- --------------------------------------------------------------------------------
T. Rowe Price
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SemiAnnual Report
Virginia Tax-Free Funds
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August 31, 1996
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Report Highlights
================================================================================
o The bond market reversed course over the last six months as the economy
gained unexpected strength, leading to sharply rising interest rates and
losses for most bond funds.
o Municipal bonds outperformed their taxable counterparts as pressure from
last year's tax reform proposals subsided.
o Both Virginia tax-free funds produced virtually flat six-month returns in a
difficult environment. The Short-Term Fund underperformed its peers, while
the Virginia Bond Fund outperformed.
o The Short-Term Fund was defensive in anticipation of further rate
increases. The Virginia Bond Fund also shortened maturities and bought
higher-yielding issues to enhance income.
o With the economy continuing to grow at a steady pace, the Fed could tighten
in coming months, so we remain cautious.
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Fellow Shareholders
================================================================================
The last six months saw the fixed income markets give back the gains
realized during the prior six months, as the economy strengthened and market
expectations of further easing by the Federal Reserve evaporated. Although the
municipal market declined less than the taxable market after the issue of tax
reform faded, six-month returns were virtually flat.
<PAGE>
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MARKET ENVIRONMENT
================================================================================
The economy regained strength in 1996 after slowing in 1995, with only a
modest pickup in inflation. Stronger growth alone was enough to reverse
expectations of any further Federal Reserve easing after two interest rate cuts
in the second half of 1995 and one earlier this year. While the Fed has not yet
tightened in 1996, it adopted a bias toward tightening in July, and bond yields
moved up in anticipation of higher rates.
In the municipal market, rates rose roughly 50 basis points (100 basis
points equal one percent) from the lowest point reached in early 1996, but not
as high as the levels of late 1994. Long-term, high-grade general obligation
bonds yielded 5.75% on August 31, 1996, versus 5.45% six months ago and 5.85% a
year ago. Five-year, high-grade bonds were 25 basis points higher in yield than
in August 1995. Virginia bond yields followed a similar pattern.
All was not doom and gloom in the municipal bond market over the past six
months. The fading of tax reform concerns caused the municipal market to
outperform taxable markets by a wide margin. As rates approached and then
exceeded 6%, strong retail demand for municipals provided support for the
market. Last summer, long-term municipal yields
[chart showing yields on the Virginia Bond Index and 3-year Virginia GOs
from 8/31/95 through 8/31/96]
equaled 90% or more of comparable taxable yields; this year, yields moved down
to 81% of taxable alternatives, allowing the municipal market to regain the
ground it lost.
In contrast to the rest of the nation, Virginia's economy slowed in the
first half of 1996, with nonfarm employment growing at 1.3%, down from the 2.2%
pace for all of 1995. The slowdown can be traced to layoffs in the federal
government, the state's second-largest employer, and a poor climate for the
defense, tobacco, and coal mining industries. On the other hand, high
technology, tourist, and service industries remained strong, benefiting from
Virginia's well-educated labor force and low cost of doing business.
<PAGE>
Despite slowing economic growth, unemployment fell to 4.8% in June, the
lowest level for that month in six years and below the national average. The
high-tech boom is expected to spur growth in coming months, with major plants
being built in the state by Motorola, IBM, Toshiba, Gateway 2000, and Siemens.
The state reported an $83 million budget surplus for the fiscal year through
June 30, the fruit of conservative fiscal management. These developments helped
persuade Moody's Investors Service to give the state's municipal bond issuers a
mainly positive ratings outlook.
VIRGINIA SHORT-TERM TAX-FREE BOND FUND
Your fund posted a small but positive gain under difficult conditions over the
past six months, underperforming its peer group average, as shown in the table.
The 12-month return was respectable, though still somewhat below our
competitors. Since February, as interest rates rose steadily, we continued our
defensive strategy by shortening the fund's average maturity and duration. As of
August 31, maturity stood at 1.8 years (down from 2.6 years last February) and
duration, a more accurate measure of the fund's sensitivity to rising interest
rates, settled at 1.7 years (down from 2.3 years in February). Moving into
shorter-term issues helps protect the fund's share price against rising interest
rates and hastens the rollover of assets into higher-yielding securities.
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Performance Comparison
================================================================================
Periods Ended 8/31/96 6 Months 12 Months
Virginia Short-Term
Tax-Free Bond Fund .................. 0.78% 3.41%
Lipper Short Municipal
Debt Funds Average .................. 1.18 3.61
================================================================================
In retrospect, however, we did not shorten quickly enough. The shutdown of
the government last winter delayed key economic statistics, making it difficult
to accurately estimate growth. As a result, in early March the financial markets
were surprised by a report showing unexpectedly robust job growth for February.
The report caused the overbought market to swiftly reverse course, moving
three-year AAA yields 25 basis points higher in one day. That single event was
the main reason your fund underperformed its peer group.
<PAGE>
Since March, the market has remained in a trading range with a bias toward
higher short-term rates. As long as economic statistics continue to provide
reasons for the Federal Reserve to increase the federal funds rate, we will
maintain a defensive posture.
VIRGINIA TAX-FREE BOND FUND
The fund produced a small gain over the last six months, as income more
than offset principal loss, and a solid return over the last year, outpacing its
peer group in both periods. For the five-year period ended August 31, Lipper
Analytical Services ranked the fund second out of 11 Virginia municipal bond
funds based on total return performance.*
Your fund weathered the rising interest rates of the past six months by
keeping its duration at or shorter than our neutral range of 7.5 to 8.0 years.
The average maturity of the fund finished August at 17.7 years, one year shorter
than our posture at the end of 1995. At the same time, we enhanced the fund's
level of income by purchasing new issues with higher yields as the market
settled into a trading range over the summer. Compared with a year ago, overall
interest rates are almost unchanged, but our Virginia index, an average of the
yields of approximately 20 long-term bonds in the state, is 33 basis points
higher than six months ago (see chart on page 1).
