Annual Report
For yield, price, last transaction,
and current balance, 24 hours,
7 days a week, call:
1-800-638-2587 toll free
625-7676 Baltimore area
For assistance with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
625-6500 Baltimore area
T. Rowe Price
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for distribution only to shareholders and to others
who have received a copy of the prospectus of the T. Rowe Price Georgia
Tax-Free Bond Fund.
Georgia Tax-Free
Bond Fund
February 28, 1995
GAB
Fellow Shareholders
Vigorous economic growth and Federal Reserve tightening dominated the fixed
income markets in 1994. Real growth of 4% last year exceeded the historical
trend of approximately 2.5%. The target for the fed funds rate climbed with
the economy's strong pace, rising from 3% at the beginning of last year to 6%
after the most recent tightening of 50 basis points (100 basis points equal
one percent) on February 1, 1995. The Federal Reserve pursued its monetary
policy to slow economic growth to a level that will contain inflation. Future
Fed action will reflect its goal of preventing excessive inflation without
spurring significantly higher unemployment.
Rising yields characterized the tax-exempt market during most of 1994.
The yield on one-year AAA General Obligation (GO) bonds peaked in December at
4.9%, up from 3% at the end of February 1994. However, as the market
strengthened over the last several months, the one-year yield retreated to
4.4% by your fund's fiscal year-end. The five-year AAA GO bond yield ended
this quarter at 5%, 70 basis points higher than a year ago but 50 basis points
lower than at the end of November. On the long end, the yield on AAA 30-year
GO bonds was almost 6%, up from 5.6% a year earlier but down from its November
peak of 6.8%.
Chart 1 - Fiscal-Year Performance Comparison
Source: T. Rowe Price
Yields declined after the Fed's sixth tightening of the year in
November. Anticipation of a slowing economy, good news on inflation, and
limited supply of tax-exempt bonds all contributed to the recent drop in
yields. Issuance fell to a four-year low last year and was particularly light
in the first two months of '95.
Georgia's economy has been the fastest-growing in the Southeast and
among the top 10 in the nation over the past few years. Population grew 2% and
nonfarm employment 5% in 1994. Last summer's flooding had minimal impact on
the overall economy. The Atlanta metropolitan area is the economic and
transportation center for the region and has benefited from a number of
business relocations. Activity related to the 1996 summer Olympics will
provide a short-term boost. The state expects growth to moderate after a few
years, but to remain healthy. We continue to find sound investments for your
fund, although new bond supply has diminished.
Strategy and Performance Review
The past year was volatile for Georgia's municipal bond market. We pursued our
goal of maximizing your fund's return in a negative environment by limiting
exposure to declining prices without giving up too much yield. As we began the
fiscal year, the fund had a long duration because of low interest rates in
1993. One way to shorten duration was to hold a large cash position, but this
meant forgoing income from long-term bonds. We opted instead to keep
approximately 5% in cash most of the year, and to hedge against rising
interest rates by selling futures contracts. This allowed us to buy more
high-yielding bonds with maturities over 10 years without adversely
lengthening duration.
The recent shortage of new bond sales in the municipal market has been
especially pronounced in Georgia. New debt issuance in the state totaled only
$80 million so far this year, compared with $714 million in the first two
months of 1994. Light supply has pushed bond yields to low levels in Georgia
relative to national averages, and we do not expect this situation to change
significantly in coming months.
Chart 2 - Bar Graph
Source: Securities Data Co.
Nevertheless, the fund's reinvested quarterly yield increased to 5.66%
on February 28 from 4.54% a year ago. Credit quality has also been improving,
with close to 50% of assets covered by insurance, earning them AAA ratings.
In a difficult environment, your fund outperformed its peer group for
the fiscal year, finishing in the top quartile. Our strong performance in the
final quarter was in line with our peer group average. We hope to increase
your fund's income and improve diversification in the months ahead.
