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 29

Date of reporting period: February 29, 2024


Item 1. Reports to Shareholders

(a) Report pursuant to Rule 30e-1

 


Highlights
and
Market
Commentary
Management’s
Discussion
of
Fund
Performance
Performance
and
Expenses
Financial
Highlights
Portfolio
of
Investments
Financial
Statements
and
Notes
Additional
Fund
Information
February
29,
2024
Annual
Report
T.
ROWE
PRICE
Tax-Free
Funds
For
more
insights
from
T.
Rowe
Price
investment
professionals,
go
to
troweprice.com
.
T.
ROWE
PRICE
Tax-Free
Funds
HIGHLIGHTS
Throughout
the
majority
of
the
trailing
one-year
period,
municipal
bonds
traded
lower
against
the
backdrop
of
rising
Treasury
yields
and
outflows
from
municipal
bond
mutual
funds.
However,
Treasury
yields
fell
sharply
and
risk
sentiment
improved
in
the
final
two
months
of
2023,
leading
to
sharp
drops
in
municipal
bond
yields.
T.
Rowe
Price’s
tax-free
bond
funds
posted
gains.
The
majority
of
the
funds
outperformed
their
respective
Bloomberg
benchmarks,
while
performance
versus
their
Lipper
peer
group
averages
was
more
mixed.
The
Tax-Exempt
Money
Fund
also
generated
positive
returns
but
lagged
its
Lipper
benchmark.
We
continued
to
favor
bonds
from
health
care
issuers,
particularly
those
with
strong
balance
sheets
and
effective
management
teams.
While
we
expect
hospitals’
financial
performance
to
remain
challenged
in
the
year
ahead,
we
are
encouraged
by
fundamental
trends
within
the
subsector.
In
addition,
labor
inflation
seems
to
be
cooling,
and
the
use
and
hourly
cost
of
contract
labor
have
declined,
which
we
view
as
potential
drivers
of
further
margin
improvement
for
hospital
operators.
The
backdrop
of
higher
yields
and
generally
solid
fundamentals
should,
in
our
view,
draw
investors
back
to
the
municipal
market
in
the
months
and
years
ahead.
While
flows
to
the
asset
class
recently
flipped
to
net
positive
as
inflows
to
municipal
bond
mutual
funds
reemerged,
we
acknowledge
that
bouts
of
outflows
may
persist
until
interest
rate
volatility
shows
a
more
sustained
moderation.
Log
in
to
your
account
at
troweprice.com
for
more
information.
*
An
account
service
fee
will
be
charged
annually
for
each
T.
Rowe
Price
mutual
fund
account
unless
you
meet
criteria
for
a
fee
waiver.
Go
to
troweprice.com/personal-investing/help/fees-and-
minimums.html
to
learn
more
about
this
account
service
fee,
including
other
ways
to
waive
it.
T.
ROWE
PRICE
Tax-Free
Funds
Market
Commentary
1
Dear
Shareholder
Global
stock
and
bond
indexes
were
broadly
positive
during
your
fund’s
fiscal
year,
the
12-month
period
ended
February 29,
2024,
as
the
U.S.
economy
remained
healthy
despite
tighter
monetary
policy.
Technology
companies
benefited
from
investor
enthusiasm
for
artificial
intelligence
developments
and
led
the
equity
rally,
while
fixed
income
benchmarks
delivered
positive
results
even
though
there
were
headwinds
from
rising
longer-term
interest
rates.
The
S&P
500
Index,
Nasdaq
Composite
Index,
and
Dow
Jones
Industrial
Average
all
reached
record
highs
during
the
period.
Growth
stocks
outperformed
value
shares,
and
developed
market
stocks
generally
outpaced
their
emerging
markets
counterparts.
Within
the
S&P
500,
the
information
technology,
communication
services,
and
consumer
discretionary
sectors
were
all
lifted
by
the
tech
rally
and
recorded
significant
gains.
Conversely,
the
defensive
utilities
sector
had
the
weakest
returns.
Meanwhile,
the
financials
sector
bounced
back
from
the
failure
of
three
large
regional
banks
in
the
spring
of
2023
and
produced
solid
results
in
the
second
half
of
the
period.
The
U.S.
economy
was
the
strongest
among
the
major
markets.
Jobs
growth
remained
solid
over
the
12-month
period,
helping
to
fuel
consumer
spending.