Our goals were to improve credit diversification and yield when we had the
opportunity, consistent with good total rates of return. We wanted to structure
the portfolio with the right mix of discount, par, and
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Performance Comparison
================================================================================
Periods Ended 8/31/96 6 Months 12 Months
Virginia Tax-Free
Bond Fund 0.46% 6.34%
Lipper Virginia Municipal
Debt Funds Average -0.08 5.04
- --------------------------------------------------------------------------------
* For the one-year period ended 8/31/96, the fund ranked fourth out of 34
Virginia Municipal bond funds based on total return.
<PAGE>
premium-priced bonds that will perform well in a variety of interest rate
environments. Our strategy included holding a core position of issues that had
solid yields and were less price sensitive to rising rates, such as housing
revenue and prerefunded bonds. Together, these sectors represented about a
quarter of net assets on August 31.
Over the past six months, we took advantage of market weakness to increase
our holdings of noncallable bonds. These issues perform well when rates decline,
helping balance out the fund's more defensive holdings. The supply of new issues
has been relatively light in Virginia, unchanged over last year's levels,
compared with an 18% increase nationally. The high quality of most issuers in
the state and the high percentage of Virginia bonds carrying bond insurance make
it difficult to find opportunities for additional yield from medium- to
lower-quality credits. Therefore, while the number of holdings continued to
grow, the overall credit quality remained high at AA.
In April, the fund celebrated its fifth anniversary, and we want to thank
all our shareholders for their support.
OUTLOOK
The last six months have seen a major change in the outlook for the
economy, causing a shift in the shape and level of the municipal yield curve.
The risk of an overheating economy has grown, and the Fed will likely nudge
rates higher to cool things down in coming months. The current expansion is now
over five years old, roughly twice the length of an average expansion prior to
1982. However, old age is not a cause for an expansion to end. There is no
reason why the current expansion could not continue if interest rates are high
enough to restrain inflation, yet low enough to keep unemployment at bay.
- -----------------------------
Little has changed . . . in
terms of interest rate
levels, but much has changed
about market psychology.
=============================
Little has changed from a year ago in terms of interest rate levels, but
much has changed about market psychology. A year ago, this market was consumed
with worries about the impact of tax reform proposals on municipal bonds, and it
was convinced the economy was slowing down. Today, tax reform is on the back
burner, and the economy has picked up steam.
<PAGE>
As mentioned, we believe the Fed is likely to raise short-term rates, which
is at least partly factored in by the market. Municipal securities have
performed well this year in relation to their taxable counterparts, resulting in
lower yield relationships (as a percent of taxable yields) that will be
difficult to improve upon. An expected pickup in supply again after a quiet
summer may also put some pressure on the municipal market.
For these reasons, we expect to continue managing the funds with a cautious
perspective on interest rates, trying to add performance value both through
credit research and by taking advantage of trading ranges for Virginia bonds.
Respectfully submitted,
[signature]
Charles B. Hill
Chairman of the Investment Advisory Committee
Virginia Short-Term Tax-Free Bond Fund
[signature]
Mary J. Miller
Chairman of the Investment Advisory Committee
Virginia Tax-Free Bond Fund
September 20, 1996
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Keeping Taxes To A Minimum
================================================================================
As the saying goes, it's not what you earn but what you keep that counts.
The ability to provide tax-exempt income is the chief appeal of municipal bond
funds, and investors in higher tax brackets often find these funds advantageous.
Some funds invest in securities that offer the triple benefit of being free from
federal, state, and local taxes.
Investors should remember, however, that the total return on most municipal
bond funds may not be entirely tax-free. To avoid federal income taxes,
municipal funds must distribute all of their capital gains to shareholders each
year. These distributions are fully taxable. On infrequent occasions, municipal
funds may also purchase securities whose income is taxable, if permitted by the
prospectus.
<PAGE>
Therefore, to judge accurately how well a fund minimizes taxes, investors
should focus not just on income but on the gain or loss from the sale of
securities, since both components make up total return. A fund's overall tax
efficiency -- the percentage of its return that actually winds up in
shareholders' pockets -- is calculated by dividing its after-tax total return by
its pretax total return. For example, an optimum tax effi-ciency of 100% would
indicate that these two returns were equal -- the shareholders paid no taxes. In
reality, most municipal funds fall somewhat below this level due primarily to
taxable capital gain distributions.
At T. Rowe Price, our main goal in managing municipal bond portfolios is to
provide competitive total return performance. At the same time, we strive to
minimize capital gain distributions and other factors that would saddle our
shareholders with taxes. "We don't allow tax considerations to drive our
portfolio management, but we remain sensitive to taxes in our overall approach
to management," says Mary J. Miller, Director of T. Rowe Price's Municipal Bond
Department.
- -----------------------------
WE REMAIN SENSITIVE TO TAXES
IN OUR OVERALL APPROACH . . .
=============================
Inevitably, there are times when market conditions necessitate the sale of
a security despite the tax consequences. However, we are generally able to
offset capital gains with losses incurred on the sale of other securities. Under
Internal Revenue Service rules, losses can be carried for up to eight years to
offset gains. "Our goal is to minimize capital gains by offsetting them with
losses, so there would be no taxable event to the shareholder," says Ms. Miller.
While not intentionally pursuing losses, T. Rowe Price aims to take
advantage of them when they occur. For instance, when municipal bond prices have
reached a cyclical low, we may sell some securities that are trading below our
purchase price and reinvest the proceeds in higher-yielding securities. That
strategy enhances the fund's income and also provides a tax loss that can be
employed anytime in the following eight years to offset capital gains.
According to Morningstar,* the Virginia Tax-Free Bond Fund's average tax
efficiency rating for the five-year period ended August 31, 1996, was 97.9%. The
Virginia Short-Term Tax-Free Bond Fund, which began operations less than three
years ago, is not old enough to have a meaningful tax efficiency rating. While
our foremost goal is to provide competitive total returns, we will continue to
do our best to limit the amount of money you have to surrender to the IRS.
