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: 811-03872
| 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, 2013
Item 1. Report to Shareholders
 |
|
Tax-Free
Short-Intermediate Fund |
February
28, 2013 |
The views and opinions in this report were current as of February 28, 2013. 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
Despite historically low interest rates, long-term municipal bonds produced good returns in the year ended February 28, 2013, as yields declined further and bond prices rose amid strong investor demand for attractive levels of tax-free income. Short- and intermediate-term securities delivered smaller returns, as the compression of shorter-term tax-free yields near 0% reduced their potential for significant capital appreciation. Lower-quality municipals with their yield advantage outperformed higher-quality issues in both the investment-grade and high yield markets.
MARKET ENVIRONMENT
The U.S. economy expanded at a modest pace over the last year. Employment growth has been steady, but the national unemployment level remains elevated. The housing market recovery has been gaining traction, although its contribution to overall growth is smaller than in previous expansions. We believe gross domestic product growth will continue in 2013, but uncertainty about U.S. fiscal policy, which restrained economic activity in late 2012, could continue to do so in the months ahead. On January 1, 2013, Congress passed legislation to avoid the full brunt of the federal tax increases and automatic spending cuts scheduled to take place at the end of 2012. The 39.6% federal tax bracket was reinstated, and the 2% payroll tax cut in place since the beginning of 2011 was allowed to expire. Scheduled budget sequestration was delayed for two months. The new Congress will need to address the approaching legal borrowing limit for the federal government—the “debt ceiling”—in the near future.
To support the economy over the last year, the Federal Reserve kept its fed funds target rate in the 0.00% to 0.25% range. The central bank is purchasing $40 billion of agency mortgage-backed securities every month—a plan that started in September. In addition, the Fed announced in late 2012 that it will purchase $45 billion worth of Treasury securities monthly in 2013 and that it plans to keep short-term rates very low as long as the national unemployment rate remains above 6.5% and inflation is projected at no more than 2.5% in the next 12 to 24 months.
Shorter-term municipal yields remained low and were little changed over the last 12 months. Yields of long-term, high-quality munis generally declined during our fiscal year. With municipal yields about the same as Treasury yields across the yield curve, tax-free securities are an attractive alternative for fixed income investors on a relative basis. As of February 28, 2013, the 2.91% yield offered by a 30-year tax-free municipal bond rated AAA was about 94% of the 3.09% pretax yield offered by a 30-year Treasury bond. An investor in the 28% federal tax bracket would need to invest in a taxable bond yielding about 4.04% in order to receive the same after-tax income. (To calculate a municipal bond’s taxable-equivalent yield, divide the municipal bond’s yield by the quantity of 1.00 minus your federal tax bracket expressed as a decimal—in this case, 1.00 - 0.28, or 0.72.)
Municipal issuance totaled $373 billion in 2012, according to The Bond Buyer. Much of that reflects municipalities refinancing their debts to take advantage of low long-term interest rates, rather than net new issuance. One positive factor for munis is that austerity-minded state and local governments have been conservative about adding to indebtedness, despite prevailing low yields. Another favorable factor supporting the market is brisk demand, particularly for long-term issues. Issuance in the first two months of 2013 has been fairly strong at $47.6 billion, and full-year issuance is likely to approximate that of 2012.
Since the last recession, many states have faced stiff fiscal challenges, and most have responded by cutting spending and raising taxes and fees to close budget deficits. While tax revenues collected by states are growing again, the pattern has been slower and more uneven than historically, and expense pressures continue. Balancing state budgets is not easy work and most states do a good job, although those that are not properly funding pensions and other retirement benefits are viewed unfavorably. We believe that many states deserve high credit ratings and that state governments will be able to continue servicing their outstanding debts. However, we have longer-term concerns about some states’ willingness and ability to address sizable pension obligations and other retirement benefits.
Municipal bond performance throughout the last year was driven by investors’ search for higher yields in a low interest rate environment. Revenue bonds outperformed local and state general obligations (GOs). We prefer bonds backed by a dedicated revenue stream over GOs, with a bias toward transportation and utility bonds issued by providers of these essential services. Among revenue bonds, industrial revenue issues fared best, especially tobacco names. We underweight tobacco bonds because longer-term fundamentals are poor and tobacco consumption trends do not appear to be especially positive. Health care bonds did well, but we are being more selective among hospital revenue bonds as new issue supply and some credit concerns are weighing on the sector. Prerefunded bonds, which are backed by U.S. Treasuries, lagged significantly.