Performance Comparison
Periods Ended 2/28/95
3 Months 12 Months
______________________________
Georgia Tax-Free
Bond Fund 9.31% 1.42%
Lipper Georgia Municipal
Debt Fund Average 9.32 0.41
Outlook
The U.S. economy should continue to grow, although at a lower rate than in
1994. To date, the Fed's past actions appear to be starting to slow the pace
of growth and keeping inflation in check. However, in the near term, we do
expect some acceleration in inflation based on tight labor markets and
relatively high capacity utilization. This may result in somewhat higher
interest rates over the next few months, but most likely lower than the levels
strong demand for tax-exempt bonds could result in better overall returns in
the municipal bond market in 1995.
It is worth noting that 1994 was tumultuous for fixed income investors
because of rising interest rates, widespread misuse of derivatives, and a
large municipal bankruptcy. We want to assure you that we will continue to
make investments that are appropriate for each fund's risk profile. In those
funds that can purchase derivatives, our exposure has been modest and has not
introduced undue risk for shareholders. In addition, our avoidance of the
Orange County crisis reinforces the value of thorough, independent credit
research.
We appreciate the continued confidence all our shareholders have placed
in us.
Respectfully submitted,
Mary J. Miller
Chairman of the Investment
Advisory Committee
March 17, 1995
Statistical Highlights
Key Statistics
Periods Ended
Dividend Yield* 2/28/95
__________________________ _____________
3 Months 5.66%
12 Months 5.38
Dividend Per Share
__________________________
3 Months $0.13
12 Months! 0.51
Change in Price Per Share
__________________________
3 Months (From $9.21 to $9.93) $0.72
12 Months (From $10.37 to $9.93) - 0.44
Weighted Average Quality** 2.3
Weighted Average Maturity 18.6 years
Weighted Average Effective Duration 7.5 years
* Dividends earned and reinvested for the periods indicated are annualized
and divided by the average daily net asset values per share for the same
period.
** On a T. Rowe Price scale of 1 to 10, with Grade 1 representing highest
quality.
! Taxability of dividends: 100% and 97.3% of dividends are exempt from
federal and Georgia state income taxes, respectively.
Fiscal-Year Performance
Periods Ended 2/28/95
1 Year Since Inception (3/31/93)*
______ __________________________
1.42% 5.10%
* Average Annual Compound Total Return
Income return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
Sector Diversification
Percent of Net Assets
_____________________
2/28/95
________
General Obligation-Local 18%
Nuclear Revenue 14
Dedicated Tax Revenue 11
Water and Sewer Revenue 11
Air and Sea Transportation Revenue 11
Lease Revenue 9
Housing Finance Revenue 8
Hospital Revenue 7
Pooled Loan Revenue 6
Educational Revenue 4
Miscellaneous Revenue 2
Electric Revenue 1
Other Assets Less Liabilities -2
Chart 3 - Municipal Bond Yield Chart
Investment Record
Per-Share Data
The table below shows the investment record of one share of the T. Rowe Price
Georgia Tax-Free Bond Fund, purchased at the original offering price of
$10.00. Over this time, interest rates have been volatile. The results shown
should not be considered a representation of the dividend income or capital
gain or loss which may be realized from an investment made in the fund today.
T. Rowe Price Georgia Tax-Free Bond Fund
With
Dividends
Capital and
Fiscal Net Gain With Capital
Year Asset Income Distri- Dividends Gains Total
Ended Value Dividends butions** Reinvested Reinvested Return
_______________ _________ _________ ______________________ _______
2/28/94* $10.37 $0.43 $0.04 $10.80 $10.85 8.45%
1995 9.93 0.51 0.05 10.90 11.00 1.42
Total $0.94 $0.09
* From inception 3/31/93 to 2/28/94.
** Includes short-term capital gain of $0.04 on 12/10/93,
$0.05 on 3/29/94.