Corporate
fundamentals
were
also
broadly
supportive.
Year-over-year
earnings
growth
contracted
in
the
first
half
of
2023,
but
earnings
rebounded
in
the
third
and
fourth
quarters.
Markets
remained
resilient
despite
a
debt
ceiling
standoff
in
the
U.S.,
the
outbreak
of
war
in
the
Middle
East,
the
continuing
conflict
between
Russia
and
Ukraine,
and
a
sluggish
economic
recovery
in
China.
Inflation,
as
measured
by
the
consumer
price
index,
fell
from
6.0%
to
3.1%
by
the
end
of
the
period
but
remained
above
the
Federal
Reserve’s
long-term
2%
goal.
In
response
to
the
above-target
inflation
readings,
the
Fed
raised
its
short-term
lending
benchmark
rate
to
a
target
range
of
5.25%
to
5.50%
in
July,
the
highest
level
since
March
2001,
but
then
held
rates
steady
over
the
remainder
of
the
period.
At
its
final
meeting
of
the
period,
in
late
January,
the
central
bank
removed
language
from
its
post-meeting
statement
that
pointed
to
additional
policy
tightening,
but
subsequent
communications
from
Fed
Chair
Jerome
Powell
in
February
indicated
that
policymakers
are
in
no
hurry
to
begin
cutting
rates.
U.S.
Treasury
yields
were
volatile
during
the
period
as
investors
adjusted
their
expectations
for
the
path
of
monetary
policy.
After
starting
the
period
at
3.92%,
the
benchmark
10-year
Treasury
note
yield
briefly
reached
5.00%
in
October
T.
ROWE
PRICE
Tax-Free
Funds
2
for
the
first
time
since
late
2007
before
falling
back
to
3.88%
by
the
end
of
2023.
However,
more
hawkish
Fed
communications
in
early
2024
pressured
Treasury
bond
prices,
driving
the
10-year
yield
back
up
to
4.25%
by
period-end.
Municipal
bonds
outperformed
Treasuries
during
the
period,
supported
by
new
issuance
levels
that
remained
below
longer-term
averages.
The
sector
continued
to
see
outflows
in
2023
but
at
a
significantly
lower
level
than
in
2022.
Elsewhere
in
the
fixed
income
market,
high
yield
corporate
bonds
produced
strong
returns,
supported
by
the
higher
coupons
that
have
become
available
since
the
Fed
began
hiking
rates
about
two
years
ago
as
well
as
by
increasing
hopes
that
the
economy
might
be
able
to
avoid
a
recession.
Global
economies
and
markets
showed
surprising
resilience
in
2023,
but
considerable
uncertainty
remains
as
we
look
ahead.
Geopolitical
events,
the
path
of
monetary
policy,
and
the
impact
of
the
Fed’s
rate
hikes
on
the
economy
all
raise
the
potential
for
additional
volatility.
We
believe
this
environment
makes
skilled
active
management
a
critical
tool
for
identifying
risks
and
opportunities,
and
our
investment
teams
will
continue
to
use
fundamental
research
to
help
identify
securities
that
can
add
value
to
your
portfolio
over
the
long
term.
Thank
you
for
your
continued
confidence
in
T.
Rowe
Price.
Sincerely, 
Robert
Sharps
CEO
and
President
T.
ROWE
PRICE
Tax-Free
Funds
Management’s
Discussion
of
Fund
Performance
3
TAX-EXEMPT
MONEY
FUND 
TAX-FREE
SHORT-INTERMEDIATE
FUND 
INVESTMENT
OBJECTIVE 
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.
FUND
COMMENTARY
How
did
the
fund
perform
in
the
past 12
months?
The
Tax-Free
Short-Intermediate
Fund
returned
3.85%
over
the
12
months
ended
February
29,
2024.
The
fund
outperformed
its
Bloomberg
benchmark
and
performed
in
line
with
its
Lipper
peer
group
average.
(Results
for
Advisor
and
I
Class
shares
varied,
reflecting
their
different
fee
structures.
Past
performance
cannot
guarantee
future
results
.)