PORTFOLIO STRATEGY
TAX-EXEMPT MONEY FUND
The fund returned 0.02% during the six-month period ended February 28, 2013, and over the fund’s fiscal year, compared with 0.01% and 0.02%, respectively, for the Lipper Tax-Exempt Money Market Funds Index. As this period of the Fed’s extraordinary zero interest rate policy continues, municipal money market rate movements were quite minimal. Generally, over the last six months, yields across the curve were slightly lower. Rates have ranged from an average of 10 basis points (0.10%) for overnight maturities to around 19 basis points for notes maturing in one year. The curve steepened by a few basis points, as commercial paper rates in maturities of 30 to 90 days moved slightly lower, while one-year maturity yields remained largely unchanged. The move lower in yields is generally consistent with other money market sectors, as the quest for any yield gradually grinds all money market rates lower. Placing further pressure on rates, new issue supply continues to be constrained; issuers continue to prefer refinancing in longer-dated bonds as they lock in record low yields, thus reducing investable supply in money markets.
Credit quality continues to play a big role in the management of the fund. We have been favoring and maintaining an overweight to highly rated hospitals, local and state GOs, and higher education debt, which include Mayo Clinic, Baltimore County, State of Texas, and University of Chicago. As always, bank liquidity providers play a big part in financing short-term municipal debt. We are mindful of their impact on the fund. Our largest bank liquidity exposures are to Wells Fargo, JPMorgan Chase, and Federal Home Loan Bank. (Please refer to the fund’s portfolio of investments for a complete list of holdings and the amount each represents in the portfolio.)
Measures implemented by the Securities and Exchange Commission (SEC) in 2010 that mandated higher liquidity requirements and reduced credit risk for all money market funds have resulted in much more resilient products for shareholders. However, the government’s Financial Stability Oversight Council has weighed in on the regulatory debate after the SEC failed to come to a consensus on the topic. We expect money fund reform to remain a main focus for regulators and the money fund industry.
Yields are likely to remain stable over the next six months barring a flare-up in the European crisis or some other supply dislocation. Given this outlook, and with the Fed on hold, we continue to operate in the longer end of our targeted weighted average maturity of 50 to 55 days. As always, we are committed to managing a high-quality diversified portfolio, with a focus on liquidity and stability of principal.
TAX-FREE SHORT-INTERMEDIATE FUND
The fund returned 1.02% and 1.92% during the 6- and 12-month periods ended February 28, 2013, respectively, compared with 1.00% and 2.10% for the Lipper Short-Intermediate Municipal Debt Funds Average, which measures the performance of competing funds. (Performance figures are also shown in the Performance Comparison table for the Advisor Class, which began operations on August 8, 2012.) The fund’s net asset value per share was $5.72 at the end of February, up a penny from six months earlier. Dividends per share contributed $0.05 to the fund’s total return during the six-month period.
Our strategy centered on enhancing yield by keeping duration slightly longer than that of the benchmark for most of the past six months by purchasing bonds in the 7- to 10-year part of the yield curve. This positioning reflects our view that the Federal Reserve will continue to maintain its low interest rate policy for the foreseeable future. At the end of February 2013, the portfolio’s duration was 2.8 years, close to where it was six months earlier.
We are overweight revenue sectors that offer some incremental yield over GOs and prerefunded bonds, while the balance of our investments is broadly diversified across all sectors of the market at reasonable yield premiums over high-quality bonds. At the end of the period, however, those yield advantages had compressed, and it has become a bit more challenging to find good opportunities during the current period of low issuance. As a result, our cash levels have increased again as we approach tax season. This is a seasonal pattern in our segment of the tax-exempt market.
Transportation remains the portfolio’s largest sector allocation at 18.8% of net assets, up from 18.0% at the end of last August. Health care was the second largest, representing 14.5%, up from 13.8%. Our overweight in revenue bonds and duration management served us well versus our peer group average, but some of our competition kept a higher allocation to both high yield bonds and individual sectors that outperformed, which trimmed the fund’s relative performance.
AA and A bonds composed 78% of the portfolio, while AAA and BBB fleshed out the remainder. Given our outlook for interest rates and economic growth in the foreseeable future, we do not expect to make significant changes to our investment strategy and positioning. Our emphasis will be on seeking yield advantage where we find it, primarily in various revenue sectors, while maintaining the fund’s overall credit quality.
TAX-FREE INCOME FUND
The fund returned 2.56% and 6.44% during the 6- and 12-month periods ended February 28, 2013, respectively, compared with 2.50% and 6.30% for the Lipper peer group average, which measures the performance of competing funds. (Results for the Advisor Class were somewhat lower, reflecting its different fee structure.) The fund’s net asset value per share was $10.62 at the end of February, up from $10.55 six months earlier. Dividends per share contributed $0.20 to the fund’s total return during the six-month period. Returns in the tax-exempt market were solid as demand remained elevated. The implementation of higher federal taxes and, in many cases, higher state and local taxes has kept municipals an enticing investment option.
