Total New York (Cost $279,194) 304,267
NORTH CAROLINA 1.4%
Cumberland County, Civic Center, 6.40%, 12/1/24
(Prerefunded 12/1/04!) (AMBAC Insured) 2,750 2,840
North Carolina, GO, VRDN (Currently 1.36%) 960 960
North Carolina Eastern Municipal Power Agency
5.30%, 1/1/15 1,000 1,069
5.375%, 1/1/16 2,000 2,137
6.70%, 1/1/19 3,965 4,451
7.50%, 1/1/10 4,330 5,156
7.50%, 1/1/10 (Escrowed to Maturity) 4,650 5,698
North Carolina Municipal Power Agency
Catawba Electric, 5.50%, 1/1/13 2,250 2,494
Total North Carolina (Cost $21,955) 24,805
NORTH DAKOTA 0.3%
Mercer County, PCR, Basin Electric Power Cooperative
6.05%, 1/1/19 (AMBAC Insured) 4,500 4,653
Total North Dakota (Cost $4,530) 4,653
OHIO 1.6%
Cuyahoga County Hosp., Cleveland Clinic Obligation Group
6.00%, 1/1/32 5,000 5,353
Montgomery County Hosp., Catholic Health Initiatives
6.00%, 12/1/19 6,500 7,245
Ohio Air Quality Dev. Auth., PCR, FirstEnergy
5.80%, 6/1/16 (Tender 12/1/04) 5,950 5,997
Ohio State Univ., 5.25%, 6/1/17 (Tender 12/1/16) 5,000 5,500
Ohio Water Dev. Auth., PCR, FirstEnergy, 7.70%, 8/1/25 3,950 4,201
Total Ohio (Cost $26,778) 28,296
OKLAHOMA 0.4%
Jackson County Memorial Hosp. Auth., 7.30%, 8/1/15 2,000 2,016
Tulsa County Home Fin. Auth., Single Family
6.90%, 8/1/10 (Escrowed to Maturity) (FGIC Insured) 4,250 5,128
Total Oklahoma (Cost $6,051) 7,144
OREGON 0.3%
Oregon Housing & Community Services Dept.
Single Family, 6.00%, 7/1/20 3,185 3,310
Umatilla County Hosp. Fac. Auth.
Catholic Health Initiatives, 5.50%, 3/1/22 2,210 2,339
Total Oregon (Cost $5,377) 5,649
PENNSYLVANIA 2.3%
Allegheny County Hosp. Dev. Auth.
West Penn Allegheny Health, 9.25%, 11/15/22 3,000 3,411
Beaver County IDA, PCR, FirstEnergy, 7.75%, 7/15/25 3,900 4,154
Chester County HEFA, Jefferson Health, 5.375%, 5/15/27 9,500 9,660
Cumberland County Municipal Auth.
Wesley Affiliated Services, 7.125%, 1/1/25 3,000 3,036
Pennsylvania Intergov't. Cooperative Auth.,
6.75%, 6/15/21 (Prerefunded 6/15/05!) (FGIC Insured) 4,750 4,946
Pennsylvania Turnpike Commission
5.25%, 12/1/32 (AMBAC Insured) 7,500 7,890
5.50%, 7/15/33 (AMBAC Insured) 3,500 3,760
West Shore Area Auth., Holy Spirit Hosp., 6.20%, 1/1/26 3,250 3,349
Total Pennsylvania (Cost $37,442) 40,206
PUERTO RICO 1.5%
Puerto Rico Housing Fin. Auth., 5.00%, 12/1/20 8,725 9,207
Puerto Rico Public Buildings Auth., GO
4.00%, 7/1/26 (Tender 7/1/07) (MBIA Insured) 2,750 2,890
Puerto Rico Public Fin. Corp.
5.25%, 8/1/29 (Tender 2/1/12) (MBIA Insured) 7,000 7,781
5.75%, 8/1/27 (Tender 2/1/12) 5,000 5,637
Total Puerto Rico (Cost $24,937) 25,515
SOUTH CAROLINA 2.7%
Connector 2000 Assoc.
