Relax. As soon as you said "on the inside of the tree", that made it clear that you have nothing to worry about. Evergreens like pines keep their needles for several years, but eventually they drop their old needles just like deciduous trees drop their leaves each fall. You usually don't notice needle-drop on spruce because they hold onto needles for something like 5 years, so the needles that are going to be lost in late summer/fall are deep in the canopy and won't be noticed. But most pines hold onto their needles for only several years, plus their canopy is fairly open to begin with so what is going on inside the canopy is more visible, and every year from mid-August until mid-September, when the old pine needles are yellowing and dropping, people become worried about their pines. Relax, it's normal and to be expected, and it will happen every year around this time.

Thanks, don! I really appreciate your feedback and information.

I went out and took a look again this morning. The yellow needles were mostly on the "inside" but there were a few near the end of some branches. But overall the tree did look OK.

So I will relax!!! :-)

BTW, do these Mountain Pines tolerate a more moist and even sometimes wet soil? I think that's what I have, but no standing water though. The nursery that I got it from said so, but then I have since got conflicting information on the internet....

ostrich, as the name suggests, Mountain Pine is one species of pine best adapted to alpine conditions which are typically on the drier side. That being said, a mountain pine should tolerate fairly moist conditions so long as the ground isn't constantly saturated. The moisture may shorten the lifespan of the pine, but not to the extent that it's not worth planting. Just be careful in your supplemental watering!

seriousgeorge, thank you for the reassurance and info! I am keeping everything crossed and hope that it will do fine over this winter! ;-)

If the fall is dry, don't forget to water it well about a week or so before frost enters the ground (in Edmonton that usually means water in late October). New transplants especially don't have a well-established root system so the tree can suffer moisture stress if the soil is dry, and you don't want that to happen going into winter, since the needles will continue to lose moisture over winter, especially in chinook zones, but true even in Edmonton during mid-winter thaws or extremely cold and windy days. If you water a week or even a few days before freeze-up, that gives the tree a chance to take up moisture and allows the soil time to drain excess moisture so the roots can still get air during winter.