PAGE 1
Registration Nos. 33-06533/811-4521
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Post-Effective Amendment No. 31 / X /
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940 / X /
Amendment No. 26 / X /
Fiscal Year Ended February 29, 1996
______________________________________
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
___________________________________________________
(Exact name of Registrant as Specified in Charter)
100 East Pratt Street, Baltimore, Maryland 21202
__________________________________________ __________
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 410-547-2000
____________
Henry H. Hopkins
100 East Pratt Street
Baltimore, Maryland 21202
________________________________________
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering July 1, 1996
_____________
It is proposed that this filing will become effective (check
appropriate box):
/ / immediately upon filing pursuant to paragraph (b)
/X/ on July 1, 1996 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a)(i)
PAGE 2
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933+
______________________________________________
Pursuant to Section 24f-2 of the Investment Company Act of 1940,
the Registrant has registered an indefinite number of securities
under the Securities Act of 1933 and intends to file a 24f-2
Notice by April 29, 1997.
+Not applicable, as no securities are being registered by this
Post-Effective Amendment No. 31 to the Registration Statement.
PAGE 3
The Registration Statement of T. Rowe Price State Tax-Free
Income Trust, on Form N-1A (File No. 33-06533) is hereby amended
under the Securities Act of 1933 to update the Registrant's
financial statements, make other changes in the Registrant's
Prospectus and Statement of Additional Information, and to
satisfy the annual amendment requirements of Rule 8b-16 under the
Investment Company Act of 1940.
The Amendment consists of the following:
Cross Reference Sheet
Part A of Form N-1A, Revised Prospectus
Part B of Form N-1A, Statement of Additional Information
Part C of Form N-1A, Other Information
Opinion of Counsel
Accountant's Consent
PAGE 4
NEW YORK TAX-FREE FUNDS
CROSS REFERENCE SHEET
N-1A Item No. Location
____________ ________
PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis Transaction and Fund
and Expenses
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of About the Funds;
Registrant Fund, Market, and Risk
Characteristics: What
to Expect;
Understanding
Performance
Information;
Investment Policies
and Practices
Item 5. Management of the Fund Transaction and Fund
Expenses; Organization
and Management
Item 6. Capital Stock and Other Useful Information on
Securities Distributions and
Taxes; Organization
and Management
Item 7. Purchase of Securities Being Pricing Shares and
Offered Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements; Account
Requirements and
Transaction
Information;
Shareholder Services
Item 8. Redemption or Repurchase Pricing Shares and
Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements;
Shareholder Services
Item 9. Pending Legal Proceedings +
PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History +
PAGE 5
Item 13. Investment Objectives and Investment Objective
Policies and Policies; Risk
Factors Associated
with a New York
Portfolio; Other Risk
Considerations;
Investment Program;
Investment
Restrictions; Yield
Information;
Investment Performance
Item 14. Management of the Registrant Management of the
Trust
Item 15. Control Persons and Principal Principal Holders of
Holders of Securities Securities
Item 16. Investment Advisory and Other Investment Management
Services Services; Custodian;
Independent
Accountants; Legal
Counsel
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Dividends;
Securities Organization of the
Trust
Item 19. Purchase, Redemption and Pricing Pricing of Securities;
of Securities Being Offered Net Asset Value Per
Share; Redemptions in
Kind; Federal and
State Registration of
Shares
Item 20. Tax Status Tax Status
Item 21. Underwriters Distributor for the
Trust
Item 22. Calculation of Yield Quotations
of Money Market Funds Yield Information
Item 23. Financial Statements Incorporated by
Reference from Annual
Report
PART C
Information required to be included in Part C is set forth under
the appropriate item, so numbered, in Part C to this Registration
Statement
_________________________________
+ Not applicable or negative answer
PAGE 6
MARYLAND SHORT-TERM TAX-FREE BOND FUND
CROSS REFERENCE SHEET
N-1A Item No. Location
____________ ________
PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis Transaction and Fund
Expenses
