N-CSR 1 artfs.htm T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. Rowe Price Tax-Free Short-Intermediate Fund - February 28, 2009


UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C. 20549 
 
FORM N-CSR 
 
CERTIFIED SHAREHOLDER REPORT OF REGISTERED 
MANAGEMENT INVESTMENT COMPANIES 
 
 
 
Investment Company Act File Number: 811-3872 
 
T. Rowe Price Tax-Free Short-Intermediate Fund, Inc. 
(Exact name of registrant as specified in charter) 
 
100 East Pratt Street, Baltimore, MD 21202 
(Address of principal executive offices) 
 
David Oestreicher 
 100 East Pratt Street, Baltimore, MD 21202 
 (Name and address of agent for service) 
 
 
Registrant’s telephone number, including area code: (410) 345-2000 
 
 
Date of fiscal year end: February 28 
 
 
Date of reporting period: February 28, 2009 




Item 1: Report to Shareholders

T. Rowe Price Annual Report
 Tax-Free Short-Intermediate Fund February 28, 2009 

The views and opinions in this report were current as of February 28, 2009. They are not guarantees of performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and the managers reserve the right to change their views about individual stocks, sectors, and the markets at any time. As a result, the views expressed should not be relied upon as a forecast of the fund’s future investment intent. The report is certified under the Sarbanes-Oxley Act, which requires mutual funds and other public companies to affirm that, to the best of their knowledge, the information in their financial reports is fairly and accurately stated in all material respects.

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Manager’s Letter

Fellow Shareholders

The economic downturn and credit crunch have affected all markets. Still, investment-grade municipal bonds produced good returns in the one-year period ended February 28, 2009. In the last six months, short- and intermediate-term securities produced moderate gains, but long-term issues generally declined. Lower-quality securities plunged in both periods, pressured by low liquidity, heightened risk aversion, periods of indiscriminate selling, and diminished demand. The T. Rowe Price Tax-Free Funds generally outperformed their Lipper peer group averages in both periods, largely on the strength of our rigorous, proprietary research. The funds’ long-term relative performance remains favorable.

HIGHLIGHTS

• Municipal yields fell during the funds’ fiscal year, particularly on securities with the shortest maturities.

• The funds’ returns compared favorably with those of our Lipper peers, thanks to our relatively low fee structure, our proprietary research, and our cautious investment approach in a challenging environment.

• High-quality general obligation and prerefunded bonds performed best during the past six months, while lower-quality revenue securities did poorly.

• At the end of the period, municipal bonds were still offering extremely attractive yields relative to their taxable equivalents, but we expect it will take some time for the credit markets to gradually restore themselves to more normal operating conditions.

MARKET ENVIRONMENT

The U.S. economy is currently in a recession—one that began in December 2007, according to the National Bureau of Economic Research. Consumer spending, stock prices, and home values have declined; national unemployment increased to 8.1% by the end of our reporting period; and weakened financial institutions have significantly curtailed lending to preserve capital and avoid additional loan-related losses. According to current estimates, the economy shrank at an annualized rate of 6.2% in the fourth quarter of 2008, and first-quarter 2009 gross domestic product data could be just as bad. We anticipate economic weakness will persist until at least the middle of 2009.


In the last six months, U.S. Treasury yields fell sharply across all maturities as the Federal Reserve reduced the fed funds target rate to an all-time low range of 0.00% to 0.25% by the end of 2008. Short- and intermediate-term municipal bond yields also declined significantly. Long-term municipal bond yields remained relatively high, however, as deleveraging and forced selling contributed to a material supply/demand imbalance that has impacted the long end of the municipal yield curve.

Although some states are struggling more than others because of significant exposure to the housing and financial market downturns, we believe municipal market weakness primarily reflects general risk aversion rather than fundamental credit concerns. Tax-free securities are still an attractive alternative to taxable bonds, particularly for investors in the highest tax brackets.

As of February 28, 2009, the 3.10% yield offered by a 10-year tax-free municipal bond rated AAA was about 103% of the 3.01% pretax yield offered by a 10-year Treasury. In comparison, high-quality 10-year municipal bonds have provided an average of about 81% of the yield offered by 10-year Treasuries since the mid-1980s. Similarly, 30-year AAA municipal bonds are also attractive, with a 4.84% yield that is about 130% of the 3.71% pretax yield offered by 30-year Treasuries.

Based on current valuations and our belief that the municipal bond market remains a high-quality market, we think investors who are seeking tax-free income and are willing to accept the potential for more near-term volatility should consider taking advantage of what still appears to be an attractive long-term buying opportunity for munis.

MUNICIPAL MARKET NEWS

New municipal supply in 2008 totaled about $390 billion, according to The Bond Buyer. Much of this supply came during the first three quarters of the year, before credit markets overall seized up immediately following the collapse of Lehman Brothers in mid-September. With the national economy likely to be in a recession until at least midyear and with a significant fiscal stimulus package that will provide some direct capital spending to the states, we anticipate aggregate new borrowing in 2009 could be lower than in 2008.

Demand from retail investors for municipal securities has picked up markedly in recent months. However, interest from retail alone was unable to support the market in the face of a substantial unwinding of leveraged trades involving municipal bonds, selling related to margin calls, and a diminished list of broker-dealers willing to provide liquidity for tax-free bonds. Given the continuing credit market stress, short- and intermediate-term and AAA rated municipal securities had greater appeal than long-term and lower-quality issues.

Sector performance during our fiscal year was mixed. In the last six months, prerefunded and escrow-to-maturity bonds were the only segments that produced gains. Insured, education, transportation, and housing revenue bonds were flat. In the one-year period, most high-quality sectors advanced moderately, led by prerefunded and escrow-to-maturity bonds. Higher-yielding bonds in the industrial revenue/pollution control revenue, tobacco, and life-care sectors were hammered in both periods as investors shunned lower-quality credits.