PORTFOLIO
DIVERSIFICATION
Tax-Exempt
Money
Fund
Percent
of
Net
Assets
8/31/23
2/29/24
Health
Care
29.9‌%
28.6‌%
Education
13.5‌ 
14.3‌ 
Housing
9.6‌ 
14.2‌ 
General
Obligation-Local
14.7‌ 
12.6‌ 
Water
and
Sewer
6.4‌ 
5.9‌ 
General
Obligation-State
5.2‌ 
5.9‌ 
Electric
4.9‌ 
5.5‌ 
Transportation
5.0‌ 
4.1‌ 
Other
Assets
10.8‌ 
8.9‌ 
Total
100.0‌%
100.0‌%
Historical
weightings
reflect
current
industry/sector
classifications.
T.
ROWE
PRICE
Tax-Free
Funds
4
What
factors
influenced
the
fund’s
performance?
Throughout
the
majority
of
the
trailing
one-year
period,
municipal
bonds
traded
lower
against
the
backdrop
of
rising
Treasury
yields
and
outflows
from
municipal
bond
mutual
funds.
However,
Treasury
yields
fell
sharply
and
risk
sentiment
improved
in
the
final
two
months
of
2023,
leading
to
sharp
drops
in
municipal
bond
yields.
During
the
rally,
lower-rated
investment-grade
municipal
bonds
outpaced
higher
qualities,
and
high
yield
municipal
bonds
outperformed
investment-grade
municipal
bonds.
While
rising
Treasury
yields
weighed
on
the
asset
class
through
period-end,
supportive
technical
conditions
alleviated
some
upward
pressure
on
municipal
bond
yields,
and
the
asset
class
ended
the
period
with
strong
positive
total
returns.
Late
in
the
period,
the
municipal
market
experienced
net
positive
flows
after
a
sustained
period
of
outflows,
as
inflows
to
municipal
bond
mutual
funds
reemerged.
Allocations
at
the
broad
sector
level
contributed,
lifted
by
an
overweight
to
revenue
bonds
and
underweights
to
general
obligation
(GO)
and
prerefunded
bonds.
The
GOs
we
owned
were
largely
from
lower-rated
issuers—including
Puerto
Rico,
Illinois,
and
New
Jersey—that
we
viewed
as
having
potential
credit
upside.
Selection
among
state
GO
bonds
aided
relative
performance.
In
particular,
bonds
from
the
Commonwealth
of
Puerto
Rico
meaningfully
supported
relative
performance
amid
strong
economic
activity
driven
by
continued
federal
stimulus.
State
GOs
from
Illinois
also
outperformed
alongside
a
rating
upgrade
by
Fitch
in
November
from
BBB+
to
A-.
Security
selection
among
revenue
bonds
further
added
to
relative
gains,
led
upward
by
selection
decisions
in
the
dedicated
tax,
hospital,
and
airport
revenue
subsectors.
Conversely,
selection
among
prepaid
gas
revenue
bonds
hindered
relative
performance.
PERFORMANCE
COMPARISON
Total
Return
Periods
Ended
2/29/24
6
Months
12
Months
Tax-Free
Short-
Intermediate
Fund
.
2.63‌%
3.85‌%
Tax-Free
Short-
Intermediate
Fund–
.
Advisor  Class
2.45‌
3.33‌
Tax-Free
Short-
Intermediate
Fund–
.
I  Class
2.70‌
3.81‌
Bloomberg
1–5
Year
Blend
(1–6
Year
Maturity)
Index
2.64‌
3.71‌
Lipper
Short-Intermediate
Municipal
Debt
Funds
Average
2.88‌
3.89‌
T.
ROWE
PRICE
Tax-Free
Funds
5
Interest
rate
management
contributed
in
aggregate,
aided
by
the
portfolio’s
longer-than-benchmark
average-duration
profile—which
was
beneficial
as
municipal
bond
yields
ended
the
period
lower
across
most
of
the
curve—
and
the
income
generated
by
municipal
bond
coupon
payments.
However,
positioning
across
key
rates
negated
some
relative
gains.
How
is
the
fund
positioned?
While
2022’s
historic
sell-off
produced
disappointing
results
for
bondholders,
we
believe
it
returned
substantial
value
to
the
municipal
market
through
markedly
higher
yields
and
increased
credit
risk
compensation.
Throughout
the
trailing
one-year
period,
we
utilized
our
fundamental,
bottom-up
research
process
to
add
to
high-conviction
names
at
what
we
viewed
as
attractive
valuations,
and
our
allocation
to
revenue
bonds
ended
the
period
higher.