- --------------------------------------------------------------------------------
* Although data are gathered from reliable sources, completeness and
accuracy cannot be guaranteed.
<PAGE>
================================================================================
Portfolio Highlights
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Key statistics 2/29/96 8/31/96
Virginia Short-Term Tax-Free Bond Fund
- --------------------------------------
Price Per Share .................................. $ 5.16 $ 5.10
Dividends Per Share
For 6 months ................................ 0.10 0.10
For 12 months ............................... 0.21 0.20
Dividend Yield *
For 6 months ................................ 4.05 3.86
For 12 months ............................... 4.16 3.99
Weighted Average Maturity (years) ................ 2.6 1.8
Weighted Average Effective Duration (years) ...... 2.3 1.7
Weighted Average Quality ** ...................... AAA- AAA-
Virginia Tax-Free Bond Fund
- ---------------------------
Price Per Share .................................. $ 11.09 $ 10.85
Dividends Per Share
For 6 months ................................ 0.29 0.29
For 12 months ............................... 0.57 0.57
Dividend Yield *
For 6 months ................................ 5.25% 5.26%
For 12 months ............................... 5.39 5.32
Weighted Average Maturity (years) ................ 17.3 17.7
Weighted Average Effective Duration (years) ...... 7.6 7.7
Weighted Average Quality ** ...................... AA AA
================================================================================
* 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.
** Based on T. Rowe Price research.
================================================================================
<PAGE>
Portfolio Highlights
- ------------------------------------------------------
Sector Diversification
Percent of Percent of
Net Assets Net Assets
2/29/96 8/31/96
------- -------
Virginia Short-Term Tax-Free Bond Fund
Prerefunded Bonds ...................................... 58% 58%
General Obligation-Local ............................... 5 8
Hospital Revenue ....................................... 13 7
Solid Waste Revenue .................................... 5 6
Miscellaneous Revenue .................................. 2 6
Industrial and Pollution Control Revenue ............... 4 5
Lease Revenue .......................................... 5 5
Educational Revenue .................................... -- 3
Air and Sea Transportation Revenue ..................... 2 2
All Other .............................................. 5 2
Other Assets Less Liabilities .......................... 1 -2
Total .................................................. 100% 100%
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Virginia Tax-Free Bond Fund
- ---------------------------
Hospital Revenue ....................................... 21% 19%
Housing Finance Revenue ................................ 15 15
Prerefunded Bonds ...................................... 15 11
Lease Revenue .......................................... 11 11
Water and Sewer Revenue ................................ 7 10
General Obligation-Local ............................... 4 8
Industrial and Pollution Control Revenue ............... 5 5
Solid Waste Revenue .................................... 3 5
Educational Revenue .................................... 4 4
Dedicated Tax Revenue .................................. 2 3
Miscellaneous Revenue .................................. 3 3
Escrowed to Maturity ................................... 2 2
Air and Sea Transportation Revenue ..................... 5 2
All Other .............................................. 1 1
Other Assets Less Liabilities .......................... 2 1
Total 100% 100%
================================================================================
<PAGE>
Performance Comparison
These charts show the value of a hypothetical $10,000 investment in each
fund over the past 10 fiscal year periods or since inception (for funds lacking
10-year records). The result is compared with a broad-based average or index.
The index return does not reflect expenses, which have been deducted from the
fund's return.
[SEC graph showing, Lehman 3-year GO, Lipper Short Municipal debt
funds average and Virginia Short-term Tax-Free bond Fund.]
[SEC graph showing, Lehman Municipal Bond Index, Lipper Municipal debt
funds average and Virginia Tax-Free Bond Fund.]
Average Annual Compound Total Return
This table shows how each fund would have performed each year if its actual (or
cumulative) returns for the periods shown had been earned at a constant rate.
Since Inception
Periods Ended 8/31/96 1 Year 3 Years 5 Years Inception Date
Virginia Short-Term
Tax-Free Bond Fund 3.41% - - 5.43% 11/30/94
Virginia Tax-Free Bond Fund 6.34 4.41% 7.40% 7.57 4/30/91
- --------------------------------------------------------------------------------
Investment return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
================================================================================
<PAGE>
T. Rowe Price Virginia Short-Term Tax-Free Bond Fund
Unaudited
For a share outstanding throughout each period
================================================================================
Financial Highlights
================================================================================
6 Months Year 11/30/94
Ended Ended to
8/31/96 2/29/96 2/28/95
------- ------- -------
NET ASSET VALUE
Beginning of period ....... $ 5.16 $ 5.06 $ 5.00
Investment activities
Net investment income 0.10* 0.21* 0.05*
Net realized and
unrealized gain (loss) (0.06) 0.11 0.06
Total from
investment activities 0.04 0.32 0.11
Distributions
Net investment income (0.10) (0.21) (0.05)
Net realized gain .... -- (0.01) --
Total distributions .. (0.10) (0.22) (0.05)
NET ASSET VALUE
End of period ............. $ 5.10 $ 5.16 $ 5.06
Ratios/Supplemental Data
Total return .............. 0.78%* 6.43%* 2.28%*
Ratio of expenses to
average net assets ........ 0.65%*+ 0.65%* 0.65%*+
Ratio of net investment
income to average
net assets ................ 3.82%*+ 4.07%* 4.43%*+
Portfolio turnover rate ... 27.0%+ 36.4% 14.8%+
Net assets, end of period
(in thousands) $ 14,125 $ 12,480 $ 4,965
================================================================================
* Excludes expenses in excess of a 0.65% voluntary expense limitation in
effect through 2/28/98.