Zero Coupon, 1/1/09 2,700 1,320
Zero Coupon, 1/1/10 3,400 1,920
Zero Coupon, 1/1/11 2,200 539
Zero Coupon, 1/1/29 20,500 2,123
Georgetown County PCR, Int'l. Paper, 5.70%, 4/1/14 4,000 4,403
Piedmont Municipal Power Agency,
6.50%, 1/1/14 (FGIC Insured) 3,000 3,640
Piedmont Municipal Power Agency, 6.50%, 1/1/14
(Escrowed to Maturity) (FGIC Insured) 500 614
South Carolina Public Service Auth.
5.00%, 1/1/19 (FSA Insured) 5,000 5,325
5.875%, 1/1/23 (FGIC Insured) 8,030 8,576
6.25%, 1/1/22 (AMBAC Insured) 17,750 19,068
Total South Carolina (Cost $48,109) 47,528
SOUTH DAKOTA 0.6%
South Dakota HEFA, Sioux Valley Hosp.
4.85%, 11/1/19 (Tender 5/1/06) 5,000 5,217
5.25%, 11/1/27 2,000 1,992
5.50%, 11/1/31 3,000 3,065
Total South Dakota (Cost $10,306) 10,274
TENNESSEE 1.1%
Chattanooga Health Ed. & Housing Fac. Board
6.625%, 9/1/07 (MBIA Insured)
(Escrowed to Maturity) 2,950 3,339
6.625%, 9/1/08 (MBIA Insured)
(Escrowed to Maturity) 3,150 3,651
Clarksville Public Building Auth., GO
VRDN (Currently 1.37%) 300 300
Metropolitan Nashville & Davidson Counties
Water & Sewer, STEP, 7.70%, 1/1/12 (FGIC Insured) 6,250 7,742
Shelby County Health Ed. & Housing Board, Bonheur
5.50%, 8/15/12 (Escrowed to Maturity) (MBIA Insured) 4,000 4,464
Total Tennessee (Cost $17,200) 19,496
TEXAS 6.3%
Abilene Health Fac. Dev. Corp.,
Sears Methodist Retirement
7.00%, 11/15/33 3,500 3,739
Amarillo Health Fac. Dev. Corp.,
Sears Panhandle Retirement
7.75%, 8/15/26 (Prerefunded 8/15/06!) 5,000 5,669
Austin, Water & Wastewater, 5.125%, 5/15/27
(FSA Insured) ++ 10,955 11,226
Brazos River Auth., PCR,
Centerpoint Energy, 7.75%, 12/1/18 4,000 4,361
Denison Hosp. Auth., Texoma Medical Center
7.00%, 8/15/14 4,245 4,334
Harris County Health Fac. Dev. Corp.
Memorial Hermann Healthcare, 6.375%, 6/1/29 4,000 4,345
St. Luke's Episcopal, 5.375%, 2/15/26 5,500 5,646
Texas Childrens Hosp.
VRDN (Currently 1.36%) (MBIA Insured) 1,685 1,685
5.25%, 10/1/19 5,000 5,215
Harris County Hosp. Dist., 7.40%, 2/15/10
(Escrowed to Maturity) (AMBAC Insured) 515 567
Houston, 6.40%, 6/1/27 4,250 4,628
Houston, GO, 5.50%, 3/1/18 (FSA Insured) 2,750 3,059
Houston Airport
5.50%, 7/1/18 (FSA Insured) 2,265 2,531
5.50%, 7/1/19 (FSA Insured) 2,000 2,228
Houston Higher Ed. Fin. Corp., Rice Univ.,
5.375%, 11/15/29 11,450 12,044
Houston Independent School Dist., GO
5.00%, 7/15/20 (FSA Insured) 3,000 3,151
Houston, Water & Sewer, 5.75%, 12/1/18
(Prerefunded 12/1/12!) (AMBAC Insured) 3,000 3,512
Lower Colorado River Auth., 6.00%, 5/15/12 (FSA Insured) 6,095 6,960
Sabine River Auth., PCR
TXU Energy
5.50%, 5/1/22 (Tender 11/1/11) 4,580 4,846
5.80%, 7/1/22 1,500 1,531
6.15%, 8/1/22 2,850 2,986
Texas A&M Univ.