Our positioning along the yield curve during the fund’s fiscal year was fairly consistent, as we were overweight long-term bonds and underweight shorter maturities. The strategy benefited performance thanks to stronger returns from longer-term securities. We currently maintain an underweight in bonds maturing in 10 to 15 years. While an overweight in longer maturities can be vulnerable to rising rates, our holdings are defensive in nature, dominated by callable premium coupon structures that offer greater protections. This is in line with our outlook for muted U.S. economic growth and for continuing strong investor demand for tax-exempt bonds.
During the past six months, the fund’s duration was relatively unchanged, slightly longer than that of the Barclays Municipal Bond Index. Our weighted average maturity was also fairly stable. We did extend the weighted average maturity over the 12-month period, a reflection of our bias toward longer maturities. This strategy contributed positively to performance.
Our sector positioning was also constant through the year, with an overweight in the revenue sector and an underweight in GOs. States have made great strides in fiscal management during the past few years, but challenges remain, particularly for local governments. The portfolio’s largest sector exposure is to transportation revenue-backed securities. Health care is second largest and rose to 19.5% from 18.8% at the end of August. The fund is also overweight electric utilities and industrial pollution control bonds (IDR/PCR), which offer attractive yields relative to comparably rated securities in other sectors. The revenue sector outperformed GOs for the year, with the IDR/PCR sector the top performer, followed by the hospital sector.
There were slight shifts in the fund’s quality diversification over the fiscal year. Exposure to AAA and AA bonds declined, while A and BBB holdings moved higher. An overweight in BBBs proved beneficial, since they outperformed higher-quality securities. Our positions in prepaid gas also outperformed the general market. On a negative note, our maturities less than three years lagged, as they offered little in yield while rates were stable. A slight overweight in bonds with maturities less than two years also trimmed results.
We were net buyers of bonds during both the 6- and 12-month periods, due to coupon and maturity reinvestment as well as new subscriptions into the fund. During the past six months, we added to both dedicated tax and airport sectors and slightly increased our prepaid gas holdings. Our major purchases were bonds issued in Virginia, Texas, Florida, and Utah. Credit additions include Texas State Transportation Turnpike Commission, Broward County Florida Airport System, and South Dakota State Health and Ed for Sanford Health.
TAX-FREE HIGH YIELD FUND
The Tax-Free High Yield Fund posted strong returns for both the 6- and 12-month periods ended February 28, 2013. Performance in both halves was roughly in line with our Lipper peer group. (Results for the Advisor Class, which began operations on August 8, 2012, are also shown in the Performance Comparison table.) The fund’s net asset value per share was $12.02 at the end of February, up from $11.77 at the end of last August, and dividends per share contributed $0.25 to the fund’s total return during the past six months.
Significant demand for higher incremental yield in a persistently low interest rate world drove risk premiums lower. As a result, prices for medium- and lower-quality municipals rallied more than those of comparable higher-quality bonds, bolstering returns. We strategically emphasized essential service revenue bonds over lower-quality GOs. Cash flows generated by these public projects are durable and have been greatly insulated from pension and other long-term liability challenges facing many state and local borrowers. Our public power and utility bonds continued to perform well. The fund also benefited from its positions in debt issued by the State of California. Prudent fiscal management, a building economic recovery, and limited new borrowing contributed to fundamental credit improvement and strong returns for the state’s bonds during the fund’s fiscal year.
We maintained considerable exposure to health care-related debt for both hospitals and life care communities (CCRCs). Our selectivity in hospitals was rewarded when several issuers—Barnabas Health (NJ), Banner Health (AZ), and Doctors Community Hospital (MD)—outpaced the overall sector. Barnabas Health was upgraded during the period. Our overweight position in CCRCs also provided a boost, as investors demanded less of a yield premium for bonds issued to finance retirement facilities. The life-care sector was one of the best-returning areas of the municipal market for the period.
We continued to favor the transportation sector of the municipal market, including airport and toll road bonds. These projects often enjoy limited competition, which strengthens the bonds’ credit-worthiness. We invested in several new public-private partnership toll roads in Virginia, including Elizabeth River Crossing, I-95, and Route 460, which displayed solid demand metrics in addition to reasonable oversight from the state’s department of transportation. Our airport revenue bonds were strong contributors to the fund’s returns as well.
Our conservative positioning in tobacco securitization bonds detracted from performance, since tobacco bonds rallied sharply as investors reached for additional yield. After years of setbacks and rating agency downgrades, tobacco bonds enjoyed some rare credit benefits, thanks to only a mild decline in consumption and progress on litigation between states and tobacco companies, which spurred returns.
Medium- and lower-quality tax-exempt bonds have had quite a run over the past few years, recovering from difficult days during the financial crisis. Investor demand was heavy last year, and the sector experienced significant new cash flows. Looking forward, we expect that the income earned by your fund, rather than the type of appreciation we enjoyed in the recent past, will be a primary driver of total return.