+ Annualized.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
===============================================================================
<PAGE>
T. Rowe Price Virginia Tax-Free Bond Fund
Unaudited
For a share outstanding throughout each period
<TABLE>
Financial Highlights
<S> <C> <C> <C> <C> <C> <C>
6 Months Year 4/30/91
Ended Ended to
8/31/96 2/29/96 2/28/95 2/28/94 2/28/93 2/29/92
------- ------- ------- ------- ------- -------
NET ASSET VALUE
Beginning of period $ 11.09 $ 10.56 $ 11.00 $ 11.06 $ 10.27 $ 10.00
Investment activities
Net investment income ..... 0.29* 0.57* 0.57* 0.56* 0.58* 0.48*
Net realized and
unrealized gain (loss) .... (0.24) 0.53 (0.43) 0.09 0.82 0.31
Total from
investment activities ..... 0.05 1.10 0.14 0.65 1.40 0.79
Distributions
Net investment income ..... (0.29) (0.57) (0.57) (0.56) (0.58) (0.48)
Net realized gain ......... -- -- (0.01) (0.15) (0.03) (0.04)
Total distributions ....... (0.29) (0.57) (0.58) (0.71) (0.61) (0.52)
NET ASSET VALUE
End of period ............. $ 10.85 $ 11.09 $ 10.56 $ 11.00 $ 11.06 $ 10.27
Ratios/Supplemental Data
Total return .............. 0.46%* 10.69%* 1.51%* 5.99%* 14.11%* 8.12%*
Ratio of expenses to
average net assets ........ 0.65%*+ 0.65%* 0.65%* 0.65%* 0.65%* 0.65%*+
Ratio of net investment
income to average
net assets ................ 5.20%*+ 5.27%* 5.49%* 5.03%* 5.53%* 5.80%*+
Portfolio turnover rate ... 79.0%+ 93.7% 89.1% 61.8% 68.5% 76.3%+
Net assets, end of period
(in thousands) $ 180,881 $ 178,750 $ 155,278 $ 168,715 $ 111,705 $ 44,198
================================================================================
<FN>
* Excludes expenses in excess of a 0.65% voluntary expense limitation in
effect through 2/28/97.
+ Annualized.
</FN>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
================================================================================
T. Rowe Price Virginia Short-Term Tax-Free Bond Fund
Unaudited August 31, 1996
Statement of Net Assets
Par Value
In thousands
VIRGINIA 99.9%
Alexandria IDA, Ogden Martin, VRDN (Currently 3.90%) * ......... $400 $400
Augusta County IDA, Augusta Hosp
6.10%, 9/1/00 (AMBAC Insured) .................................. 60 63
Charlottesville, GO, 5.60%, 6/15/97 ............................ 225 228
Chesapeake
GO, 6.80%, 7/1/03 (Prerefunded 7/1/97+) ........................ 450 470
Water and Sewer
7.10%, 12/1/05 (Prerefunded 12/1/98+) .......................... 250 270
7.75%, 7/1/17 (Prerefunded 7/1/97+) ............................ 90 94
Chesapeake Hosp. Auth., Chesapeake General Hosp
7.625%, 7/1/18 (BIGI Insured)
(Prerefunded 7/1/98+) .......................................... 85 92
Fairfax County
GO, 5.00%, 6/1/97 .............................................. 230 232
GO, 6.00%, 4/1/99
(Prerefunded 4/1/98+) .......................................... 200 206
GO, 6.50%, 4/1/05
(Prerefunded 4/1/98+) .......................................... 250 263
Ogden Martin, 7.20%, 2/1/99 * .................................. 450 473
Fairfax County IDA, Inova Health Care System
VRDN (Currently 3.55%) ......................................... 100 100
Fairfax County Water Auth
6.125%, 1/1/29 (Prerefunded 1/1/00+) ........................... 250 262
7.30%, 1/1/21 (Prerefunded 1/1/00+) ............................ 265 292
<PAGE>
Hampton, GO, 6.625%, 1/1/10 (Prerefunded 1/1/00+) .............. 100 108
Hampton Roads Sanitation Dist
7.10%, 7/1/98 (Escrowed to Maturity) ........................... 125 131
7.20%, 7/1/09 (Prerefunded 7/1/99+) ............................ 500 546
Henrico County, GO, 6.40%, 10/1/99 (Prerefunded 10/1/98+) ...... 180 188
Henrico County IDA, Henrico County Jail, 5.80%, 8/1/99 ......... 150 155
Loudoun County Sanitation Auth
Water and Sewer
7.25%, 1/1/03 (AMBAC Insured)
(Prerefunded 1/1/99+) .......................................... 350 379
7.50%, 1/1/10 (AMBAC Insured)
(Prerefunded 1/1/99+) .......................................... 225 244
Manassas, GO, 5.50%, 9/1/98 * .................................. $325 $333
Newport News, GO, 7.25%, 1/1/98 ................................ 75 78
Norfolk, GO, 7.00%, 10/1/09 (Prerefunded 10/1/98+) ............. 450 483
Peninsula Ports Auth., Shell Oil, VRDN (Currently 3.80%) ....... 700 700
Prince William County, GO
6.125%, 2/1/03 (Prerefunded 2/1/99+) ........................... 500 525
Prince William County IDA
Potomac Hosp. Corp., 5.90%, 10/1/97 ............................ 50 51
Richmond, Public Utilities
7.60%, 1/15/04 (Prerefunded 1/15/98+) .......................... 340 362
Suffolk, GO, 7.30%, 8/1/03 (Prerefunded 8/1/97+) ............... 50 52
Univ. of Virginia Hosp., 7.15%, 6/1/17
(Prerefunded 6/1/98+) .......................................... 50 53
Virginia, GO
6.60%, 6/1/05 (Prerefunded 6/1/98+) ............................ 500 529
Higher Ed. Institution, 6.60%, 6/1/08
(Prerefunded 6/1/98+) .......................................... 625 662
<PAGE>
Virginia Beach, GO
6.10%, 8/1/99 .................................................. 250 261
6.75%, 5/1/97 .................................................. 30 30
6.875%, 5/1/03 (Prerefunded 5/1/98+) ........................... 1,000 1,061
7.50%, 5/1/04 (Prerefunded 5/1/97+) ............................ 200 209
Virginia Beach Hosp. Auth ......................................