PORTFOLIO STRATEGY

TAX-EXEMPT MONEY FUND
The fund outpaced the average return of competitor funds during the 6- and 12-month periods ended February 28, 2009, with returns of 0.69% and 1.60%, respectively, compared with 0.64% and 1.40% for the Lipper Tax-Exempt Money Market Funds Average. The portfolio’s seven-day simple dividend yield was 0.41% at the end of the reporting period, down from 1.46% six months ago and 2.58% at the end of February 2008. A money fund’s yield more closely reflects its current earnings than does the total return.


Since our last letter to shareholders, markets have been severely tested, with the money markets at the epicenter of the turmoil. The flow of credit begins in the money markets, where lending all but shut down last fall. The aftershocks of this credit crunch continue to disrupt all financial markets. Investors fleeing falling markets have pushed demand for the safe haven of money funds to record levels, while high-quality investable supply has been sharply curtailed. The Lehman Brothers bankruptcy and the subsequent collapse of a non-T. Rowe Price money fund put all money funds on the defensive, creating an environment in which liquidity was of paramount concern. The deepening credit problems facing banks continue to reduce viable sources of new issue in our market. The forced mergers of Bank of America with Merrill Lynch and Wells Fargo with Wachovia further reduced potential trading counterparties. These events and plunging equity markets provided the backdrop for extreme volatility in money market rates.


Although the Federal Reserve’s move to a 0% fed funds rate has shifted all money market yields lower compared with six months ago, the path to lower rates has been anything but smooth. Immediately following the collapse of Lehman Brothers in September, money market credit spreads widened rapidly, placing the money markets under extreme duress. For example, the three-month Libor (a taxable benchmark rate) rose 200 basis points (2.00%) in just three weeks. To alleviate this pressure, the Federal Reserve and Treasury buttressed the money markets with liquidity facilities and other measures to protect investors. Among the best-received initiatives was the Treasury’s Money Market Guarantee Program—in which your fund participated—designed to protect shareholders and boost confidence in money funds. (Please refer to page 14 for additional information about the Treasury’s guarantee program.) Ongoing initiatives by the Federal Reserve and Treasury are slowly returning the money markets to normal, although a fully revived market is not yet visible on the horizon.

In many ways, municipal money markets have fared better than their taxable counterparts during these troubled times. Among other factors, the structure of municipal debt, such as variable-rate demand notes with their mandatory tender feature, has enabled municipal money funds to maintain both liquidity and stability lacking in the taxable market. Nevertheless, municipal rates moved across a wide range in the past six months; seven-day rates, which began the six-month period at 1.85%, moved as high as 7.67% during late September and early October, and then retreated to a low of 0.64% before ending the reporting period at 0.78%. Rates on longer-dated maturities spiked briefly in the fall but have also responded to the Fed’s aggressive rate cutting. For example, one-year municipal rates, which began the period around 1.67%, ended February yielding approximately 0.65%.


Our focus in managing your fund remains on stability of principal through proprietary credit research and on liquidity by maintaining a significant percentage of the portfolio in high-quality variable-rate demand notes. To preserve yield in the face of falling interest rates, we have extended the portfolio’s weighted average maturity by selectively investing in higher-quality, fixed-rate issues where we have a high degree of confidence in the issuer. Recently, we have also attempted to stabilize the fund’s yield by increasing our exposure to high-quality commercial paper issuers. Because of these steps, we believe it is unlikely that the fund’s yield will fall below the level of its expenses. Should this occur, however, T. Rowe Price has decided it may voluntarily choose to waive all or a portion of its management fee for a given day in order to maintain a minimum net yield of 0.00% for all its money funds, including the Tax-Exempt Money Fund. You should have recently received notice of a supplement to the fund’s prospectus reflecting this change.

Looking ahead at the next six months, we anticipate challenges as credit markets sort themselves out. The Federal Reserve will likely remain on hold through most, if not all, of 2009. Money market rates should remain low and could fall further as credit concerns ease. Market participants will likely continue to pay a premium for liquidity and quality. In such an unsettled environment, we take great comfort in the strength of our rigorous investment process.

TAX-FREE SHORT-INTERMEDIATE FUND
The fund returned 2.05% over the past six months and 4.89% during the 12 months ended February 28, 2009, compared with respective returns of 0.66% and 3.21% for the Lipper Short-Intermediate Municipal Debt Funds Average, which measures the performance of competing funds. The fund’s net asset value per share was $5.42 at the end of February, compared with $5.40 at the end of August 2008 and $5.34 one year ago. Dividends per share contributed $0.18 to the fund’s total return during its fiscal year.


During the past six months, the fund held 22.0% of its assets in state and local general obligation bonds and 11.4% in prerefunded bonds. The highest-quality general obligation and prerefunded bonds performed well. While 47.0% of the portfolio was invested in various types of revenue bonds, which detracted from performance, our proprietary in-house research helped us avoid many securities that hindered the performance of competitor funds. Yields on many revenue sectors widened dramatically and generated significant negative returns for the six-month period. We concentrated our purchases of revenue bonds on higher-quality securities because we were concerned about the impact of downgrades on the sector and the effect the flagging economy would have on their yields versus general obligation bonds. The remaining 19.6% of portfolio assets was allocated to other securities and cash alternatives at the end of the period.


In addition, we shortened the duration of the portfolio (duration is a measure of a bond fund’s sensitivity to changes in interest rates) starting at the beginning of the fund’s fiscal year, which helped our overall performance. The fund ended with a weighted average effective duration of 2.7 years compared with 2.9 years at the end of August and 3.2 years one year ago.