Statement of Net Assets
T. Rowe Price Georgia Tax-Free Bond Fund / February 28, 1995
(amounts in thousands, except capital stock information)
Face Amount Value
___________ _________
GEORGIA - 97.9%
Albany Dougherty County Hosp., Phoebe Putney
Memorial Hosp., (AMBAC Insured),
5.00%, 9/1/20. . . . . . . . . . . . . . . . $1,000 $ 848
Atlanta, Airport Fac., (AMBAC Insured),
6.30%, 1/1/07. . . . . . . . . . . . . . . . 1,000 1,006
6.00%, 1/1/14 *. . . . . . . . . . . . . . . 1,000 990
(FGIC Insured), 6.50%, 1/1/13 *. . . . . . . 500 511
Atlanta Downtown Dev. Auth., Underground
Atlanta, GO, 6.25%, 10/1/16. . . . . . . . . 1,000 1,009
Burke County Dev. Auth., PCR, Oglethorpe
Power, (MBIA Insured),
7.80%, 1/1/08. . . . . . . . . . . . . . . . 1,000 1,155
Chatham County School Dist.,
6.25%, 8/1/16. . . . . . . . . . . . . . . . 625 637
DeKalb County, COP, (FGIC Insured),
6.80%, 12/1/15 . . . . . . . . . . . . . . . 1,000 1,073
DeKalb County Dev. Auth., Emory Univ.,
6.00%, 10/1/14 . . . . . . . . . . . . . . . 900 904
Forsyth County School Dist., GO,
6.75%, 7/1/16. . . . . . . . . . . . . . . . 1,000 1,097
Fulco Hosp. Auth., Georgia Baptist Health
Care System, 6.25%, 9/1/13 . . . . . . . . . 750 667
Fulton County Water & Sewage,
(FGIC Insured), 6.25%, 1/1/09. . . . . . . . 1,000 1,054
6.375%, 1/1/14 . . . . . . . . . . . . . . . 500 531
Gainesville Water & Sewage, (FGIC Insured),
6.00%, 11/15/12. . . . . . . . . . . . . . . 1,000 1,019
Georgia Hosp. Equipment Fin. Auth., Pooled
Hosp. Loan, VRDN (Currently 3.75%) . . . . . 200 200
Pooled Hospital Loan, (MBIA Insured),
VRDN (Currently 3.75%) . . . . . . . . . . . 1,100 1,100
Face Amount Value
___________ _________
GEORGIA (cont'd)
Georgia Housing & Fin. Auth., Single
Family Mortgage, 6.50%, 12/1/17 *. . . . . . $ 1,000 $ 1,006
6.65%, 12/1/20 * . . . . . . . . . . . . . . 500 503
6.60%, 12/1/23 * . . . . . . . . . . . . . . 450 451
Metropolitan Atlanta Rapid Transit Auth.,
Sales Tax, 7.25%, 7/1/10 . . . . . . . . . . 500 537
(MBIA Insured), 6.90%, 7/1/20. . . . . . . . 1,000 1,072
Monroe County, PCR, Gulf Power, VRDN
(Currently 4.05%). . . . . . . . . . . . . . 300 300
Municipal Electric Auth. of Georgia,
(AMBAC Insured), 7.25%, 1/1/24 . . . . . . . 1,000 1,175
Municipal Gas Auth. of Georgia,
6.00%, 7/1/04. . . . . . . . . . . . . . . . 500 510
Peach County School Dist., GO, (MBIA
Insured), 6.50%, 2/1/07. . . . . . . . . . . 300 325
Putnam County Dev. Auth., PCR, Georgia
Power, (FGIC Insured),
7.25%, 7/1/21. . . . . . . . . . . . . . . . 1,000 1,040
Rockdale County School Dist., GO,
6.50%, 1/1/09. . . . . . . . . . . . . . . . 1,000 1,054
Smyrna Downtown Dev. Auth., (MBIA
Insured), 6.70%, 2/1/20. . . . . . . . . . . 1,000 1,060
__________________________________________________________________________
PUERTO RICO - 4.4%
Puerto Rico Highway & Transportation
Auth., 6.625%, 7/1/12. . . . . . . . . . . . 1,000 1,031
Total Investments in Securities - 102.3%
of Net Assets (Cost - $23,278) . . . . . . . 23,865
Other Assets Less Liabilities. . . . . . . . . . (527)
________
Net Assets Consist of: . . . . . . . . . . . . . Value
________
Accumulated net investment income -
net of distributions . . . . . . . . . . . . $ 1
Accumulated net realized gain/loss -
net of distributions . . . . . . . . . . . . (1,418)
Net unrealized gain (loss) . . . . . . . . . . . 587
Paid-in-capital applicable to 2,350,134
no par value shares of beneficial
interest outstanding; unlimited
number of shares authorized . . . . . . . . . . 24,168
NET ASSETS . . . . . . . . . . . . . . . . . . . $ 23,338
________
________
* - Interest subject to alternative minimum tax
AMBAC - AMBAC Indemnity Corp.