OUTLOOK
While we are pleased with the tremendous performance of municipal bonds over the last two years, we believe that returns in the period ahead will moderate; the credit and economic environment for municipalities will likely remain challenging, and yields are unlikely to fall significantly from current levels. Modest economic growth and improving income and sales tax revenues are providing some support for state and local governments. However, cutbacks in state support for municipalities and persistent downward pressure on property tax revenues could keep local municipal issuers vulnerable. If the economy slides back into a recession—which we are not currently predicting—municipalities will face even tougher challenges.
State and local government liabilities, such as pension benefits and health care costs, are a growing long-term concern. While most state and local governments are maintaining balanced budgets, fewer municipalities have significantly addressed these longer-term problems. States need to continue these efforts on their own, as a federal bailout of state and local governments without some losses to bondholders seems unlikely.
We continue to believe that the municipal bond market is a high-quality market, with good opportunities for long-term investors. In this low-rate environment, long-term bonds and A rated sectors still represent reasonable value relative to taxable fixed income alternatives. While we are comforted somewhat by Federal Reserve assurances that interest rate hikes are not imminent, and by the demonstrated ability of states to balance their budgets in tough times, we are mindful that municipal yields are at or near historical lows and there is the potential for losses if rates rise in response to stronger economic growth or inflation. Although we expect rates to stay range-bound in the period ahead, we are careful with any investment shift that might materially increase our portfolios’ interest rate sensitivity.
We believe T. Rowe Price’s strong credit research capabilities have been and will remain an asset for our investors. We continue to conduct our own thorough research and assign our own independent credit ratings before making investment decisions. As always, we are on the lookout for attractively valued bonds issued by municipalities with good long-term fundamentals—an investment strategy we believe will continue to serve our investors well.
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
Chairman of the Investment
Advisory Committee
Tax-Free Income Fund
James M. Murphy
Chairman of the Investment Advisory Committee
Tax-Free
High Yield Fund
March 19, 2013
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.
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
Barclays Municipal Bond Index: An unmanaged index that tracks municipal debt instruments.
Barclays 1–5 Year Blend (1–6 Year Maturity) Index: A subindex of the Barclays Municipal Bond Index. It is a rules-based, market value-weighted index of short-term bonds engineered for the tax-exempt bond market.
Barclays 65% High-Grade/35% High-Yield Index: An index that tracks Barclays indexes of both investment-grade and below investment-grade municipal debt instruments.
Basis point: One one-hundredth of one percentage point, or 0.01%.
Duration: A measure of a bond fund’s sensitivity to changes in interest rates. For example, a fund with a duration of five years would fall about 5% 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.
Federal funds rate: The interest rate charged on overnight loans of reserves by one financial institution to another in the United States. The Federal Reserve sets a target federal funds rate to affect the direction of interest rates.
General obligation debt: A government’s strongest pledge that obligates its full faith and credit, including, if necessary, its ability to raise taxes.
Investment grade: High-quality bonds as measured by one of the major credit rating agencies. For example, Standard & Poor’s designates the bonds in its top four categories (AAA to BBB) as investment grade.
LIBOR: 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 categories defined by Lipper.
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.
SEC yield (7-day simple): A method of calculating a money fund’s yield by annualizing the fund’s net investment income for the last seven days of each period divided by the fund’s net asset value at the end of the period. Yield will vary and is not guaranteed.
SEC yield (30-day): A method of calculating a fund’s yield that assumes all portfolio securities are held until maturity. Yield will vary and is not guaranteed.
Weighted average life: A measure of a fund’s credit quality risk. In general, the longer the average life, the greater the fund’s credit quality risk. The average life is the dollar-weighted average maturity of a portfolio’s individual securities without taking into account interest rate readjustment dates. Money funds must maintain a weighted average life of less than 120 days.
Weighted average maturity: A measure of a fund’s interest rate sensitivity. In general, the longer the average maturity, the greater the fund’s sensitivity to interest rate changes. The weighted average maturity may take into account the interest rate readjustment dates for certain securities. Money funds must maintain a weighted average maturity of less than 60 days.
Yield curve: A graphic depiction of the relationship between yields and maturity dates for a set of similar securities such as Treasuries or municipal securities. Securities with longer maturities usually have a higher yield. If short-term securities offer a higher yield, then the curve is said to be “inverted.” If short- and long-term bonds are offering equivalent yields, then the curve is said to be “flat.”