Our allocation of lower-quality bonds hurt fund performance during the past six months as high-quality municipals benefited from the flight to quality in the Treasury market. In both the Treasury and municipal markets, five-year yields declined significantly, although municipal securities remain very attractive relative to Treasury bonds. Since we have a more favorable view of the long-term prospects of good revenue bonds, we sold some of our higher-quality securities and reinvested in higher-yielding AA electric revenue bonds and AA hospital bonds. Looking ahead, we believe our high-quality essential service revenue bonds and high-quality hospital securities can hold up better in a prolonged economic downturn.

TAX-FREE INCOME FUND
Your fund returned -2.30% during the past six months and 2.22% during the fund’s fiscal year ended February 28, 2009. Although our loss during the past six months was unwelcome, the results compare favorably with the -4.58% and -0.60% returns, respectively, for the Lipper General Municipal Debt Funds Average, a benchmark measuring the performance of similar funds. (Performance for the Advisor Class was slightly lower, reflecting its higher expenses, but was still above the Lipper average.) The fund’s net asset value per share was $9.21 at the end of February, compared with $9.66 at the end of August and $9.44 one year ago. Dividends per share contributed $0.44 to the fund’s total return during its fiscal year.


The fund’s quality diversification shifted slightly during the past six months. The portfolio’s allotment of AAA holdings declined as we increased our exposure to AA and BBB rated credits to take advantage of inordinately high yields resulting from distress in the market. Many of these bonds, which included newly issued debt as well as secondary market offerings, were top performers as the market rallied. We made these purchases with the proceeds from the sale of high-quality prerefunded securities, which had outperformed the overall market. We had been overweight in this segment of our market and believed it was time to lighten our exposure. One year ago, the fund held almost 19% of assets in prerefunded bonds, but at the end of February 2009, we had lowered our exposure to 9.4%.

We directed the proceeds from these sales into essential revenue rather than general obligation bonds. For example, over the past six months we raised our allotment of electric revenue securities by two percentage points to 13.4% . We also increased the fund’s exposure to high-quality higher education issues with the purchase of University of Virginia and University of Colorado credits. The portfolio’s exposure to the dedicated tax revenue sector went up with investments in higher-rated and, in some cases, noncallable bonds such as Garden State Preservation in New Jersey and Illinois Regional Transportation Authority. (Please refer to our portfolio of investments for a complete listing of holdings and the amount each represents in the portfolio.)


Turnover in the fund remained heavy during the period for various reasons. We continued to implement loss swaps by selling bonds at a loss and simultaneously reinvesting in securities with higher coupons to improve income distribution. These losses will allow us to offset potential future gains and retain the fund’s strong record in tax efficiency.

The yield curve in the municipal market remained very steep, and longer maturities offered attractive yields. Our bias in this area is reflected in our overweighting of 20-year-plus maturities while underweighting bonds in the 3- to 15-year range relative to our benchmark.

Portfolio holdings that underperformed the general market were primarily lower-rated credits held in various sectors, including hospital and life care, as well as smaller positions in tribal gaming, prepaid gas, and bonds secured by the tobacco companies’ Master Settlement Agreement with the states. The fund holdings that performed best varied from high-quality intermediate bonds and prerefunded holdings to various credits purchased during periods of distress mentioned above.

At the end of the period, municipal bonds were still offering extremely attractive yields relative to their taxable equivalents. The jury is still out on how much new supply will be entering the market as budget deficits continue to expand. While aid from the federal government is helpful at the moment, many states and localities face longer-term structural imbalances. We expect that it will take some time for the credit markets to gradually restore themselves to more normal operating conditions, particularly against the backdrop of a weak economic environment.

TAX-FREE HIGH YIELD FUND
It was a historically difficult year for medium- and lower-quality municipals in 2008. As a result, we are unhappy to report that the Tax-Free High Yield Fund returned -15.47% during the past six months and -12.54% for the 12 months ended February 28, 2009, compared with respective returns of -17.69% and -15.66% for the Lipper High Yield Municipal Debt Funds Average, which measures the performance of similar funds. While we surpassed the returns of our peers, we understand that it is never pleasant to report a loss. The fund’s net asset value per share was $8.99 at the end of February, compared with $10.97 at the end of August and $10.88 one year ago. Dividends per share contributed $0.57 to the fund’s total return during its fiscal year.


We increased our holdings in hospital revenue bonds during the year. The finances of hospital systems face considerable headwinds in today’s economic climate, including constrained reimbursements from states, a higher percentage of uninsured patients, and losses in their investment portfolios. However, we believe that the vital services hospitals provide, the noncyclical nature of their businesses, and some help from federal funding will enable most hospitals to cover their debt obligations even in this stressful period.

In addition, we raised our allotment of corporate-backed industrial revenue bonds, focusing most heavily on companies that provide essential, less cyclical services to their customers, including utilities companies Reliant and American Electric Power, waste removal company Waste Management, and oil refiners Marathon and CITGO. (Please refer to our portfolio of investments for a complete listing of holdings and the amount each represents in the portfolio.)

At the same time, we reduced our exposure to highly rated prerefunded bonds, which along with other high-quality intermediate-maturity bonds performed exceptionally well throughout the period. As these bonds moved up in value, their yields fell to historically low levels (prices and yields move counter to each other). We used the proceeds from the sales to buy beaten-down securities in higher-yielding sectors.


In keeping with our theme of focusing on essential service revenue bonds, we also increased the portfolio’s exposure to higher-rated toll road revenue bonds. These systems generate durable revenue streams for the payment of bond debt service. We particularly emphasized toll road projects that demonstrate strong market share, have limited substitutes, and generally relieve traffic congestion. Among them were bonds issued by the North Texas Toll Authority and Illinois Toll Authority.