COP - Certificates of Participation
FGIC - Financial Guaranty Insurance Company
GO - General Obligation
MBIA - Municipal Bond Investors Assurance Corp.
PCR - Pollution Control Revenue
VRDN - Variable Rate Demand Note
Statement of Operations
T. Rowe Price Georgia Tax-Free Bond Fund /
Year Ended February 28, 1995
(in thousands)
INVESTMENT INCOME
Interest income. . . . . . . . . . . . . . . . . . . . . $ 1,246
________
Expenses
Custody and accounting. . . . . . . . . . . . . . . . . 88
Shareholder servicing . . . . . . . . . . . . . . . . . 66
Registration. . . . . . . . . . . . . . . . . . . . . . 18
Legal and audit . . . . . . . . . . . . . . . . . . . . 14
Prospectus and shareholder reports. . . . . . . . . . . 8
Trustees. . . . . . . . . . . . . . . . . . . . . . . . 5
Proxy and annual meeting. . . . . . . . . . . . . . . . 3
Miscellaneous . . . . . . . . . . . . . . . . . . . . . 7
Reimbursed by Manager . . . . . . . . . . . . . . . . . (72)
________
Total expenses. . . . . . . . . . . . . . . . . . . . . 137
________
Net investment income. . . . . . . . . . . . . . . . . . 1,109
________
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Securities. . . . . . . . . . . . . . . . . . . . . . . (1,503)
Futures . . . . . . . . . . . . . . . . . . . . . . . . 88
________
Net realized gain (loss). . . . . . . . . . . . . . . . (1,415)
Change in net unrealized gain or loss on securities. . . 599
________
Net realized and unrealized gain (loss). . . . . . . . . (816)
________
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS. . . . $ 293
________
________
The accompanying notes are an integral part of these
financial statements.
Statement of Changes in Net Assets
T. Rowe Price Georgia Tax-Free Bond Fund
(in thousands)
March 31, 1993
(Commencement
Year ended of Operations)
Feb. 28,1995 to Feb. 28, 1994
____________ ________________
INCREASE (DECREASE) IN NET ASSETS FROM
Net investment income . . . . . . . . $ 1,109 $ 570
Net realized gain (loss). . . . . . . (1,415) 160
Change in net unrealized
gain or loss . . . . . . . . . . . 599 (12)
_________ _________
Increase (decrease) in net
assets from operations . . . . . . 293 718
_________ _________
Distributions to shareholders
Net investment income . . . . . . . . (1,109) (570)
Net realized gain . . . . . . . . . . (102) (72)
_________ _________
Decrease in net assets from
distributions. . . . . . . . . . . (1,211) (642)
_________ _________
Capital share transactions*
Shares sold . . . . . . . . . . . . . 10,668 25,556
Distributions reinvested. . . . . . . 1,002 557
Shares redeemed . . . . . . . . . . . (10,028) (3,575)
_________ _________
Increase (decrease) in net
assets from capital
share transactions . . . . . . . . 1,642 22,538
_________ _________
Increase (decrease) in
net assets . . . . . . . . . . . . 724 22,614
_________ _________
NET ASSETS
Beginning of period. . . . . . . . . . 22,614 -
_________ _________
End of period. . . . . . . . . . . . . $ 23,338 $ 22,614
_____________________________________________________________________________
*Share information
Shares sold . . . . . . . . . . . . . 1,099 2,467
Distributions reinvested. . . . . . . 103 53
Shares redeemed . . . . . . . . . . . (1,032) (340)
_________ _________
Increase (decrease) in
shares outstanding . . . . . . . . 170 2,180
_________ _________
_________ _________
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price Georgia Tax-Free Bond Fund / February 28, 1995
Note 1 - Significant Accounting Policies
T. Rowe Price State Tax-Free Income Trust (the Trust) is registered under the
Investment Company Act of 1940 as a non-diversified, open-end management
investment company. The Georgia Tax-Free Bond Fund (the fund) is one of the
portfolios established under the Trust.