5.375%, 5/15/16 4,750 5,254
5.375%, 5/15/18 2,570 2,834
Texas Dept. of Housing & Community Affairs, Asmara
6.40%, 1/1/27 (Prerefunded 1/1/07!) 5,820 6,506
Total Texas (Cost $100,568) 108,857
UTAH 0.1%
Murray City, IHC Health Services, VRDN (Currently 1.35%) 2,300 2,300
Total Utah (Cost $2,300) 2,300
VIRGINIA 3.2%
Chesapeake IDA, PCR, Virginia Electric & Power
5.25%, 2/1/08 3,000 3,122
Fairfax County, COP, 6.10%, 4/15/32 5,000 5,676
Fairfax County Water Auth.
6.00%, 4/1/22 3,835 4,227
6.00%, 4/1/22 (Prerefunded 4/1/07!) 3,815 4,271
Fredericksburg IDA, Medicorp Health System
5.25%, 6/15/27 2,750 2,786
Greater Richmond Convention Center, 6.125%, 6/15/29 8,550 9,427
Henrico County Economic Dev. Auth., Bon Secours Health
5.75%, 11/15/30 (Prerefunded 11/15/04!) 10,000 10,091
James City & County IDA, Williamsburg Landing
6.125%, 3/1/32 2,000 2,024
Loudoun County IDA, Falcons Landing, 6.00%, 8/1/24 2,500 2,558
Virginia College Building Auth., Washington & Lee Univ.
5.25%, 1/1/31 (MBIA Insured) 5,000 5,493
Virginia Resources Auth.
Goochland County Water & Sewer
Zero Coupon, 11/1/18 1,140 597
Zero Coupon, 11/1/21 1,590 694
Virginia Transportation Board, 5.25%, 5/15/20 4,620 5,012
Total Virginia (Cost $53,026) 55,978
WASHINGTON 4.1%
Chelan County Public Utility Dist. #1, Rock Island Hydro
Zero Coupon, 6/1/18 (MBIA Insured) 10,100 5,315
King County Public Hosp., Valley Medical Center
5.75%, 9/1/20 (AMBAC Insured) 10,950 12,787
Port of Seattle, 5.50%, 2/1/26 (MBIA Insured) 6,000 6,408
Snohomish County Housing Auth., Millwood Estates
5.50%, 6/1/29 3,750 3,796
Tacoma Solid Waste Utility
5.50%, 12/1/17 (AMBAC Insured) 12,080 13,251
5.50%, 12/1/17 (Prerefunded 12/1/07!)
(AMBAC Insured) 2,420 2,696
Washington, GO
5.70%, 10/1/15 14,000 16,175
6.625%, 1/1/25 6,100 7,026
Washington Public Power Supply
5.25%, 7/1/16 (FSA Insured) 3,000 3,240
Total Washington (Cost $62,726) 70,694
WEST VIRGINIA 1.3%
Mason County PCR, Appalachian Power, 5.50%, 10/1/22 8,000 8,107
West Virginia Building Commission, GO,
Regional Jail Court Fees
5.375%, 7/1/18 (AMBAC Insured) 2,915 3,307
West Virginia Hosp. Fin. Auth.
Charleston Medical Center,
5.75%, 9/1/13 (MBIA Insured) 4,200 4,443
Oak Hill Hosp.,
6.75%, 9/1/22 (Prerefunded 9/1/10!) 5,000 6,074
Total West Virginia (Cost $20,091) 21,931
WISCONSIN 0.8%
Wisconsin HEFA
Froedert & Community Health
5.625%, 10/1/14 1,000 1,089
5.625%, 10/1/15 1,100 1,191
5.625%, 10/1/17 3,725 3,999
Thedacare, 5.50%, 12/15/16 (MBIA Insured) 6,540 7,082
Total Wisconsin (Cost $12,313) 13,361
WYOMING 0.3%
Wyoming CDA, 5.30%, 6/1/17 4,600 4,897
Total Wyoming (Cost $4,600) 4,897
U. S. VIRGIN ISLANDS 0.1%
Virgin Islands PFA, GO, 4.00%, 10/1/05 1,500 1,532
Total U. S. Virgin Islands (Cost $1,531) 1,532
FUTURES CONTRACTS 0.0%
Variation margin receivable (payable)
on open futures contracts (2) (109)
Total Futures Contracts (109)
Total Investments in Securities
99.4% of Net Assets (Cost $1,612,134) $1,730,624
----------
- --------------------------------------------------------------------------------
(2) Open Futures Contracts at August 31, 2004 were as follows:
($ 000s)
Contract Unrealized
Expiration Value Gain (Loss)
---------- -------- -----------
Short, 150 U.S. Treasury 30 Year contracts,
$300 par of 5.125% Austin Texas bonds
pledged as initial margin 12/04 $ (16,697) $ 9
Net payments (receipts) of variation
margin to date (118)
Variation margin receivable (payable)
on open futures contracts $ (109)
------
(1) Denominated in U.S. dollars unless otherwise noted
* Defaulted with respect to interest
++ All or a portion of this security is pledged to cover margin
requirements on futures contracts at August 31, 2004.