OUTLOOK

The national recession will reduce the tax revenues collected by state and local municipalities, contributing to worries about a general decline in the overall credit quality of the municipal market. In addition, the credit environment for the municipal market is likely to remain challenging for some time. Municipal bond defaults, which historically have been rare, are likely to increase moderately over the next year. Nevertheless, many municipal issuers are making the difficult but necessary fiscal decisions—higher taxes, lower spending, or a combination of the two—as they adjust to the economic downturn.

We believe the municipal market offers good long-term value, especially considering that tax rates are likely to rise in the next few years. Investment-grade municipal bond valuations, though they have rebounded from extremely inexpensive levels over the last year, remain attractive. Fixed-income investors seeking relative safety have been drawn to municipal securities by their yield advantage over Treasuries and money market instruments, but investors should be prepared for additional periods of volatility stemming from occasional supply/demand imbalances.

We believe T. Rowe Price’s strong credit research capabilities have been and will continue to be an asset for our tax-free fund investors. We continue to conduct our own thorough research and assign our own independent credit ratings before making investment decisions, rather than relying solely on external rating agencies or bond insurance for our investment selection. We are currently focused on buying municipal assets that have declined in price due to liquidity problems, rather than fundamental credit problems. We think this will position our portfolios to generate excellent long-term relative returns that are more in line with historical norms for our asset class.

Thank you for investing with T. Rowe Price.

Respectfully submitted,


Joseph K. Lynagh
Chairman of the Investment Advisory Committee
Tax-Exempt Money Fund


Charles B. Hill
Chairman of the Investment Advisory Committee
Tax-Free Short-Intermediate Fund


Konstantine B. Mallas and Mary J. Miller
Cochairs of the Investment Advisory Committee
Tax-Free Income Fund


James M. Murphy
Chairman of the Investment Advisory Committee
Tax-Free High Yield Fund

March 20, 2009

The committee chairmen have day-to-day responsibility for managing the portfolios and work with committee members in developing and executing the funds’ investment programs.


T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.

SUPPLEMENT TO PROSPECTUS

The following information updates the prospectus for the Tax-Exempt Money Fund, dated July 1, 2008, and supersedes the supplement dated December 18, 2008:

The Money Fund is participating in the Temporary Guarantee Program for Money Market Funds (“Program”) established by the U.S. Treasury Department. The Program’s guarantee only covers shareholders in participating money market funds as of the close of business on September 19, 2008 (“Eligible Shareholders”), and does not protect new shareholders after that date. Subject to certain conditions and limitations, the Program guarantees that Eligible Shareholders will receive $1.00 for each money market share held. The guarantee applies if a participating money market fund’s net asset value per share falls below $0.995 and the fund decides to liquidate (“Guarantee Event”). Upon declaration of a Guarantee Event, a fund must stop accepting purchases, suspend redemptions, cease the declaration and payment of dividends, and proceed to liquidate.

The number of shares guaranteed under the Program for each Eligible Shareholder is the lesser of (1) the number of shares owned on September 19, 2008, or (2) the number of shares owned when a Guarantee Event occurs. In addition, Eligible Shareholders could lose coverage under the Program if they close their account or change their account registration. Upon any money market fund liquidation pursuant to the Program, shares not covered under the Program will receive only the fund’s net asset value per share, which may be less than $1.00. Payments under the Program are subject to an overall limit of approximately $50 billion for all money market funds participating in the Program.

The Money Fund has participated in the Program since the Program’s inception. The U.S. Treasury Department has further extended the Program through September 18, 2009, and the fund will continue participating in the Program. The Program’s guarantee still only covers Eligible Shareholders and will not protect new shareholders of the fund after the close of business on September 19, 2008. Participation in each term of the Program requires payment of a fee to the U.S. Treasury Department. The cost to participate is borne by the fund.

The participation fee paid by the fund for the initial three-month term of the Program (September 19, 2008, through December 18, 2008) was 0.01% of its net assets as of the close of business on September 19, 2008. The participation fee for the first extension of the Program (December 19, 2008, through April 30, 2009) was 0.015% of its net assets as of the close of business on September 19, 2008, and the fee for the second extension of the Program (May 1, 2009, through September 18, 2009) is 0.015% of its net assets as of the close of business on September 19, 2008.

The date of this supplement is April 13, 2009.


RISKS OF FIXED-INCOME INVESTING

Since money market funds are managed to maintain a constant $1.00 share price, there should be little risk of principal loss. However, there is no assurance the fund will avoid principal losses if fund holdings default or are downgraded, or if interest rates rise sharply in an unusually short period. In addition, the fund’s yield will vary; it is not fixed for a specific period like the yield on a bank certificate of deposit. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in it.

Bonds are subject to interest rate risk (the decline in bond prices that usually accompanies a rise in interest rates) and credit risk (the chance that any fund holding could have its credit rating downgraded or that a bond issuer will default by failing to make timely payments of interest or principal), potentially reducing the fund’s income level and share price. High-yield bonds could have greater price declines than funds that invest primarily in high-quality bonds. Municipalities issuing high-yield bonds are not as strong financially as those with higher credit ratings, so the bonds are usually considered speculative investments. Some income may be subject to state and local taxes and the federal alternative minimum tax.

GLOSSARY

Auction-rate securities (ARS): A type of security used in municipal financing. Although these securities have long-term maturities, their interest rates are reset every 7, 25, or 35 days through an auction process.

Average maturity: For a bond fund, the average of the stated maturity dates of the portfolio’s securities. In general, the longer the average maturity, the greater the fund’s sensitivity to interest rate changes, which means greater price fluctuation. A shorter average maturity usually means a less sensitive and, consequently, less volatile portfolio.

Barclays Capital Municipal Bond Index: An unmanaged index that includes investment-grade, tax-exempt, and fixed-rate bonds with maturities greater than two years selected from issues larger than $75 million.