A) Valuation - Debt securities are generally traded in the over-the-counter
market. Investments in securities with remaining maturities of one year or
more are stated at fair value as furnished by dealers who make markets in such
securities or by an independent pricing service, which considers yield or
price of bonds of comparable quality, coupon, maturity, and type, as well as
prices quoted by dealers who make markets in such securities. Securities with
remaining maturities less than one year are stated at fair value which is
determined by using a matrix system that establishes a value for each security
based on money market yields.
Assets and liabilities 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 or under the supervision of the officers of the
fund, as authorized by the Board of Trustees.
B) Premiums and Discounts - Premiums and discounts on municipal securities are
accounted for in accordance with federal income tax regulations, which require
the amortization of all premiums and discounts except market discounts. Market
discounts are included in the gain or loss recorded on disposition of the
security for financial reporting purposes and ordinary income for tax
purposes.
C) Other - Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses
are reported on an identified cost basis. Distributions to shareholders are
recorded by the fund on the ex-dividend date. Income and capital gain
distributions are determined in accordance with federal income tax regulations
and may differ from those determined in accordance with generally accepted
accounting principles.
Note 2 - Investment Transactions
Purchases and sales of portfolio securities, other than short-term securities,
aggregated $35,428,000 and $34,098,000, respectively, for the period ended
February 28, 1995.
Note 3 - Federal Income Taxes
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of
its income. The fund has unused realized capital loss carryforwards for
federal income tax purposes of $1,120,000 which expire in 2003. The fund
intends to retain gains realized in future periods that may be offset by
available capital loss carryforwards.
In order for the fund's capital accounts and distributions to
shareholders to reflect the tax character of certain transactions, $1,000 of
undistributed net investment income and $11,000 of undistributed net realized
gains were reclassified as a decrease to paid-in-capital during the period
ended February 28, 1995. The results of operations and net assets were not
affected by the reclassifications.
At February 28, 1995, the aggregate cost of investments for federal
income tax and financial reporting purposes was $23,278,000 and net unrealized
gain aggregated $587,000, of which $669,000 related to appreciated investments
and $82,000 to depreciated investments.
Note 4 - Related Party Transactions
The investment management agreement between the fund and T. Rowe Price
Associates, Inc. (the Manager) provides for an annual investment management
fee. The fee is computed daily and paid monthly, consisting of an Individual
Fund Fee equal to 0.10% of average daily net assets and a Group Fee. The Group
Fee is based on the combined assets of certain mutual funds sponsored by the
Manager or Rowe-Price Fleming International, Inc. (the Group). The Group Fee
rate ranges from 0.48% for the first $1 billion of assets to 0.31% for assets
in excess of $34 billion. At February 28, 1995, and for the period then ended,
the effective annual Group Fee rate was 0.34%. The fund pays a pro rata share
of the Group Fee based on the ratio of its net assets to those of the Group.