The
fund’s
overall
credit
quality
finished
the
one-year
period
unchanged;
however,
we
allowed
its
credit
quality
diversification
to
adjust
modestly
as
we
identified
opportunities
amid
the
volatile
market
environment.
The
fund’s
allocations
to
the
AAA
rating
bucket
increased
moderately,
while
its
allocation
to
the
BBB
rating
tier
decreased
slightly.
However,
we
maintained
a
structural
overweight
to
the
A
and
BBB
quality
tiers,
as
we
continued
to
believe
that
the
lower
end
of
the
investment-grade
spectrum
provides
ample
opportunities
to
earn
additional
risk-
adjusted
yield
over
time.
We
also
maintained
an
overweight
to
the
nonrated
tier,
where
we
believe
that
rigorous
credit
research
can
uncover
mispriced
or
overlooked
bonds.
Sources:
Credit
ratings
for
the
securities
held
in
the
fund
are
provided
by
Moody’s,
Standard
&
Poor’s,
and
Fitch
and
are
converted
to
the
Standard
&
Poor’s
nomenclature.
A
rating
of
AAA
represents
the
highest-
rated
securities,
and
a
rating
of
D
represents
the
lowest-
rated
securities.
If
the
rating
agencies
differ,
the
highest
rating
is
applied
to
the
security.
If
a
rating
is
not
available,
the
security
is
classified
as
Not
Rated.
T.
Rowe
Price
uses
the
rating
of
the
underlying
investment
vehicle
to
determine
the
creditworthiness
of
credit
default
swaps.
The
fund
is
not
rated
by
any
agency.
CREDIT
QUALITY
DIVERSIFICATION
Tax-Free
Short-Intermediate
Fund
T.
ROWE
PRICE
Tax-Free
Funds
6
In
terms
of
interest
rate
management,
the
fund’s
duration
ended
the
period
neutral
to
the
benchmark’s
duration,
as
we
anticipate
rate
cuts
by
the
Fed
in
2024.
We
continued
to
migrate
away
from
bonds
with
shorter
call
provisions
as
well
as
into
lower
coupon
structures
in
an
attempt
to
improve
the
fund’s
ability
to
benefit
from
future
declines
in
municipal
bond
yields.
Our
structural,
out-of-benchmark
allocation
to
bonds
maturing
in
seven
to
10
years
or
more
remained
in
place.
Regarding
the
fund’s
positioning
across
sectors,
health
care
revenue
bonds—
namely,
those
from
hospitals
and
life
care
communities—remained
a
prominent
overweight
allocation.
Our
allocation
to
hospital
revenue
bonds
modestly
increased
over
the
period
as
encouraging
trends
in
fundamentals
bolstered
our
view
on
the
subsector.
In
addition,
labor
inflation
seems
to
be
cooling,
and
the
use
and
hourly
cost
of
contract
labor
have
declined,
which
we
view
as
potential
drivers
of
further
margin
improvement
for
hospital
operators.
Meanwhile,
the
fund’s
allocation
to
life
care
community
revenue
bonds
ended
the
year
roughly
flat.
We
maintain
sanguine
views
on
the
names
we
hold
but
are
cautious
toward
the
subsector
overall
due
to
changing
consumer
demand
and
increased
competition
from
for-profit
operators.
As
always,
we
continue
to
closely
monitor
our
investments
in
these
facilities,
favoring
names
with
strong
financial
metrics,
geographic
diversification,
and
skilled
management
teams.
Within
the
fund’s
allocation
to
GOs,
we
sold
a
state
GO
from
California
as
our
outlook
on
the
state
became
less
constructive
late
in
the
period.
Specifically,
the
state’s
projected
budget
deficit
through
its
fiscal
year
2025
outweighs
the
funds
held
in
its
general
purpose
reserves
by
a
wide
margin.
This
development,
coupled
with
projected
deficits
beyond
this
time
window
and
our
view
that
California
has
less
budget-cutting
levers
to
pull
than
it
has
in
the
past,
weighed
on
our
outlook,
particularly
when
considering
how
the
state
may
fare
in
future
recessionary
conditions.
What
is
portfolio
management’s
outlook?
We
still
expect
the
Federal
Reserve
to
cut
interest
rates
this
year,
but
we
agree
with
the
shift
in
market
consensus
that
occurred
in
February
and
now
anticipate
a
smaller
number
of
cuts
this
year
along
with
a
later
start
date.