Barclays Capital U.S. Aggregate Index: An unmanaged index made up of the Barclays Capital Government/Corporate Bond Index, Mortgage-Backed Securities Index, and Asset-Backed Securities Index, including securities of investment-grade quality or better, with at least one year to maturity, and an outstanding par value of at least $250 million.

Basis points: One hundred basis points equal one percentage point.

Duration: A measure of a bond fund’s sensitivity to changes in interest rates. For example, a fund with a duration of six years would fall about 6% in price in response to a one-percentage-point rise in interest rates, and vice versa.

Escrowed-to-maturity bond: A bond that has the funds necessary for repayment at maturity, or a call date, set aside in a separate or “escrow” account.

Fed funds target rate: An overnight lending rate set by the Federal Reserve and used by banks to meet reserve requirements. Banks also use the fed funds rate as a benchmark for their prime lending rates.

General obligation debt: A government’s strongest pledge that obligates its full faith and credit, including, if necessary, its ability to raise taxes.

Libor rate: The London Interbank Offered Rate, which is a benchmark for short-term taxable rates.

Lipper averages: The averages of available mutual fund performance returns for specified time periods in defined categories as tracked by Lipper Inc.

Monoline insurers: Insurers that guarantee the timely repayment of principal and interest on bonds when an issuer defaults. They are so named because they provide services to only one industry.

Prerefunded bond: A bond that originally may have been issued as a general obligation or revenue bond but that is now secured by an escrow fund consisting entirely of direct U.S. government obligations that are sufficient for paying the bondholders.

Tender option bond: Obligations that grant the bondholder the right to require the issuer, or a specified third party acting as agent for the issuer, to purchase the bonds, usually at par, at a specified time prior to maturity, or upon the occurrence of certain events or conditions.

30-day SEC yield: A method of calculating a fund’s yield that assumes all portfolio securities are held until maturity. The Securities and Exchange Commission (SEC) requires all bond funds to calculate this yield. Yield will vary and is not guaranteed.

Yield curve: A graphic depiction of the relationship among the yields for similar bonds with different maturities. A yield curve is positive when short-term yields are lower than long-term yields and negative when short-term yields are higher than long-term yields.





Performance and Expenses

GROWTH OF $10,000 

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.








AVERAGE ANNUAL COMPOUND TOTAL RETURN 

This table shows how the funds would have performed each year if their actual (or cumulative) returns for the periods shown had been earned at a constant rate.



FUND EXPENSE EXAMPLE 

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.

Actual Expenses
The first line of the following table (“Actual”) provides information about actual account values and actual expenses. 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.

Please note that the Tax-Free Income Fund has two share classes: The original share class (“investor class”) charges no distribution and service (12b-1) fee, and the Advisor Class shares are offered only through unaffiliated brokers and other financial intermediaries and charge a 0.25% 12b-1 fee. Each share class is presented separately in the table.

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.











The accompanying notes are an integral part of these financial statements.
















The accompanying notes are an integral part of these financial statements.



The accompanying notes are an integral part of these financial statements.



The accompanying notes are an integral part of these financial statements.



The accompanying notes are an integral part of these financial statements.


NOTES TO FINANCIAL STATEMENTS 

T. Rowe Price Tax-Free Short-Intermediate 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 commenced operations on December 23, 1983. The fund seeks to provide, consistent with modest price fluctuation, a high level of income exempt from federal income taxes by investing primarily in short- and intermediate-term investment-grade municipal securities.

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

Basis of Preparation The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of estimates made by fund management. Fund management believes that estimates and security valuations are appropriate; however, actual results may differ from those estimates, and the security valuations reflected in the financial statements may differ from the value the fund ultimately realizes upon sale of the securities.

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. Income tax-related interest and penalties, if incurred, would be recorded as income tax expense. 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. Distributions to shareholders are recorded on the ex-dividend date. Income distributions are declared on a daily basis and paid monthly. Capital gain distributions, if any, are declared and paid by the fund, typically on an annual basis.

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.

New Accounting Pronouncements On March 1, 2008, the fund adopted Statement of Financial Accounting Standards No. 157 (FAS 157), Fair Value Measurements. FAS 157 defines fair value, establishes the framework for measuring fair value, and expands the disclosures of fair value measurements in the financial statements. Adoption of FAS 157 did not have a material impact on the fund’s net assets or results of operations.

In March 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 161 (FAS 161), Disclosures about Derivative Instruments and Hedging Activities, which is effective for fiscal years and interim periods beginning after November 15, 2008. FAS 161 requires enhanced disclosures about derivative and hedging activities, including how such activities are accounted for and their effect on financial position, performance and cash flows. Management is currently evaluating the impact the adoption of FAS 161 will have on the fund’s financial statements and related disclosures; however, it is expected to have no material impact on the trust’s net assets or results of operations.

NOTE 2 - VALUATION

The fund’s investments are reported at fair value as defined under FAS 157. 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.

Valuation Methods Debt securities are generally traded in the over-the-counter (OTC) market. Securities with remaining maturities of one year or more at the time of acquisition are valued at prices furnished by dealers who make markets in such securities or by an independent pricing service, which considers the yield or price of bonds of comparable quality, coupon, maturity, and type, as well as prices quoted by dealers who make markets in such securities. Securities with remaining maturities of less than one year at the time of acquisition generally use amortized cost in local currency to approximate fair value. However, if amortized cost is deemed not to reflect fair value or the fund holds a significant amount of such securities with remaining maturities of more than 60 days, the securities are valued at prices furnished by dealers who make markets in such securities or by an independent pricing service.