! Used in determining portfolio maturity
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.
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
PFA Public Finance Authority
RAA Radian Asset Assurance Inc.
STEP Stepped coupon bond for which the coupon rate of interest will adjust
on specified future date(s)
TECP Tax-Exempt Commercial Paper
VRDN Variable-Rate Demand Note
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free Income Fund
- --------------------------------------------------------------------------------
Certified Semiannual Report (Unaudited) August 31, 2004
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
(In thousands except shares and per share amounts)
Assets
Investments in securities, at value (cost $1,612,134) $ 1,730,624
Other assets 31,383
Total assets 1,762,007
Liabilities
Total liabilities 20,124
NET ASSETS $ 1,741,883
-----------
Net Assets Consist of:
Undistributed net investment income (loss) $ 2,606
Undistributed net realized gain (loss) (2,991)
Net unrealized gain (loss) 118,608
Paid-in-capital applicable to 173,683,630 shares of
$1.00 par value capital stock outstanding;
500,000,000 shares authorized 1,623,660
NET ASSETS $ 1,741,883
-----------
NET ASSET VALUE PER SHARE
Investor Class
($1,443,649,984/143,961,573 shares outstanding) $ 10.03
-----------
Advisor Class
($298,233,257/29,722,057 shares outstanding) $ 10.03
-----------
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
- --------------------------------------------------------------------------------
($ 000s)
6 Months
Ended
8/31/04
Investment Income (Loss)
Interest income $ 41,078
Expenses
Investment management 3,935
Shareholder servicing
Investor Class 321
Advisor Class 108
Rule 12b-1 fees -- Advisor Class 293
Custody and accounting 118
Prospectus and shareholder reports
Investor Class 45
Advisor Class 15
Registration 33
Legal and audit 10
Directors 3
Miscellaneous 6
Total expenses 4,887
Expenses paid indirectly (5)
Net expenses 4,882
Net investment income (loss) 36,196
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities (1,509)
Futures (355)
Written options 51
Net realized gain (loss) (1,813)
Change in net unrealized gain (loss)
Securities (26,166)
Futures 170
Change in net unrealized gain (loss) (25,996)
Net realized and unrealized gain (loss) (27,809)
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 8,387
----------
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
- --------------------------------------------------------------------------------
($ 000s)
6 Months Year
Ended Ended
8/31/04 2/29/04
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 36,196 $ 69,544
Net realized gain (loss) (1,813) 6,795
Change in net unrealized gain (loss) (25,996) 18,853
Increase (decrease) in net assets from operations 8,387 95,192
Distributions to shareholders
Net investment income
Investor Class (31,359) (66,063)
Advisor Class (4,668) (2,986)
Decrease in net assets from distributions (36,027) (69,049)
Capital share transactions *
Shares sold
Investor Class 52,982 181,840
Advisor Class 165,728 170,913
Distributions reinvested
Investor Class 21,438 44,495
Advisor Class 4,664 2,986
Shares redeemed
Investor Class (112,248) (241,651)
Advisor Class (36,622) (11,868)
Increase (decrease) in net assets from
capital share transactions 95,942 146,715
Net Assets
Increase (decrease) during period 68,302 172,858
Beginning of period 1,673,581 1,500,723
End of period $ 1,741,883 $ 1,673,581
-------------------------
(Including undistributed net investment income of
$2,606 at 8/31/04 and $2,437 at 2/29/04)
T. Rowe Price Tax-Free Income Fund
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Certified Semiannual Report (Unaudited)
Statement of Changes in Net Assets
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($ 000s)
6 Months Year
Ended Ended
8/31/04 2/29/04
*Share information
Shares sold
Investor Class 5,322 18,141
Advisor Class 16,851 17,004
Distributions reinvested
Investor Class 2,162 4,437
Advisor Class 470 298
Shares redeemed
Investor Class (11,321) (24,132)
Advisor Class (3,726) (1,190)
Increase (decrease) in shares outstanding 9,758 14,558
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free Income Fund
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Certified Semiannual Report (Unaudited) August 31, 2004
Notes to Financial Statements
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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 brokers and other 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.