We
don’t
foresee
a
recession
in
the
near
term
but,
in
our
view,
the
Fed
will
feel
cuts
are
justified
to
keep
real
(inflation-adjusted)
yields
from
increasing
too
much
as
inflation
decreases.
Despite
substantial
macroeconomic
headwinds,
the
municipal
bond
market’s
credit
fundamentals
remained
generally
strong
thanks
to
pandemic-era
federal
aid
and
improved
fiscal
management
by
some
of
the
most
challenged
issuers.
These
factors,
from
our
perspective,
should
help
buffer
credit
ratings
in
a
recession
if
one
transpires,
although
a
recession
is
not
our
base
case.
T.
ROWE
PRICE
Tax-Free
Funds
7
Regarding
market
technicals,
the
backdrop
of
higher
yields
and
generally
solid
fundamentals
should,
in
our
view,
draw
investors
back
to
the
municipal
market
in
the
months
and
years
ahead.
While
flows
to
the
asset
class
recently
flipped
to
net
positive
as
inflows
to
municipal
bond
mutual
funds
reemerged,
we
acknowledge
that
bouts
of
outflows
may
persist
until
interest
rate
volatility
shows
a
more
sustained
moderation.
Although
credit
spreads
have
tightened
and
currently
sit
near
their
long-term
averages,
we
believe
our
fundamental
research
process
positions
us
well
to
identify
and
capture
attractive
opportunities
across
our
investable
universe.
In
navigating
this
complex
investment
landscape,
we
are
taking
a
selective
approach
toward
bond
structures
and
maintaining
an
emphasis
on
bottom-up
credit
factors.
As
always,
we
are
striving
to
stay
risk
aware
and
disciplined
in
our
investment
process,
which
we
believe
will
serve
our
clients
well
over
time.
TAX-FREE
INCOME
FUND 
INVESTMENT
OBJECTIVE 
The
fund
seeks
to
provide
a
high
level
of
income
exempt
from
federal
income
taxes
by
investing
primarily
in
long-term
investment-grade
municipal
securities.
FUND
COMMENTARY
How
did
the
fund
perform
in
the
past 12
months?
The
Tax-Free
Income
Fund
returned
6.16%
over
the
12
months
ended
February
29,
2024,
and
outperformed
its
Bloomberg
benchmark
along
with
its
Lipper
peer
group
average.
(Results
for
Advisor
and
I
Class
shares
varied
modestly,
reflecting
their
different
fee
structures.
Past
performance
cannot
guarantee
future
results.
)
PERFORMANCE
COMPARISON
Total
Return
Periods
Ended
2/29/24
6
Months
12
Months
Tax-Free
Income
Fund
.
4.97‌%
6.16‌%
Tax-Free
Income
Fund–
.
Advisor  Class
4.79‌
5.80‌
Tax-Free
Income
Fund–
.
I  Class
4.89‌
6.11‌
Bloomberg
Municipal
Bond
Index
4.33‌
5.42‌
Lipper
General
&
Insured
Municipal
Debt
Funds
Average
4.65‌
5.80‌
T.
ROWE
PRICE
Tax-Free
Funds
8
What
factors
influenced
the
fund’s
performance?
Throughout
the
majority
of
the
trailing
one-year
period,
municipal
bonds
traded
lower
against
the
backdrop
of
rising
Treasury
yields
and
outflows
from
municipal
bond
mutual
funds.
However,
Treasury
yields
fell
sharply
and
risk
sentiment
improved
in
the
final
two
months
of
2023,
leading
to
sharp
drops
in
municipal
bond
yields.
During
the
rally,
lower-rated
investment-grade
municipal
bonds
outpaced
higher
qualities,
and
high
yield
municipal
bonds
outperformed
investment-grade
municipal
bonds.
While
rising
Treasury
yields
weighed
on
the
asset
class
through
period-end,
supportive
technical
conditions
alleviated
some
upward
pressure
on
municipal
bond
yields,
and
the
asset
class
ended
the
period
with
strong
positive
total
returns.
Late
in
the
period,
the
municipal
market
experienced
net
positive
flows
after
a
sustained
period
of
outflows,
as
inflows
to
municipal
bond
mutual
funds
reemerged.