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.
| 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.
| 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 on 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 on 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 Short-Intermediate Fund, Tax-Free Income Fund, and Tax-Free High Yield Fund have 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 account service fee of $20, generally for accounts with less than $10,000. The fee is waived for any investor whose T. Rowe Price mutual fund accounts total $50,000 or more; accounts electing to receive electronic delivery of account statements, transaction confirmations, prospectuses, and shareholder reports; or accounts of an investor who is a T. Rowe Price Preferred Services, Personal Services, or Enhanced Personal Services client (enrollment in these programs generally requires T. Rowe Price assets of at least $100,000). 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.
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 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. The fund has two classes of shares: the Tax-Free Short-Intermediate Fund original share class, referred to in this report as the Investor Class, offered since December 23, 1983, and the Tax-Free Short-Intermediate Fund–Advisor Class (Advisor Class), offered since August 8, 2012. Advisor Class shares are sold only through unaffiliated brokers and other unaffiliated financial intermediaries that are compensated by the class for distribution, shareholder servicing, and/or certain administrative services under a Board-approved Rule 12b-1 plan. Each class has exclusive voting rights on matters related solely to that class; separate voting rights on matters that relate to both classes; and, in all other respects, the same rights and obligations as the other class.
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 (GAAP), which require the use of estimates made by management. Management believes that estimates and valuations are appropriate; however, actual results may differ from those estimates, and the valuations reflected in the accompanying financial statements may differ from the value ultimately realized upon sale or maturity.
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. Distributions to shareholders are recorded on the ex-dividend date. Income distributions are declared by each class daily and paid monthly. Capital gain distributions, if any, are generally declared and paid by the fund annually.
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 held at the custodian, which 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 Guidance In December 2011, the Financial Accounting Standards Board issued amended guidance requiring an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The guidance is effective for fiscal years and interim periods beginning on or after January 1, 2013. Adoption will have no effect on the fund’s net assets or results of operations.
NOTE 2 - VALUATION
The fund’s financial instruments are reported at fair value as defined by GAAP. The fund determines the values of its assets and liabilities and computes each class’s 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 private placements, and those financial instruments 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 (the Board). Subject to oversight by the Board, the Valuation Committee develops pricing-related policies and procedures and approves all fair-value determinations. The Valuation Committee regularly makes good faith judgments, using a wide variety of sources and information, to establish and adjust valuations of certain securities as events occur and circumstances warrant. For instance, in determining the fair value of private-equity instruments, the Valuation Committee considers a variety of factors, including the company’s business prospects, its financial performance, strategic events impacting the company, relevant valuations of similar companies, new rounds of financing, and any negotiated transactions of significant size between other investors in the company. Because any fair-value determination involves a significant amount of judgment, there is a degree of subjectivity inherent in such pricing decisions.
Valuation Inputs Various inputs are used to determine the value of the fund’s financial instruments. These inputs are summarized in the three broad levels listed below:
Level 1 – quoted prices in active markets for identical financial instruments
Level 2 – observable inputs other than Level 1 quoted prices (including, but not limited to, quoted prices for similar financial instruments, interest rates, prepayment speeds, and 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 financial instruments at that level. On February 28, 2013, all of the fund’s financial instruments were classified as Level 2, based on the inputs used to determine their values.
NOTE 3 - DERIVATIVE INSTRUMENTS
During the year ended February 28, 2013, the fund invested in derivative instruments. As defined by GAAP, a derivative is a financial instrument whose value is derived from an underlying security price, foreign exchange rate, interest rate, index of prices or rates, or other variable; it requires little or no initial investment and permits or requires net settlement. The fund invests in derivatives only if the expected risks and rewards are consistent with its investment objectives, policies, and overall risk profile, as described in its prospectus and Statement of Additional Information. The fund may use derivatives for a variety of purposes, such as seeking to hedge against declines in principal value, increase yield, invest in an asset with greater efficiency and at a lower cost than is possible through direct investment, or to adjust portfolio duration and credit exposure. The risks associated with the use of derivatives are different from, and potentially much greater than, the risks associated with investing directly in the instruments on which the derivatives are based. Investments in derivatives can magnify returns positively or negatively; however, the fund at all times maintains sufficient cash reserves, liquid assets, or other SEC-permitted asset types to cover the settlement obligations under its open derivative contracts.
The fund values its derivatives at fair value, as described below and in Note 2, and recognizes changes in fair value currently in its results of operations. Accordingly, the fund does not follow hedge accounting, even for derivatives employed as economic hedges. The fund does not offset the fair value of derivative instruments against the right to reclaim or obligation to return collateral. As of February 28, 2013, the fund held no derivative instruments.
Additionally, during the year ended February 28, 2013, the fund recognized $17,000 of gain on interest rate derivatives, included in realized gain (loss) on Futures on the accompanying Statement of Operations.