Sentara Bayside Hosp., 5.65%, 11/1/98 .......................... 500 513
Virginia College Building Auth .................................
Univ. of Richmond, VRDN (Currently 3.60%) ...................... 500 500
Virginia HDA, Multi-Family Housing, 5.75%, 11/1/97 ............. 95 96
Virginia Public Building Auth ..................................
5.70%, 8/1/00 .................................................. 300 312
Correctional Fac., 6.90%, 2/1/99 ............................... 175 185
Virginia Public School Auth ....................................
5.60%, 1/1/99 .................................................. 275 282
6.00%, 8/1/98 .................................................. 500 516
6.20%, 1/1/03 (Prerefunded 1/1/99+) ............................ 50 53
6.70%, 1/1/07 (Prerefunded 1/1/99+) ............................ 150 161
6.75%, 1/1/11 (Prerefunded 1/1/99+) ............................ 400 429
7.10%, 1/1/10 (Prerefunded 1/1/98+) ............................ 75 79
Prince William County, GO
6.60%, 6/1/00 (Prerefunded 6/1/97+) ............................ $50 $51
Washington County IDA
Johnston Memorial Hosp., 5.375%, 7/1/98 ........................ 290 294
Winchester, GO, 6.85%, 10/15/05 (Prerefunded 10/15/97+) ........ 50 52
Total Virginia (Cost $14,052) 14,108
- -------------------- -------- ------
<PAGE>
DISTRICT OF COLUMBIA 1.8%
Metropolitan Washington D.C. Airports Auth
6.80%, 10/1/98 (FGIC Insured) * ................................ 250 261
Total District of Columbia (Cost $258) 261
- -------------------------------------- ---
Total Investments in Securities
101.7% of Net Assets (Cost $14,310) $14,369
Other Assets Less Liabilities .................................. (244)
NET ASSETS ..................................................... $14,125
Net Assets Consist of:
Accumulated net realized gain/loss - net of distributions $ 8
Net unrealized gain (loss) 59
Paid-in-capital applicable to 2,768,137
shares of no par value
shares of beneficial interest
outstanding; unlimited number of shares authorized 14,058
NET ASSETS $ 14,125
NET ASSET VALUE PER SHARE $ 5.10
- --------------------------------------------------------------------------------
* Interest subject to alternative minimum tax
+ Used in determining portfolio maturity
AMBAC AMBAC Indemnity Corp
BIGI Bond Investors Guaranty Insurance
FGIC Financial Guaranty Insurance Company
GO General Obligation
HDA Housing Development Authority
IDA Industrial Development Authority
VRDN Variable Rate Demand Note
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. Rowe Price Virginia Tax-Free Bond Fund
Unaudited August 31, 1996
Statement of Net Assets
Par Value
In thousands
------------
VIRGINIA 95.0%
Alexandria IDA
Ogden Martin
VRDN (Currently 3.90%) * $ 3,200 $3,200
7.40%, 1/1/08 .................................................. 2,450 2,479
Alexandria Redev. and Housing Auth
Goodwin House, 6.60%, 10/1/26 .................................. 2,000 1,930
Arlington County IDA
Arlington Hosp
7.00%, 9/1/11 (Prerefunded 9/1/01+) ............................ 1,205 1,344
7.125%, 9/1/21 (Prerefunded 9/1/01+) ........................... 800 897
Augusta County Service Auth., Water and Sewer
5.00%, 11/1/24 (MBIA Insured) .................................. 3,000 2,657
Brunswick County IDA, Correctional Fac
5.50%, 7/1/13 (MBIA Insured) ................................... 1,855 1,799
Chesapeake Water and Sewer, GO, 5.375%, 12/1/20 ................ 1,500 1,417
Covington and Alleghany County IDA, PCR
Westvaco Corp., 6.65%, 9/1/18 .................................. 1,500 1,581
Danville, General Improvement, GO
7.25%, 3/1/07 (Prerefunded 3/1/99+) ............................ 350 380
Danville IDA, Danville Regional Medical Center
6.50%, 10/1/24 (FGIC Insured) .................................. 3,000 3,199
Fairfax County Housing Auth
FCRHA Office Building, 7.50%, 6/15/18 .......................... 2,265 2,354
<PAGE>
Fairfax County IDA
Fairfax Hosp. System
VRDN (Currently 3.55%) ......................................... 100 100
VRDN (Currently 3.65%) ......................................... 1,300 1,300
Inova Health Care System
VRDN (Currently 3.55%) ......................................... 900 900
6.00%, 8/15/26 ................................................. 500 494
Fairfax County Water Auth
5.80%, 1/1/16 (Escrowed to Maturity) ........................... 3,505 3,530
6.00%, 4/1/22 .................................................. 1,000 990
7.30%, 1/1/21 (Prerefunded 1/1/00+) ............................ 900 991
Frederick County IDA, Gov't. Complex Fac
6.50%, 12/1/14 (MBIA Insured) .................................. 1,500 1,615
Fredericksburg IDA, Hosp. Fac. (MWH MediCorp Obligated Group)
Residual Interest Bond / Inverse Floater
(Currently 9.316%), 8/15/23 (FGIC Insured) ...................$ 3,000 $3,293
George Mason Univ., 6.375%, 2/1/13 (MBIA Insured) .............. 1,415 1,490
Giles County IDA, Hoechst Celanese Corp., 6.625%, 12/1/22 * .... 1,485 1,535
Hampton, Museum, 7.30%, 1/1/14 (Prerefunded 1/1/00+) ........... 1,100 1,209
Hampton Roads Medical College
6.875%, 11/15/11 ............................................... 1,500 1,588
6.875%, 11/15/16 ............................................... 500 525
Hanover County, Water and Sewer
5.25%, 2/1/26 (MBIA Insured) ................................... 1,275 1,173
Hanover County IDA
Memorial Regional Medical Center
6.375%, 8/15/18 (MBIA Insured) ................................. 2,185 2,334
6.50%, 8/15/08 (MBIA Insured) .................................. 1,000 1,095
6.50%, 8/15/10 (MBIA Insured) .................................. 1,300 1,406
Henrico County IDA
Bon Secours Health System
6.25%, 8/15/20 (MBIA Insured) .................................. 1,550 1,631
<PAGE>
Bon Secours Health System, St. John's Hosp .....................