Security
selection
among
revenue
bonds
helped
relative
performance,
led
upward
by
selection
decisions
in
the
dedicated
tax,
lease/appropriation,
water/sewer,
and
industrial
development
revenue/pollution
control
revenue
subsectors.
Selection
among
state
general
obligation
(GO)
bonds—and,
to
a
lesser
extent,
local
GOs—also
aided
relative
performance.
In
particular,
bonds
from
the
Commonwealth
of
Puerto
Rico
meaningfully
supported
relative
performance
amid
strong
economic
activity
driven
by
continued
federal
stimulus.
State
GOs
from
Illinois
also
outperformed
alongside
a
rating
upgrade
by
Fitch
in
November
from
BBB+
to
A-.
Conversely,
selection
among
public
power
and
transportation
revenue
bonds
related
to
various
transportation
authorities
and
marinas
hindered
relative
performance.
Allocation
decisions
within
the
revenue-backed
sector
were
constructive
in
aggregate.
Overweights
to
life
care
communities,
hospitals,
and
transportation
revenue
bonds
contributed,
as
did
an
underweight
to
the
water/sewer
revenue
subsector.
Allocations
at
the
broad
sector
level
further
added
to
relative
gains,
lifted
by
an
overweight
to
revenue
bonds
and
an
underweight
to
GO
bonds.
However,
an
underweight
to
housing
revenue
bonds
negated
some
relative
gains.
Interest
rate
management
contributed
in
aggregate,
aided
by
the
portfolio’s
longer-than-benchmark
average-duration
profile—which
was
beneficial
as
municipal
bond
yields
ended
the
period
lower
across
most
of
the
curve—and
the
income
generated
by
municipal
bond
coupon
payments.
Positioning
across
key
rates
hampered
relative
performance.
Specifically,
modest
overweights
to
longer-maturity
bonds
detracted
as
the
long
end
was
the
only
portion
of
the
municipal
yield
curve
to
end
the
period
slightly
higher.
T.
ROWE
PRICE
Tax-Free
Funds
9
How
is
the
fund
positioned?
While
2022’s
historic
sell-off
produced
disappointing
results
for
bondholders,
we
believe
it
returned
substantial
value
to
the
municipal
market
through
markedly
higher
yields
and
increased
credit
risk
compensation.
Throughout
the
trailing
one-year
period,
we
utilized
our
fundamental,
bottom-up
research
process
to
add
to
high-conviction
names
at
what
we
viewed
as
attractive
valuations,
and
our
allocation
to
revenue
bonds
ended
the
period
higher.
The
fund’s
overall
credit
quality
finished
the
one-year
period
unchanged;
however,
we
allowed
its
credit
quality
diversification
to
adjust
modestly
as
we
identified
opportunities
amid
the
volatile
market
environment.
The
fund’s
allocations
to
the
AAA
and
AA
rating
buckets
increased
modestly,
while
its
allocation
to
the
A
rating
tier
decreased
slightly.
That
said,
the
BBB
and
A
quality
tiers
continued
to
represent
strategic
overweights
for
the
fund,
as
we
continued
to
believe
that
these
segments
offer
ample
opportunities
to
earn
additional
risk-adjusted
yield
over
time.
In
terms
of
interest
rate
management,
the
fund’s
duration
ended
the
period
above
the
benchmark’s
duration,
as
we
anticipate
rate
cuts
by
the
Fed
in
2024.
The
fund’s
allocation
to
municipal
bonds
maturing
in
20
years
or
more
increased
over
the
period
as
valuations
screened
attractively
in
the
long
end
of
the
curve.
Regarding
the
fund’s
positioning
across
sectors,
health
care
revenue
bonds—
namely,
those
from
hospitals
and
life
care
communities—remained
a
prominent
overweight
allocation.
However,
we
modestly
reduced
our
allocation
to
hospital
and
life
care
revenue
bonds
over
the
period
alongside
headwinds
from
staffing
shortages
and
inflationary
pressures
on
labor
and
medical
supply
costs.
While
we
expect
hospitals’
financial
performance
to
remain
challenged
in
the
year
Sources:
Credit
ratings
for
the
securities
held
in
the
fund
are
provided
by
Moody’s,
Standard
&
Poor’s,
and
Fitch
and
are
converted
to
the
Standard
&
Poor’s
nomenclature.