Futures Contracts The fund is subject to interest rate risk in the normal course of pursuing its investment objectives and uses futures contracts to help manage such risk. The fund may enter into futures contracts to manage exposure to interest rate and yield curve movements, security prices, foreign currencies, credit quality, and mortgage prepayments; as an efficient means of adjusting exposure to all or part of a target market; to enhance income; as a cash management tool; and/or to adjust portfolio duration and credit exposure. A futures contract provides for the future sale by one party and purchase by another of a specified amount of a particular underlying financial instrument at an agreed-upon price, date, time, and place. The fund currently invests only in exchange-traded futures, which generally are standardized as to maturity date, underlying financial instrument, and other contract terms. Upon entering into a futures contract, the fund is required to deposit collateral with the broker in the form of cash or securities in an amount equal to a certain percentage of the contract value (margin requirement); the margin requirement must then be maintained at the established level over the life of the contract. Subsequent payments are made or received by the fund each day to settle daily fluctuations in the value of the contract (variation margin), which reflect changes in the value of the underlying financial instrument. Variation margin is recorded as unrealized gain or loss until the contract is closed. The value of a futures contract included in net assets is the amount of unsettled variation margin; net variation margin receivable is reflected as an asset, and net variation margin payable is reflected as a liability on the accompanying Statement of Assets and Liabilities. Risks related to the use of futures contracts include possible illiquidity of the futures markets, contract prices that can be highly volatile and imperfectly correlated to movements in hedged security values and/or interest rates, and potential losses in excess of the fund’s initial investment. During the year ended February 28, 2013, the fund’s exposure to futures, based on underlying notional amounts, was generally less than 1% of net assets.
NOTE 4 - OTHER INVESTMENT TRANSACTIONS
Consistent with its investment objective, the fund engages in the following practices to manage exposure to certain risks and/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.
Restricted Securities The fund may invest in securities that are subject to legal or contractual restrictions on resale. Prompt sale of such securities at an acceptable price may be difficult and may involve substantial delays and additional costs.
When-Issued Securities The fund may enter into when-issued purchases and/or sales commitments, pursuant to which it agrees to purchase or sell, respectively, the underlying security for a fixed unit price, with payment and delivery at a scheduled future date generally beyond the customary settlement period for such securities. When-issued refers to securities that have not yet been issued but will be issued in the future and may include new securities or securities obtained through a corporate action on a current holding. The fund normally purchases when-issued securities with the intention of taking possession but may enter into a separate agreement to sell the securities before the settlement date. Until settlement, the fund maintains cash reserves and liquid assets sufficient to settle its when-issued commitments. Amounts realized on when-issued transactions are included with realized gain/loss on securities in the accompanying financial statements.
Counterparty Risk and Collateral Counterparty risk related to exchange-traded futures and options contracts is minimal because the exchange’s clearinghouse provides protection against counterparty defaults. Generally, for exchange-traded derivatives such as futures and options, each broker, in its sole discretion, may change margin requirements applicable to the fund. Cash posted by the fund to meet margin requirements is reflected as restricted cash in the accompanying financial statements and securities posted by the fund are so noted in the accompanying Portfolio of Investments; both remain in the fund’s assets. As of February 28, 2013, no margin had been posted by the fund to the broker for exchange-traded derivatives.
Other Purchases and sales of portfolio securities other than short-term securities aggregated $610,955,000 and $301,632,000, respectively, for the year ended February 28, 2013.
NOTE 5 - 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 determined in accordance with federal income 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 but are not adjusted for temporary differences.
The fund files U.S. federal, state, and local tax returns as required. The fund’s tax returns are subject to examination by the relevant tax authorities until expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return but which can be extended to six years in certain circumstances. Tax returns for open years have incorporated no uncertain tax positions that require a provision for income taxes.
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. Reclassifications between income and gain relate primarily to differences between book/tax amortization policies. For the year ended February 28, 2013, the following reclassifications were recorded to reflect tax character (there was no impact on results of operations or net assets):
Distributions during the years ended February 28, 2013 and February 29, 2012, were characterized for tax purposes as follows:
At February 28, 2013, the tax-basis cost of investments and components of net assets were as follows:
NOTE 6 - RELATED PARTY TRANSACTIONS
The fund is managed by T. Rowe Price Associates, Inc. (Price Associates), a wholly owned subsidiary of T. Rowe Price Group, Inc. (Price Group). The investment management agreement between the fund and Price Associates 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 0.28% for assets in excess of $300 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, 2013, the effective annual group fee rate was 0.30%.
The Advisor Class is also subject to a contractual expense limitation through June 30, 2015. During the limitation period, Price Associates is required to waive its management fee and/or reimburse expenses, excluding interest, taxes, brokerage commissions, and extraordinary expenses that would otherwise cause the class’s ratio of annualized total expenses to average net assets (expense ratio) to exceed its expense limitation of 0.85%. For a period of three years after the date of any reimbursement or waiver, each class is required to repay Price Associates for expenses previously reimbursed and management fees waived to the extent the class’s net assets have grown or expenses have declined sufficiently to allow repayment without causing the class’s expense ratio to exceed its expense limitation. Including these amounts, management fees waived and expenses previously reimbursed by Price Associates in the amount of less than $1,000 remain subject to repayment at February 28, 2013.