Other investments, including restricted securities, and those for which the above valuation procedures are inappropriate or are deemed not to reflect fair value are stated at fair value as determined in good faith by the T. Rowe Price Valuation Committee, established by the fund’s Board of Directors.

Valuation Inputs Various inputs are used to determine the value of the fund’s investments. These inputs are summarized in the three broad levels listed below:

Level 1 – quoted prices in active markets for identical securities

Level 2 – observable inputs other than Level 1 quoted prices (including, but not limited to, quoted prices for similar securities, interest rates, prepayment speeds, credit risk)

Level 3 – unobservable inputs

Observable inputs are those based on market data obtained from sources independent of the fund, and unobservable inputs reflect the fund’s own assumptions based on the best information available. The input levels are not necessarily an indication of the risk or liquidity associated with investments at that level. The following table summarizes the fund’s investments, based on the inputs used to determine their values on February 28, 2009:

NOTE 3 - INVESTMENT TRANSACTIONS

Consistent with its investment objective, the fund engages in the following practices to manage exposure to certain risks or to enhance performance. The investment objective, policies, program, and risk factors of the fund are described more fully in the fund’s prospectus and Statement of Additional Information.

Futures Contracts During the year ended February 28, 2009, 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.

Other Purchases and sales of portfolio securities, other than short-term and U.S. government securities, aggregated $200,133,000 and $131,174,000, respectively, for the year ended February 28, 2009. Sales of U.S. government securities aggregated $2,550,000 for the year ended February 28, 2009.

NOTE 4 - 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. Distributions are determined in accordance with Federal income tax regulations, which differ from generally accepted accounting principles, and, therefore, may differ significantly in amount or character from net investment income and realized gains for financial reporting purposes. Financial reporting records are adjusted for permanent book/tax differences to reflect tax character but are not adjusted for temporary differences.

Reclassifications to paid-in capital relate primarily to a tax practice that treats a portion of the proceeds from each redemption of capital shares as a distribution of taxable net investment income and/or realized capital gain. For the year ended February 28, 2009, the following reclassifications, which had no impact on results of operations or net assets, were recorded to reflect tax character:

Distributions during the years ended February 28, 2009, and February 29, 2008, totaled $18,731,000 and $17,395,000, respectively, and were characterized as tax-exempt income for tax purposes. At February 28, 2009, the tax-basis cost of investments and components of net assets were as follows:

The fund intends to retain realized gains to the extent of available capital loss carryforwards. During the year ended February 28, 2009, the fund utilized $2,776,000 of capital loss carryforwards. As of February 28, 2009, unused capital loss carryforwards expire as follows: $1,700,000 in fiscal 2015 and $44,000 in fiscal 2016.

NOTE 5 - 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 0.10% of the fund’s average daily net assets, and a group fee. The group fee rate is calculated based on the combined net assets of certain mutual funds sponsored by Price Associates (the group) applied to a graduated fee schedule, with rates ranging from 0.48% for the first $1 billion of assets to 0.285% for assets in excess of $220 billion. The fund’s group fee is determined by applying the group fee rate to the fund’s average daily net assets. At February 28, 2009, the effective annual group fee rate was 0.31%.

In addition, the fund has entered into service agreements with Price Associates and a wholly owned subsidiary of Price Associates (collectively, Price). Price Associates computes the daily share price and provides certain other administrative services to the fund. T. Rowe Price Services, Inc., provides shareholder and administrative services in its capacity as the fund’s transfer and dividend disbursing agent. For the year ended February 28, 2009, expenses incurred pursuant to these service agreements were $105,000 for Price Associates and $170,000 for T. Rowe Price Services, Inc. The total amount payable at period-end pursuant to these service agreements is reflected as Due to Affiliates in the accompanying financial statements.

As of February 28, 2009, T. Rowe Price Group, Inc., and/or its wholly owned subsidiaries owned 9,878,413 shares of the fund, representing 8% of the fund’s net assets.


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  

To the Board of Directors and Shareholders of
T. Rowe Price Tax-Free Short-Intermediate Fund, Inc.

In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of T. Rowe Price Tax-Free Short-Intermediate Fund, Inc. (the “Fund”) at February 28, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at February 28, 2009 by correspondence with the custodian, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Baltimore, Maryland
April 10, 2009


TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED 2/28/09  

We are providing this information as required by the Internal Revenue Code. The amounts shown may differ from those elsewhere in this report because of differences between tax and financial reporting requirements.

The fund’s distributions to shareholders included:

• $108,000 from short-term capital gains

• $18,643,000 which qualified as exempt-interest dividends.


INFORMATION ON PROXY VOTING POLICIES, PROCEDURES, AND RECORDS 

A description of the policies and procedures used by T. Rowe Price funds and portfolios to determine how to vote proxies relating to portfolio securities is available in each fund’s Statement of Additional Information, which you may request by calling 1-800-225-5132 or by accessing the SEC’s Web site, www.sec.gov. The description of our proxy voting policies and procedures is also available on our Web site, www.troweprice.com. To access it, click on the words “Our Company” at the top of our corporate homepage. Then, when the next page appears, click on the words “Proxy Voting Policies” on the left side of the page.

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 Records” on the right side of the Proxy Voting Policies page.


HOW TO OBTAIN QUARTERLY PORTFOLIO HOLDINGS  

The fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available electronically on the SEC’s Web site (www.sec.gov); hard copies may be reviewed and copied at the SEC’s Public Reference Room, 450 Fifth St. N.W., Washington, DC 20549. For more information on the Public Reference Room, call 1-800-SEC-0330.