Under the terms of the investment management agreement, the Manager is
required to bear any expenses through February 28, 1995, which would cause the
fund's ratio of expenses to average net assets to exceed 0.65%. Thereafter
through February 28, 1997, the fund is required to reimburse the Manager for
these expenses, provided that average net assets have grown or expenses have
declined sufficiently to allow reimbursement without causing the fund's ratio
of expenses to average net assets to exceed 0.65%. Pursuant to this agreement,
$94,000 of management fees were not accrued by the fund for the period ended
February 28, 1995, and $72,000 of other expenses were borne by the Manager.
Additionally, $119,000 of unaccrued fees and other expenses from the prior
period are subject to reimbursement through February 28, 1997.
In addition, the fund has entered into agreements with the Manager and
a wholly-owned subsidiary of the Manager, pursuant to which the fund receives
certain other services. The Manager computes the daily share price and
maintains the financial records of the fund. T. Rowe Price Services, Inc.
(TRPS) is the fund's transfer and dividend disbursing agent and provides
shareholder and administrative services to the fund. The fund incurred
expenses pursuant to these related party agreements totaling approximately
$115,000 for the period ended February 28, 1995, of which $11,000 was payable
at period end.
Financial Highlights
T. Rowe Price Georgia Tax-Free Bond Fund
For a share outstanding throughout each period
______________________________________________
March 31, 1993
(Commencement
Year Ended of Operations) to
Feb. 28, 1995 Feb. 28, 1994
__________________ ___________________
NET ASSET VALUE,
BEGINNING OF
PERIOD . . . . . . . . $ 10.37 $ 10.00
________ ________
Investment Activities
Net investment
income . . . . . . . . 0.51* 0.43*
Net realized and
unrealized gain
(loss) . . . . . . . . (0.39) 0.41
________ ________
Total from Investment
Activities . . . . . . 0.12 0.84
________ ________
Distributions
Net investment
income . . . . . . . . (0.51) (0.43)
Net realized
gain . . . . . . . . . (0.05) (0.04)
________ ________
Total
Distributions. . . . . (0.56) (0.47)
________ ________
NET ASSET VALUE,
END OF PERIOD. . . . . $ 9.93 $ 10.37
________ ________
________ ________
RATIOS/SUPPLEMENTAL DATA
Total Return . . . . . . . 1.42% 8.45%
Ratio of Expenses
to Average
Net Assets . . . . . . 0.65%* 0.65%!*
Ratio of Net Investment
Income to Average
Net Assets . . . . . . 5.26% 4.48%!
Portfolio Turnover
Rate. . . . . . . . . . . 170.2% 154.8%!
Net Assets, End of
Period (in
thousands) . . . . . . $ 23,338 $ 22,614
* Excludes expenses in excess of a 0.65% voluntary expense limitation in
effect through February 28, 1995.
! Annualized.
Report of Independent Accountants
To the Shareholders and Board of Trustees of
T. Rowe Price Georgia Tax-Free Bond Fund
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the selected per
share data and information (which appears under the heading "Financial
Highlights") present fairly, in all material respects, the financial position
of T. Rowe Price Georgia Tax-Free Bond Fund (one of the portfolios
constituting the T. Rowe Price State Tax-Free Income Trust) at February 28,
1995, the results of its operations for the year then ended, and the changes
in its net assets and the selected per share data and information for the year
then ended and for the period March 31, 1993 (commencement of operations)
through February 28, 1994, in conformity with generally accepted accounting
principles. These financial statements and selected per share data and
information (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 generally accepted
auditing standards which 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, 1995 by
correspondence with the custodian and brokers and, where appropriate, the
application of alternative auditing procedures for unsettled security
transactions, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Baltimore, Maryland
March 17, 1995
Chart 1 - Fiscal-Year Performance Comparison line graphs for Georgia Tax-Free
Bond Fund annual report (Feb. 28, 1995) shows $10,000 investments in Georgia
Tax-Free Bond Fund and Lehman Municipal Bond Index from 1993 to 1995.
Chart 2 - Bar graph showing Georgia Bond Issues from Jan. 1994 through Feb.
1995
Chart 3 - Municipal bond yield chart showing Georgia Bond Index Feb. 94 to
Feb. 95