In addition, the fund has entered into service agreements with Price Associates and a wholly owned subsidiary of Price Associates (collectively, Price). Price Associates computes the daily share prices and provides certain other administrative services to the fund. T. Rowe Price Services, Inc., provides shareholder and administrative services in its capacity as the fund’s transfer and dividend disbursing agent. For the year ended February 28, 2013, expenses incurred pursuant to these service agreements were $208,000 for Price Associates and $113,000 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, 2013, T. Rowe Price Group, Inc., and/or its wholly owned subsidiaries owned 19,602,227 shares of the Investor Class, and 43,783 shares of the Advisor Class, aggregating 6% 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 portfolio of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of T. Rowe Price Tax-Free Short-Intermediate Fund, Inc. (the “Fund”) at February 28, 2013, and the results of its operations, the changes in its net assets and the financial highlights for each of the periods indicated therein, 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, 2013 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers
LLP
Baltimore, Maryland
April 12, 2013
| Tax Information (Unaudited) for the Tax Year Ended 2/28/13 |
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:
- $63,000 from short-term capital gains
- $1,487,000 from long-term capital gains,
subject to the 15% rate gains category.
- $31,385,000 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. You may request this document by calling 1-800-225-5132 or by accessing the SEC’s website, sec.gov.
The description of our proxy voting policies and procedures is also available on our website, troweprice.com. To access it, click on the words “Social Responsibility” at the top of our corporate homepage. Next, click on the words “Conducting Business Responsibly” on the left side of the page that appears. Finally, click on the words “Proxy Voting Policies” on the left side of the page that appears.
Each fund’s most recent annual proxy voting record is available on our website and through the SEC’s website. To access it through our website, follow the directions above to reach the “Conducting Business Responsibly” page. Click on the words “Proxy Voting Records” on the left side of that page, and then click on the “View Proxy Voting Records” link at the bottom of the page that appears.
| 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 website (sec.gov); hard copies may be reviewed and copied at the SEC’s Public Reference Room, 100 F St. N.E., 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 overseen 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 the Board’s members are independent of T. Rowe Price Associates, Inc. (T. Rowe Price), and its affiliates; “inside” or “interested” directors are employees or officers of T. Rowe Price. The business address of each director and officer is 100 East Pratt Street, Baltimore, Maryland 21202. The Statement of Additional Information includes additional information about the fund directors and is available without charge by calling a T. Rowe Price representative at 1-800-638-5660.
| Independent Directors | ||
| Name | ||
| (Year of Birth) | ||
| Year Elected* | ||
| [Number of T. Rowe Price | Principal Occupation(s) and Directorships of Public Companies and | |
| Portfolios Overseen] | Other Investment Companies During the Past Five Years | |
| William R. Brody | President and Trustee, Salk Institute for Biological Studies (2009 | |
| (1944) | to present); Director, Novartis, Inc. (2009 to present); Director, IBM | |
| 2009 | (2007 to present); President and Trustee, Johns Hopkins University | |
| [142] | (1996 to 2009); Chairman of Executive Committee and Trustee, | |
| Johns Hopkins Health System (1996 to 2009) | ||
| Anthony W. Deering | Chairman, Exeter Capital, LLC, a private investment firm (2004 | |
| (1945) | to present); Director, Under Armour (2008 to present); Director, | |
| 1983 | Vornado Real Estate Investment Trust (2004 to present); Director | |
| [142] | and Member of the Advisory Board, Deutsche Bank North America | |
| (2004 to present); Director, Mercantile Bankshares (2002 to 2007) | ||
| Donald W. Dick, Jr. | Principal, EuroCapital Partners, LLC, an acquisition and management | |
| (1943) | advisory firm (1995 to present) | |
| 2001 | ||
| [142] | ||
| Karen N. Horn | Senior Managing Director, Brock Capital Group, an advisory and | |
| (1943) | investment banking firm (2004 to present); Director, Eli Lilly and | |
| 2003 | Company (1987 to present); Director, Simon Property Group (2004 | |
| [142] | to present); Director, Norfolk Southern (2008 to present); Director, | |
| Fannie Mae (2006 to 2008) | ||
| Theo C. Rodgers | President, A&R Development Corporation (1977 to present) | |
| (1941) | ||
| 2005 | ||
| [142] | ||
| John G. Schreiber | Owner/President, Centaur Capital Partners, Inc., a real estate | |