7.50%, 9/1/15 (Prerefunded 7/1/00+) ............................ 1,800 1,999
Bon Secours Health System, St. Mary's Hosp .....................
7.50%, 9/1/07 (Prerefunded 8/1/00+) ............................ 400 437
6.00%, 8/15/16 (MBIA Insured) .................................. 1,000 1,020
Regional Jail
6.00%, 8/1/15 .................................................. 2,415 2,431
7.00%, 8/1/13 .................................................. 1,485 1,631
Isle of Wight IDA, Union Camp Corp., 6.55%, 4/1/24 * ........... 4,250 4,404
Loudoun County Sanitation Auth .................................
Water and Sewer
5.25%, 1/1/30 (FGIC Insured) ................................... 2,000 1,811
6.25%, 1/1/16 (FGIC Insured) ................................... 4,000 4,150
Lynchburg Housing Auth., Waldon Pond, 6.125%, 7/20/15 .......... 1,170 1,177
Martinsville IDA, Memorial Hosp. of Martinsville
and Henry County, 7.00%, 1/1/11 ................................ 950 987
Metropolitan Washington D.C. Airport Auth ......................
6.625%, 10/1/19 (MBIA Insured) * ............................... 2,800 2,944
Norfolk
GO, 5.25%, 6/1/12 .............................................. 3,000 2,885
Water
5.375%, 11/1/23 (AMBAC Insured) ..............................$ 3,000 $2,803
5.875%, 11/1/20 (MBIA Insured) ................................. 4,000 3,956
Norfolk IDA
Children's Hosp. of The King's Daughters
7.00%, 6/1/11 (AMBAC Insured) (Prerefunded 6/1/01+) ............ 1,150 1,278
Sentara Hosp ...................................................
7.00%, 11/1/20 (Prerefunded 11/1/00+) .......................... 1,045 1,155
7.10%, 11/1/10 (Prerefunded 11/1/00+) .......................... 850 943
Pamunkey Regional Jail Auth ....................................
Jail Fac., 5.75%, 7/1/18 (MBIA Insured) ........................ 1,975 1,922
<PAGE>
Peninsula Port Auth ............................................
Dominion Terminal, 7.375%, 6/1/20 .............................. 2,000 2,097
Riverside Health Systems, 6.625%, 7/1/18 ....................... 3,020 3,137
Portsmouth, GO, 5.00%, 8/1/17 (FGIC Insured) ................... 5,215 4,736
Prince William County, COP, 5.50%, 12/1/15 (MBIA Insured) ...... 4,455 4,276
Richmond, GO, 5.00%, 1/15/21 (FGIC Insured) .................... 2,500 2,235
Roanoke County, Public Improvement, GO, 5.00%, 6/1/21 .......... 600 531
Roanoke IDA
Roanoke Memorial Hosp., Carilion Health System
VRDN (Currently 3.45%) ......................................... 915 915
6.125%, 7/1/17 (MBIA Insured) .................................. 3,905 4,071
7.25%, 7/1/17 (MBIA Insured) (Prerefunded 7/1/00+) ............. 1,000 1,108
Univ. of Virginia, VRDN (Currently 3.50%) ...................... 1,600 1,600
Univ. of Virginia Hosp .........................................
7.00%, 6/1/10 .................................................. 855 909
7.00%, 6/1/10 (Prerefunded 6/1/99+) ............................ 545 590
Virginia, GO, 6.50%, 6/1/15 (Prerefunded 6/1/03+) .............. 3,000 3,322
Virginia Beach
GO, 5.75%, 2/1/16 .............................................. 2,900 2,880
Judicial Center, COP
5.40%, 9/1/09 (FGIC Insured) ................................... 3,945 3,906
Virginia Beach Dev. Auth .......................................
Sentara Bayside Hosp., 6.60%, 11/1/09 .......................... 2,150 2,269
Virginia Beach General Hosp ....................................
6.00%, 2/15/10 (AMBAC Insured) ................................. 1,000 1,051
Virginia College Building Auth .................................
Randolph Macon College, 6.625%, 5/1/13 ......................... 1,000 1,042
Univ. of Richmond, VRDN (Currently 3.60%) ....................$ 1,000 $1,000
<PAGE>
Virginia Ed. Loan Auth .........................................
Student Loan Program, 5.55%, 9/1/10 * .......................... 1,800 1,825
Virginia HDA
6.35%, 11/1/01 ................................................. 1,000 1,042
6.50%, 5/1/13 * ................................................ 2,000 2,050
6.70%, 7/1/11 .................................................. 2,660 2,793
6.80%, 7/1/06 * ................................................ 1,000 1,047
6.85%, 7/1/17 .................................................. 1,000 1,031
6.90%, 7/1/13 .................................................. 1,800 1,858
6.90%, 7/1/17 .................................................. 3,500 3,663
7.05%, 5/1/18 .................................................. 840 883
7.10%, 5/1/13 .................................................. 1,500 1,573
7.10%, 1/1/17 .................................................. 2,230 2,352
7.10%, 1/1/22 .................................................. 4,760 5,049
7.40%, 7/1/09 .................................................. 300 308
6.45%, 7/1/28 (MBIA Insured) * ................................. 2,000 2,030
Virginia Public Building Auth ..................................
6.25%, 8/1/15 (Prerefunded 8/1/04+) ............................ 1,550 1,691
Virginia Public School Auth ....................................