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 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.
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 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. Unsettled
variation margin on futures contracts are included in investments in securities,
and any unrealized gains and losses are included in the change in net unrealized
gain or loss in the accompanying financial statements. 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.
Other
In the normal course of business, the fund enters into contracts that provide
general indemnifications. The fund's maximum exposure under these arrangements
is dependent on claims that may be made against the fund in the future and,
therefore, cannot be estimated; however, based on experience, the risk of
material loss from such claims is considered remote.
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, 2004, 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. Transactions in options written and
related premiums received during the six months ended August 31, 2004, were as
follows:
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Number of
Contracts Premiums
Outstanding at beginning of period -- $ --
Written 75 56,000
Closed (75) (56,000)
------ -------
Outstanding at end of period -- $ --
Other
Purchases and sales of portfolio securities, other than short-term securities,
aggregated $368,026,000 and $271,341,000, respectively, for the six months ended
August 31, 2004.
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 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. 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, 2004.
At August 31, 2004, the cost of investments for federal income tax purposes was
$1,610,390,000. Net unrealized gain aggregated $120,352,000 at period-end, of
which $127,924,000 related to appreciated investments and $7,572,000 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 average daily net assets to those of the group. At August 31, 2004,
the effective annual group fee rate was 0.31%, and investment management fee
payable totaled $684,000.
The Advisor Class is also subject to a contractual expense limitation through
June 30, 2006. During the limitation period, the manager is required to waive
its management fee and reimburse the class for any expenses, excluding interest,
taxes, brokerage commissions, and extraordinary expenses, that would otherwise
cause the class's ratio of total expenses to average net assets (expense ratio)
to exceed its expense limitation of 0.90%. Through June 30, 2008, the class is
required to repay the manager for expenses previously reimbursed and management
fees waived to the extent its net assets have grown or expenses have declined
sufficiently to allow repayment without causing the class's expense ratio to
exceed its expense limitation. For the six months ended August 31, 2004, the
Advisor Class operated below its expense limitation.
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. For the six months ended August 31, 2004, expenses incurred
pursuant to these service agreements were $57,000 for Price Associates and
$219,000 for T. Rowe Price Services, Inc. At period-end, a total of $45,000 of
these expenses was payable.
T. Rowe Price Tax-Free Income Fund
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Certified Semiannual Report
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
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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. The Form N-Q is also
available on our Web site (www.troweprice.com).
Item 2. Code of Ethics.
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 is filed as an
exhibit to the registrant's annual Form N-CSR. No substantive amendments were
approved or waivers were granted to this code of ethics during the registrant's
most recent fiscal half-year.
Item 3. Audit Committee Financial Expert.
Disclosure required in registrant's annual Form N-CSR.
Item 4. Principal Accountant Fees and Services.
Disclosure required in registrant's annual Form N-CSR.
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. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 9. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 10. 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 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 11. Exhibits.
(a)(1) The registrant's code of ethics pursuant to Item 2 of Form N-CSR is filed
with the registrant's annual Form N-CSR.
(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/ James S. Riepe
James S. Riepe
Principal Executive Officer
Date October 15, 2004
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 15, 2004
By /s/ Joseph A. Carrier
Joseph A. Carrier
Principal Financial Officer
Date October 15, 2004