ABOUT THE FUND’S DIRECTORS AND OFFICERS 

Your fund is governed by a Board of Directors (Board) that meets regularly to review a wide variety of matters affecting the fund, including performance, investment programs, compliance matters, advisory fees and expenses, service providers, and other business affairs. The Board elects the fund’s officers, who are listed in the final table. At least 75% of Board members are independent of T. Rowe Price Associates, Inc. (T. Rowe Price), and T. Rowe Price International, Inc. (T. Rowe Price International); “inside” or “interested” directors are employees or officers of T. Rowe Price. The business address of each director and officer is 100 East Pratt Street, Baltimore, Maryland 21202. The Statement of Additional Information includes additional information about the directors and is available without charge by calling a T. Rowe Price representative at 1-800-225-5132.

Independent Directors   
 
Name   
(Year of Birth)  Principal Occupation(s) During Past Five Years and Directorships of 
Year Elected*  Other Public Companies 
 
Jeremiah E. Casey  Director, National Life Insurance (2001 to 2005); Director, The Rouse 
(1940)  Company, real estate developers (1990 to 2004) 
2006   
 
Anthony W. Deering  Chairman, Exeter Capital, LLC, a private investment firm (2004 to 
(1945)  present); Director, Under Armour (2008 to present); Director, Vornado 
1983  Real Estate Investment Trust (2004 to present); Director, Mercantile 
  Bankshares (2002 to 2007); Member, Advisory Board, Deutsche 
  Bank North America (2004 to present); Director, Chairman of the 
  Board, and Chief Executive Officer, The Rouse Company, real estate 
  developers (1997 to 2004) 
 
Donald W. Dick, Jr.  Principal, EuroCapital Advisors, LLC, an acquisition and management 
(1943)  advisory firm (1995 to present) 
2001   
 
Karen N. Horn  Director, Eli Lilly and Company (1987 to present); Director, Simon 
(1943)  Property Group (2004 to present); Director, Norfolk Southern (2008 
2003  to present); Director, Georgia Pacific (2004 to 2005) 
 
Theo C. Rodgers  President, A&R Development Corporation (1977 to present) 
(1941)   
2005   
 
John G. Schreiber  Owner/President, Centaur Capital Partners, Inc., a real estate invest- 
(1946)  ment company (1991 to present); Partner, Blackstone Real Estate 
1992  Advisors, L.P. (1992 to present) 
 
*Each independent director oversees 126 T. Rowe Price portfolios and serves until retirement, resignation, or 
election of a successor.   

Inside Directors   
 
Name   
(Year of Birth)   
Year Elected*   
[Number of T. Rowe Price  Principal Occupation(s) During Past Five Years and Directorships of 
Portfolios Overseen]  Other Public Companies 
 
Edward C. Bernard  Director and Vice President, T. Rowe Price; Vice Chairman of the Board, 
(1956)  Director, and Vice President, T. Rowe Price Group, Inc.; Chairman of the 
2006  Board, Director, and President, T. Rowe Price Investment Services, Inc.; 
[126]  Chairman of the Board and Director, T. Rowe Price Global Investment 
  Services Limited, T. Rowe Price Retirement Plan Services, Inc., T. Rowe 
  Price Savings Bank, and T. Rowe Price Services, Inc.; Director, T. Rowe 
  Price International, Inc.; Chief Executive Officer, Chairman of the Board, 
  Director, and President, T. Rowe Price Trust Company; Chairman of the 
  Board, all funds 
 
Mary J. Miller, CFA  Director, T. Rowe Price Trust Company; Director and Vice President, 
(1955)  T. Rowe Price; Vice President, T. Rowe Price Group, Inc.; Vice President, 
2004  Tax-Free Short-Intermediate Fund 
[39]   
 
*Each inside director serves until retirement, resignation, or election of a successor. 

Officers   
 
Name (Year of Birth)   
Position Held With Tax-Free Short-   
Intermediate Fund  Principal Occupation(s) 
 
M. Helena Condez (1962)  Assistant Vice President, T. Rowe Price 
Assistant Vice President   
 
G. Richard Dent (1960)  Vice President, T. Rowe Price and T. Rowe Price 
Vice President  Group, Inc. 
 
Charles E. Emrich (1961)  Vice President, T. Rowe Price; formerly First Vice 
Vice President  President/Credit Analyst, Legg Mason Wood 
  Walker, Inc. (to 2005) 
 
Roger L. Fiery III, CPA (1959)  Vice President, T. Rowe Price, T. Rowe Price 
Vice President  Group, Inc., T. Rowe Price International, Inc., 
  and T. Rowe Price Trust Company 
 
John R. Gilner (1961)  Chief Compliance Officer and Vice President, 
Chief Compliance Officer  T. Rowe Price; Vice President, T. Rowe Price 
  Group, Inc., and T. Rowe Price Investment 
  Services, Inc. 
 
Gregory S. Golczewski (1966)  Vice President, T. Rowe Price and T. Rowe Price 
Vice President  Trust Company 
 
Charles B. Hill, CFA (1961)  Vice President, T. Rowe Price and T. Rowe Price 
President  Group, Inc. 
 
Gregory K. Hinkle, CPA (1958)  Vice President, T. Rowe Price, T. Rowe Price 
Treasurer  Group, Inc., T. Rowe Price Investment Services, 
  Inc., and T. Rowe Price Trust Company; formerly 
  Partner, PricewaterhouseCoopers LLP (to 2007) 
 
Marcy M. Lash (1963)  Vice President, T. Rowe Price and T. Rowe Price 
Vice President  Group, Inc. 
 
Patricia B. Lippert (1953)  Assistant Vice President, T. Rowe Price and 
Secretary  T. Rowe Price Investment Services, Inc. 
 
Konstantine B. Mallas (1963)  Vice President, T. Rowe Price and T. Rowe Price 
Vice President  Group, Inc. 
 
Hugh D. McGuirk, CFA (1960)  Vice President, T. Rowe Price and T. Rowe Price 
Vice President  Group, Inc. 