6.50%, 8/1/12 .................................................. 1,700 1,824
6.50%, 8/1/16 .................................................. 2,890 3,069
7.125%, 1/1/10 (Prerefunded 1/1/98+) ........................... 100 106
Virginia Resources Auth., Solid Waste Disposal, 5.50%, 4/1/15 .. 3,000 2,852
Virginia Transportation Board, Route 28 Project, 6.50%, 4/1/18 . 1,000 1,054
Washington County IDA
Johnston Memorial Hosp .........................................
6.25%, 7/1/06 .................................................. 660 694
6.75%, 7/1/12 .................................................. 1,500 1,574
Winchester IDA, Winchester Medical Center, Inc., Embedded
Interest Rate Swap (Currently 5.05%)
1/1/04 (AMBAC Insured) ......................................... 1,400 1,356
Total Virginia (Cost $167,159) 171,768
<PAGE>
PUERTO RICO 3.6%
Puerto Rico Commonwealth
GO, 7.75%, 7/1/13
(Prerefunded 7/1/98+) .......................................... 100 108
GO, 7.75%, 7/1/17 (Prerefunded 7/1/99+) $ 25 $ 277
Highway and Transportation Auth ................................
6.25%, 7/1/14 .................................................. 1,500 1,571
5.50%, 7/1/15 (FSA Insured) .................................... 2,000 1,951
Puerto Rico Electric Power Auth ................................
7.00%, 7/1/07 (Prerefunded 7/1/99+) ............................ 630 683
8.00%, 7/1/08 (Prerefunded 7/1/98+) ............................ 125 136
Puerto Rico Infrastructure Fin. Auth ...........................
7.50%, 7/1/09 .................................................. 1,500 1,606
7.75%, 7/1/08 .................................................. 115 123
Puerto Rico Public Buildings Auth., GO
7.25%, 7/1/17 (Prerefunded 7/1/98+) ............................ 100 107
Total Puerto Rico (Cost $6,363) 6,562
Total Investments in Securities
98.6% of Net Assets (Cost $173,522) $ 178,330
Other Assets Less Liabilities 2,551
NET ASSETS $ 180,881
Net Assets Consist of:
Accumulated net investment income - net of distributions $ 6
Accumulated net realized gain/loss - net of distributions (2,347)
Net unrealized gain (loss) 4,808
<PAGE>
Paid-in-capital applicable to 16,671,422
shares of no par value shares
of beneficial interest outstanding;
unlimited number of shares authorized 178,414
NET ASSETS $ 180,881
NET ASSET VALUE PER SHARE $ 10.85
- --------------------------------------------------------------------------------
* Interest subject to alternative minimum tax
+ Used in determining portfolio maturity
AMBAC AMBAC Indemnity Corp.
COP Certificates of Participation
FGIC Financial Guaranty Insurance Company
FSA Financial Security Assurance Corp.
GO General Obligation
HDA Housing Development Authority
IDA Industrial Development Authority
MBIA Municipal Bond Investors Assurance Corp.
PCR Pollution Control Revenue
VRDN Variable Rate Demand Note
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. Rowe Price Virginia Tax-Free Funds
Unaudited
In thousands
Statement of Operations
Short-Term
Bond Fund Bond Fund
===========================
6 Months 6 Months
Ended Ended
8/31/96 8/31/96
===========================
Investment Income
Interest income .................................... $ 296 $ 5,232
Expenses
Investment management .............................. -- 401
Custody and accounting ............................. 43 58
Shareholder servicing .............................. 11 93
Legal and audit .................................... 4 6
Trustees ........................................... 3 3
Prospectus and shareholder reports ................. 1 13
Registration ....................................... 1 2
Miscellaneous ...................................... 4 5
Reimbursed by Manager .............................. (24) --
Total expenses ..................................... 43 581
Net investment income .............................. 253 4,651
Realized and Unrealized Gain(Loss)
===================================
Net realized gain (loss)
Securities ......................................... 1 (121)
Futures ............................................ -- 121
Net realized gain (loss) ........................... 1 --
Change in net unrealized gain (loss)
Securities ......................................... (135) (3,879)
Futures ............................................ -- 14
Change in net unrealized gain or loss
on securities ...................................... (135) (3,865)
Net realized and unrealized gain (loss) ............ (134) (3,865)
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS ............................. $ 119 $ 786
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. Rowe Price Virginia Tax-Free Funds
Unaudited
In Thousands
Statement of Changes in Net Assets
================================================================================
Short-Term Bond Fund Bond Fund
6 Months Year 6 Months Year
Ended Ended Ended Ended
8/31/96 2/29/96 8/31/96 2/29/96
------- ------- ------- -------
Increase (Decrease) in Net Assets
Operations
Net investment income ...........$ 253 $ 401 $ 4,651 $ 8,881
Net realized gain (loss) ........ 1 30 -- 3,837
Change in net unrealized
gain or loss .................... (135) 154 (3,865) 4,341
Increase (decrease) in
net assets from operations ...... 119 585 786 17,059
Distributions to shareholders
Net investment income ........... (253) (401) (4,651) (8,881)
Net realized gain ............... -- (23) -- --
Decrease in net assets
from distributions .............. (253) (424) (4,651) (8,881)
Capital share transactions *
Shares sold ..................... 4,174 10,194 20,441 38,919
Distributions reinvested ........ 185 284 3,584 6,804
Shares redeemed ................. (2,580) (3,124) (18,029) (30,429)
Increase (decrease) in
net assets from capital
share transactions .............. 1,779 7,354 5,996 15,294
- --------------------------------------------------------------------------------
Net Assets
======================================
Increase (decrease)
during period ................... 1,645 7,515 2,131 23,472
Beginning of period ............. 12,480 4,965 178,750 155,278
End of period ...................$ 14,125 $ 12,480 $ 180,881 $ 178,750
* Share information
Shares sold ..................... 817 1,991 1,888 3,592
Distributions reinvested ........ 36 55 331 627
Shares redeeemed ................ (505) (607) (1,667) (2,805)
Increase (decrease)
in shares outstanding ........... 348 1,439 552 1,414
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
Notes to Financial Statements
================================================================================
Note 1 - Significant Accounting Policies
- --------------------------------------------------------------------------------
T. Rowe Price State Tax-Free Income Trust (the trust) is registered under
the Investment Company Act of 1940. The Virginia Short-Term Tax-Free Bond Fund
(the Short-Term Bond Fund) and the Virginia Tax-Free Bond Fund (the Bond Fund),
nondiversified, open-end management investment companies, are two of the
portfolios established by the trust and commenced operations on November 30,
1994, and April 30, 1991, respectively.