A
rating
of
AAA
represents
the
highest-
rated
securities,
and
a
rating
of
D
represents
the
lowest-
rated
securities.
If
the
rating
agencies
differ,
the
highest
rating
is
applied
to
the
security.
If
a
rating
is
not
available,
the
security
is
classified
as
Not
Rated.
T.
Rowe
Price
uses
the
rating
of
the
underlying
investment
vehicle
to
determine
the
creditworthiness
of
credit
default
swaps.
The
fund
is
not
rated
by
any
agency.
CREDIT
QUALITY
DIVERSIFICATION
Tax-Free
Income
Fund
T.
ROWE
PRICE
Tax-Free
Funds
10
ahead,
we
are
encouraged
by
fundamental
trends
within
the
subsector.
In
addition,
labor
inflation
seems
to
be
cooling,
and
the
use
and
hourly
cost
of
contract
labor
have
declined,
which
we
view
as
potential
drivers
of
further
margin
improvement
for
hospital
operators.
The
fund’s
allocation
to
housing
revenue
bonds
increased
over
the
period,
largely
due
to
our
investments
in
planned
amortization
class
(PAC)
bonds.
While
PAC
bonds
have
long-stated
maturities—typically
around
30
years—
their
effective
maturities
are
generally
around
five
years
since
they
pay
down
according
to
a
defined
schedule
of
principal
payments,
which
is
guaranteed
within
a
specified
range
of
prepayment
speeds.
PAC
bonds
offer
a
credit
spread
and
yield
pickup
relative
to
other
highly
rated
bonds
in
the
front
end
of
the
curve
and,
therefore,
have
provided
attractive
investment
opportunities,
in
our
view.
(Municipal
bond
credit
spreads
are
a
measure
of
the
additional
yield
offered
by
bonds
that
have
additional
credit
risk
relative
to
comparable
AAA
rated
municipal
bonds.)
Conversely,
the
fund’s
allocation
to
the
airport
revenue
subsector
ended
the
period
lower.
In
our
view,
the
airport
revenue
subsector
has
continued
to
show
resilience
as
enplanements
fully
recovered
from
the
pandemic-induced
drawdown.
However,
airports
no
longer
screened
attractively
relative
to
other
A
rated
sectors.
What
is
portfolio
management’s
outlook?
We
still
expect
the
Federal
Reserve
to
cut
interest
rates
this
year,
but
we
agree
with
the
shift
in
market
consensus
that
occurred
in
February
and
now
anticipate
a
smaller
number
of
cuts
this
year
along
with
a
later
start
date.
We
don’t
foresee
a
recession
in
the
near
term
but,
in
our
view,
the
Fed
will
feel
cuts
are
justified
to
keep
real
(inflation-adjusted)
yields
from
increasing
too
much
as
inflation
decreases.
Despite
substantial
macroeconomic
headwinds,
the
municipal
bond
market’s
credit
fundamentals
remained
generally
strong
thanks
to
pandemic-era
federal
aid
and
improved
fiscal
management
by
some
of
the
most
challenged
issuers.
These
factors,
from
our
perspective,
should
help
buffer
credit
ratings
in
a
recession
if
one
transpires,
although
a
recession
is
not
our
base
case.
Regarding
market
technicals,
the
backdrop
of
higher
yields
and
generally
solid
fundamentals
should,
in
our
view,
draw
investors
back
to
the
municipal
market
in
the
months
and
years
ahead.
While
flows
to
the
asset
class
recently
flipped
to
net
positive
as
inflows
to
municipal
bond
mutual
funds
reemerged,
we
acknowledge
that
bouts
of
outflows
may
persist
until
interest
rate
volatility
shows
a
more
sustained
moderation.
T.
ROWE
PRICE
Tax-Free
Funds
11
Although
credit
spreads
have
tightened
and
currently
sit
near
their
long-term
averages,
we
believe
our
fundamental
research
process
positions
us
well
to
identify
and
capture
attractive
opportunities
across
our
investable
universe.
In
navigating
this
complex
investment
landscape,
we
are
taking
a
selective
approach
toward
bond
structures
and
maintaining
an
emphasis
on
bottom-up
credit
factors.
As
always,
we
are
striving
to
stay
risk
aware
and
disciplined
in
our
investment
process,
which
we
believe
will
serve
our
clients
well
over
time.