David Oestreicher (1967)  Director and Vice President, T. Rowe Price 
Vice President  Investment Services, Inc., T. Rowe Price Trust 
  Company, and T. Rowe Price Services, Inc.; Vice 
  President, T. Rowe Price, T. Rowe Price Global 
  Investment Services Limited, T. Rowe Price 
  Group, Inc., T. Rowe Price International, Inc., 
  and T. Rowe Price Retirement Plan Services, Inc. 
 
Deborah D. Seidel (1962)  Vice President, T. Rowe Price Investment 
Vice President  Services, Inc. 
 
Chen Shao (1980)  Employee, T. Rowe Price; formerly Junior 
Assistant Vice President  Accountant, News America Corporation, and 
  Reconciliation Associate, Cablevision 
  Corporation (to 2005); Assistant Store 
  Manager, Walgreen Company (to 2004) 
 
Timothy G. Taylor, CFA (1975)  Vice President, T. Rowe Price 
Vice President   
 
Julie L. Waples (1970)  Vice President, T. Rowe Price 
Vice President   
 
Edward A. Wiese, CFA (1959)  Vice President, T. Rowe Price, T. Rowe Price 
Vice President  Group, Inc., and T. Rowe Price Trust Company; 
  Chief Investment Officer, Director, and Vice 
  President, T. Rowe Price Savings Bank 
 
Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe Price International 
for at least five years.   

Item 2. Code of Ethics.

The registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR, applicable to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of this code of ethics is filed as an exhibit to this Form N-CSR. No substantive amendments were approved or waivers were granted to this code of ethics during the period covered by this report.

Item 3. Audit Committee Financial Expert.

The registrant’s Board of Directors/Trustees has determined that Ms. Karen N. Horn qualifies as an audit committee financial expert, as defined in Item 3 of Form N-CSR. Ms. Horn is considered independent for purposes of Item 3 of Form N-CSR.

Item 4. Principal Accountant Fees and Services.

(a) – (d) Aggregate fees billed to the registrant for the last two fiscal years for professional services rendered by the registrant’s principal accountant were as follows:


Audit fees include amounts related to the audit of the registrant’s annual financial statements and services normally provided by the accountant in connection with statutory and regulatory filings. Audit-related fees include amounts reasonably related to the performance of the audit of the registrant’s financial statements and specifically include the issuance of a report on internal controls and, if applicable, agreed-upon procedures related to fund acquisitions. Tax fees include amounts related to services for tax compliance, tax planning, and tax advice. The nature of these services specifically includes the review of distribution calculations and the preparation of Federal, state, and excise tax returns. All other fees include the registrant’s pro-rata share of amounts for agreed-upon procedures in conjunction with service contract approvals by the registrant’s Board of Directors/Trustees.

(e)(1) The registrant’s audit committee has adopted a policy whereby audit and non-audit services performed by the registrant’s principal accountant for the registrant, its investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant require pre-approval in advance at regularly scheduled audit committee meetings. If such a service is required between regularly scheduled audit committee meetings, pre-approval may be authorized by one audit committee member with ratification at the next scheduled audit committee meeting. Waiver of pre-approval for audit or non-audit services requiring fees of a de minimis amount is not permitted.

    (2) No services included in (b) – (d) above were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

(f) Less than 50 percent of the hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent fiscal year were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees.

(g) The aggregate fees billed for the most recent fiscal year and the preceding fiscal year by the registrant’s principal accountant for non-audit services rendered to the registrant, its investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant were $1,922,000 and $1,486,000, respectively.

(h) All non-audit services rendered in (g) above were pre-approved by the registrant’s audit committee. Accordingly, these services were considered by the registrant’s audit committee in maintaining the principal accountant’s independence.

Item 5. Audit Committee of Listed Registrants.

Not applicable.

Item 6. Investments.

(a) Not applicable. The complete schedule of investments is included in Item 1 of this Form N-CSR.

(b) Not applicable.

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

Not applicable.

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

Not applicable.

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

Not applicable.

Item 10. Submission of Matters to a Vote of Security Holders.

Not applicable.

Item 11. Controls and Procedures.

(a) The registrant’s principal executive officer and principal financial officer have evaluated the registrant’s disclosure controls and procedures within 90 days of this filing and have concluded that the registrant’s disclosure controls and procedures were effective, as of that date, in ensuring that information required to be disclosed by the registrant in this Form N-CSR was recorded, processed, summarized, and reported timely.

(b) The registrant’s principal executive officer and principal financial officer are aware of no change in the registrant’s internal control over financial reporting that occurred during the registrant’s second fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 12. Exhibits.

(a)(1) The registrant’s code of ethics pursuant to Item 2 of Form N-CSR is attached.

    (2) Separate certifications by the registrant's principal executive officer and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(a) under the Investment Company Act of 1940, are attached.

    (3) Written solicitation to repurchase securities issued by closed-end companies: not applicable.

(b) A certification by the registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940, is attached.

                                                                              
SIGNATURES
 
  Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment 
Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the 
undersigned, thereunto duly authorized. 
 
T. Rowe Price Tax-Free Short-Intermediate Fund, Inc. 
 
 
 
By  /s/ Edward C. Bernard 
  Edward C. Bernard 
  Principal Executive Officer 
 
Date  April 17, 2009 
 
 
 
  Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment 
Company Act of 1940, this report has been signed below by the following persons on behalf of 
the registrant and in the capacities and on the dates indicated. 
 
 
By  /s/ Edward C. Bernard 
  Edward C. Bernard 
  Principal Executive Officer 
 
Date  April 17, 2009 
 
 
 
By  /s/ Gregory K. Hinkle 
  Gregory K. Hinkle 
  Principal Financial Officer 
 
Date  April 17, 2009