Valuation Debt securities are generally traded in the over-the-counter
market. Investments in securities 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.
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 each
fund, as authorized by the Board of Trustees.
Premiums and Discounts Premiums and original issue discounts on municipal
securities are amortized for both financial reporting and tax purposes. Market
discounts are recognized upon disposition of the security as gain or loss for
financial reporting purposes and as ordinary income for tax purposes.
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 the 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.
<PAGE>
Note 2 - Investment Transactions
- --------------------------------------------------------------------------------
Purchases and sales of portfolio securities, other than short-term
securities, for the six months ended August 31, 1996, were as follows:
================================================================================
Short-Term
Bond Fund Bond Fund
Purchases $ 2,664,000 $ 69,781,000
Sales 1,591,000 65,420,000
================================================================================
Note 3 - Federal Income Taxes
- --------------------------------------------------------------------------------
No provision for federal income taxes is required since each fund intends
to continue to qualify as a regulated investment company and distribute all of
its income. The Bond Fund has unused realized capital loss carryforwards for
federal income tax purposes of $2,318,000 which expires in 2003. The fund
intends to retain gains realized in future periods that may be offset by
available capital loss carryforwards.
At August 31, 1996, the aggregate costs of investments for the Short-Term
Bond and Bond Funds for federal income tax and financial reporting purposes were
$14,310,000 and $173,522,000, respectively. Net unrealized gain on investments
was as follows:
================================================================================
Short-Term
Bond Fund Bond Fund
Appreciated investments $ 69,000 $ 5,265,000
Depreciated investments (10,000) (457,000)
Net unrealized gain (loss) $ 59,000 $ 4,808,000
================================================================================
<PAGE>
Note 4 - Related Party Transactions
- --------------------------------------------------------------------------------
The investment management agreement between each fund and T. Rowe Price
Associates, Inc. (the manager) provides for an annual investment management fee,
of which, $68,000 was payable at August 31, 1996, by the Bond Fund. The fee is
computed daily and paid monthly, and consists 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 0.305% for assets in excess of $50
billion. At August 31, 1996, and for the six months then ended, the effective
annual group fee rate was 0.33%. Each 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, 1998, for the Short-Term Bond
Fund and through February 28, 1997, for the Bond Fund which would cause each
fund's ratio of expenses to average net assets to exceed 0.65%. Thereafter
through February 29, 2000, for the Short-Term Bond Fund and February 28, 1999,
for the Bond Fund, each 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 each fund's ratio of
expenses to average net assets to exceed 0.65%. Pursuant to these agreements,
$29,000 of management fees were not accrued by the Short-Term Bond for the six
months ended August 31, 1996, and $24,000 of other expenses were borne by the
manager. Pursuant to a previous agreement, $92,000 unaccrued fees and expenses
remain subject to reimbursement through February 28, 1998, for the Short-Term
Bond Fund. Pursuant to a previous agreement, $16,000 of unaccrued 1993-1995 fees
were repaid by the Bond Fund during the six months ended August 31, 1996, and
$140,000 remains subject to reimbursement through February 28, 1997.
In addition, each fund has entered into agreements with the manager and a
wholly owned subsidiary of the manager, pursuant to which each fund receives
certain other services. The manager computes the daily share price and maintains
the financial records of each fund. T. Rowe Price Services, Inc., is each fund's
transfer and dividend disbursing agent and provides shareholder and
administrative services to the funds. The Short-Term Bond and Bond Funds
incurred expenses pursuant to these related party agreements totaling
approximately $39,000 and $106,000, respectively, for the six months ended
August 31, 1996, of which $8,000 and $21,000, respectively, were payable at
period-end.
================================================================================
<PAGE>
T. Rowe Price Virginia Tax-Free Funds
Investment Services And Information
Knowledgeable Service Representatives
By Phone 1-800-225-5132 Available Monday through Friday from 8 a.m. to 10
p.m. and weekends from 8:30 a.m. to 5 p.m. ET.
In Person Available in T. Rowe Price Investor Centers.
Account Services
Checking Available on most fixed income funds.
Automatic Investing From your bank account or paycheck.
Automatic Withdrawal Scheduled, automatic redemptions.
Distribution Options Reinvest all, some, or none of your distributions.
Automated 24-Hour Services Including Tele*Access(R) and
T. Rowe Price OnLine.
Discount Brokerage*
Individual Investments Stocks, bonds, options, precious metals,
and other securities at a savings over regular commission rates.
Investment Information
Combined Statement Overview of your T. Rowe Price accounts.
Shareholder Reports Fund managers' reviews of their strategies and results.
The T. Rowe Price Report Quarterly investment newsletter discussing
markets and financial strategies.
Performance Update Quarterly review of all T. Rowe Price fund results.
Insights Educational reports on investment strategies and financial markets.
Investment Guides Asset Mix Worksheet, College Planning Kit, Personal
Strategy Planner, Retirees Financial Guide, and Retirement Planning Kit.
* A division of T. Rowe Price Investment Services, Inc. Member NASD/SIPC.
<PAGE>
For yield, price, last transaction,
and current balance, 24 hours,
7 days a week, call:
1-800-638-2587 toll free
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
625-6500 Baltimore area
Investor Centers:
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
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900 17th Street, N.W.
Washington, D.C. 20006
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515 South Flower St.
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T. Rowe Price
100 East Pratt Street
Baltimore, Maryland 21202
http://www.troweprice.com
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 Investment Services, Inc., Distributor RPRTVAC 8/31/96