TAX-FREE
HIGH
YIELD FUND 
INVESTMENT
OBJECTIVE 
The
fund
seeks
to
provide
a
high
level
of
income
exempt
from
federal
income
taxes
by
investing
primarily
in
long-term
low-
to
upper-medium-grade
municipal
securities.
FUND
COMMENTARY
How
did
the
fund
perform
in
the
past 12
months?
The
Tax-Free
High
Yield
Fund
returned
7.05%
for
the
12
months
ended
February
29,
2024,
outperforming
its
Bloomberg
benchmark
and
its
Lipper
peer
group
average.
(Results
for
Advisor
and
I
Class
shares
varied
modestly,
reflecting
their
different
fee
structures.
Past
performance
cannot
guarantee
future
results.
)
What
factors
influenced
the
fund’s
performance?
Throughout
the
majority
of
the
trailing
one-year
period,
municipal
bonds
traded
lower
against
the
backdrop
of
rising
Treasury
yields
and
outflows
from
municipal
bond
mutual
funds.
However,
Treasury
yields
fell
sharply
and
risk
sentiment
improved
in
the
final
two
months
of
2023,
leading
to
sharp
drops
in
municipal
bond
yields.
During
the
rally,
lower-rated
investment-grade
municipal
bonds
outpaced
higher
qualities,
and
high
yield
municipal
bonds
outperformed
investment-grade
municipal
bonds.
While
rising
Treasury
yields
weighed
on
PERFORMANCE
COMPARISON
Total
Return
Periods
Ended
2/29/24
6
Months
12
Months
Tax-Free
High
Yield
Fund
.
5.67‌%
7.05‌%
Tax-Free
High
Yield
Fund–
.
Advisor  Class
5.36‌
6.65‌
Tax-Free
High
Yield
Fund–
.
I  Class
5.64‌
7.07‌
Bloomberg
65%
High-
Grade/35%
High-Yield
Index
4.86‌
6.42‌
Lipper
High
Yield
Municipal
Debt
Funds
Average
5.55‌
6.74‌
T.
ROWE
PRICE
Tax-Free
Funds
12
the
asset
class
through
period-end,
supportive
technical
conditions
alleviated
some
upward
pressure
on
municipal
bond
yields,
and
the
asset
class
ended
the
period
with
strong
positive
total
returns.
Late
in
the
period,
the
municipal
market
experienced
net
positive
flows
after
a
sustained
period
of
outflows,
as
inflows
to
municipal
bond
mutual
funds
reemerged.
Security
selection
among
state
and
local
general
obligation
(GO)
bonds
helped
relative
performance.
In
particular,
bonds
from
the
Commonwealth
of
Puerto
Rico
meaningfully
supported
relative
performance
amid
strong
economic
activity
driven
by
continued
federal
stimulus.
State
GOs
from
Illinois
also
outperformed
alongside
a
rating
upgrade
by
Fitch
in
November
from
BBB+
to
A-.
Selection
among
revenue
bonds
further
added
to
relative
gains,
led
upward
by
selection
decisions
in
the
dedicated
tax,
ground
transportation,
lease/appropriation,
water/sewer,
and
industrial
development
revenue/pollution
control
revenue
(IDR/PCR)
subsectors.
Selection
within
the
public
power
revenue
subsector
negated
some
relative
gains,
dragged
down
by
holdings
of
bonds
issued
by
Puerto
Rico
Electric
Power
Authority
(PREPA).
The
bonds
depreciated
substantially
near
the
end
of
June
2023
after
the
bankruptcy
judge
ruled
that
bondholder
claims
were
limited
to
around
30%
of
outstanding
defaulted
PREPA
revenue
bond
principal
value,
which
was
well
below
market
expectations.
The
situation
is
still
evolving,
and
we
continue
to
evaluate
and
monitor
any
PREPA-related
developments
closely.
Interest
rate
management
contributed
in
aggregate,
aided
by
the
portfolio’s
longer-than-benchmark
average-duration
profile—which
was
beneficial
as
municipal
bond
yields
ended
the
period
lower
across
most
of
the
curve—and
the
income
generated
by
municipal
bond
coupon
payments.
Positioning
across
key
rates
hampered
relative
performance.
Specifically,
modest
overweights
to
longer-maturity
bonds
detracted
as
the
long
end
was
the
only
portion
of
the
municipal
yield
curve
to
end
the
period