| (1946) | investment company (1991 to present); Cofounder and Partner, | |
| 1992 | Blackstone Real Estate Advisors, L.P. (1992 to present); Director, | |
| [142] | General Growth Properties, Inc. (2010 to present) | |
| Mark R. Tercek | President and Chief Executive Officer, The Nature Conservancy | |
| (1957) | (2008 to present); Managing Director, The Goldman Sachs | |
| 2009 | Group, Inc. (1984 to 2008) | |
| [142] | ||
| *Each independent director 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) and Directorships of Public Companies and | |
| Portfolios Overseen] | Other Investment Companies During the Past Five Years | |
| Edward C. Bernard | Director and Vice President, T. Rowe Price; Vice Chairman of the | |
| (1956) | Board, Director, and Vice President, T. Rowe Price Group, Inc.; | |
| 2006 | Chairman of the Board, Director, and President, T. Rowe Price | |
| [142] | Investment Services, Inc.; Chairman of the Board and Director, | |
| T. Rowe Price Retirement Plan Services, Inc., T. Rowe Price Savings | ||
| Bank, and T. Rowe Price Services, Inc.; Chairman of the Board, Chief | ||
| Executive Officer, and Director, T. Rowe Price International; Chief | ||
| Executive Officer, Chairman of the Board, Director, and President, | ||
| T. Rowe Price Trust Company; Chairman of the Board, all funds | ||
| Michael C. Gitlin | Director of Fixed Income, T. Rowe Price (2009 to present); Global | |
| (1970) | Head of Trading, T. Rowe Price (2007 to 2009); Vice President, Price | |
| 2010 | Hong Kong, Price Singapore, T. Rowe Price, T. Rowe Price Group, Inc., | |
| [50] | and T. Rowe Price International | |
| *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) | Vice President, T. Rowe Price and T. Rowe Price | |
| Vice President | Group, Inc. | |
| 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 and T. Rowe Price | |
| Vice President | Group, Inc. | |
| Roger L. Fiery III, CPA (1959) | Vice President, Price Hong Kong, Price | |
| Vice President | Singapore, T. Rowe Price, T. Rowe Price Group, | |
| Inc., T. Rowe Price International, 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., and T. Rowe Price Trust Company | |
| Dylan Jones, CFA (1971) | Vice President, T. Rowe Price | |
| Vice President | ||
| 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. | |
| Joseph K. Lynagh, CFA (1958) | Vice President, T. Rowe Price, T. Rowe Price | |
| Vice President | Group, Inc., and T. Rowe Price Trust Company | |
| 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, Vice President, and Secretary, T. Rowe | |
| Vice President | Price Investment Services, Inc., T. Rowe | |
| Price Retirement Plan Services, Inc., T. Rowe | ||
| Price Services, Inc., and T. Rowe Price Trust | ||
| Company; Vice President and Secretary, | ||
| T. Rowe Price, T. Rowe Price Group, Inc., and | ||
| T. Rowe Price International; Vice President, | ||
| Price Hong Kong and Price Singapore | ||
| Deborah D. Seidel (1962) | Vice President, T. Rowe Price, T. Rowe Price | |
| Vice President | Group, Inc., T. Rowe Price Investment Services, | |
| Inc., and T. Rowe Price Services, Inc. | ||
| Michael K. Sewell (1982) | Assistant Vice President, T. Rowe Price | |
| Assistant Vice President | ||
| Chen Shao (1980) | Assistant Vice President, T. Rowe Price | |
| Assistant Vice President | ||
| Timothy G. Taylor, CFA (1975) | Vice President, T. Rowe Price and T. Rowe Price | |
| Vice President | Group, Inc. | |
| Julie L. Waples (1970) | Vice President, T. Rowe Price | |
| Vice President | ||
| Edward A. Wiese, CFA (1959) | Director and Vice President, T. Rowe Price Trust | |
| Vice President | Company; Vice President, T. Rowe Price and | |
| T. Rowe Price Group, Inc.; 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 5 years. | ||
Item 2. Code of Ethics.
The registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR, applicable to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of this code of ethics is filed as an exhibit to this Form N-CSR. No substantive amendments were approved or waivers were granted to this code of ethics during the period covered by this report.
Item 3. Audit Committee Financial Expert.
The registrant’s Board of Directors/Trustees has determined that Mr. Anthony W. Deering qualifies as an audit committee financial expert, as defined in Item 3 of Form N-CSR. Mr. Deering is considered independent for purposes of Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
(a) – (d) Aggregate fees billed for the last two fiscal years for professional services rendered to, or on behalf of, the registrant 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 $1,651,000 and $1,704,000, 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.
(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 12, 2013 | ||
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 12, 2013 | ||
| By | /s/ Gregory K. Hinkle | |
| Gregory K. Hinkle | ||
| Principal Financial Officer | ||
| Date April 12, 2013 | ||