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of
Registrant About the Funds;
Fund, Market, and Risk
Characteristics: What
to Expect;
Understanding
Performance
Information;
Investment Policies
and Practices
Item 5. Management of the Fund Transaction and Fund
Expenses; Organization
and Management
Item 6. Capital Stock and Other Useful Information on
Securities Distributions and
Taxes; Organization
and Management
Item 7. Purchase of Securities Being Pricing Shares and
Offered Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements; Account
Requirements and
Transaction
Information;
Shareholder Services
Item 8. Redemption or Repurchase Pricing Shares and
Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements;
Shareholder Services
Item 9. Pending Legal Proceedings +
PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History +
PAGE 7
Item 13. Investment Objectives and Investment Objective
Policies and Policies; Risk
Factors Associated
with a Maryland
Portfolio; Risk
Factors; Investment
Program; Investment
Restrictions; Yield
Information;
Investment Performance
Item 14. Management of the Registrant Management of the
Trust
Item 15. Control Persons and Principal Principal Holders of
Holders of Securities Securities
Item 16. Investment Advisory and Other Investment Management
Services Services; Custodian;
Independent
Accountants; Legal
Counsel
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Dividends;
Securities Organization of the
Trust
Item 19. Purchase, Redemption and Pricing Pricing of Securities;
of Securities Being Offered Net Asset Value Per
Share; Redemptions in
Kind; Federal and
State Registration of
Shares
Item 20. Tax Status Tax Status
Item 21. Underwriters Distributor for the
Trust
Item 22. Calculation of Yield Quotations
of Money Market Funds +
Item 23. Financial Statements Incorporated by
Reference from Annual
Report
PART C
Information required to be included in Part C is set forth under
the appropriate item, so numbered, in Part C to this Registration
Statement
___________________________________
+ Not applicable or negative answer
PAGE 8
MARYLAND TAX-FREE BOND FUND
CROSS REFERENCE SHEET
N-1A Item No. Location
____________ ________
PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis Transaction and Fund
Expenses
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of About the Funds;
Registrant Fund, Market, and Risk
Characteristics: What
to Expect;
Understanding
Performance
Information;
Investment Policies
and Practices
Item 5. Management of the Fund Transaction and Fund
Expenses; Organization
and Management
Item 6. Capital Stock and Other Useful Information on
Securities Distributions and
Taxes; Organization
and Management
Item 7. Purchase of Securities Being Pricing Shares and
Offered Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements; Account
Requirements and
Transaction
Information;
Shareholder Services
Item 8. Redemption or Repurchase Pricing Shares and
Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements;
Shareholder Services
Item 9. Pending Legal Proceedings +
PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History +
PAGE 9
Item 13. Investment Objectives and
Policies Investment Objective
and Policies; Risk
Factors Associated
with a Maryland
Portfolio; Risk
Factors; Investment
Program; Investment
Restrictions; Yield
Information;
Investment Performance
Item 14. Management of the Registrant Management of the
Trust
Item 15. Control Persons and Principal Principal Holders of
Holders of Securities Securities
Item 16. Investment Advisory and Other Investment Management
Services Services; Custodian;
Independent
Accountants; Legal
Counsel
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Dividends;
Securities Organization of the
Trust
Item 19. Purchase, Redemption and Pricing Pricing of Securities;
of Securities Being Offered Net Asset Value Per
Share; Redemptions in
Kind; Federal and
State Registration of
Shares
Item 20. Tax Status Tax Status
Item 21. Underwriters Distributor for the
Trust
Item 22. Calculation of Yield Quotations
of Money Market Funds +
Item 23. Financial Statements Incorporated by
Reference from Annual
Report
PART C
Information required to be included in Part C is set forth under
the appropriate item, so numbered, in Part C to this Registration
Statement
___________________________________
+ Not applicable or negative answer
PAGE 10
VIRGINIA TAX-FREE BOND FUND
CROSS REFERENCE SHEET
N-1A Item No. Location
____________ ________
PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis Transaction and Fund
Expenses
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of About the Funds;
Registrant Fund, Market, and Risk
Characteristics: What
to Expect;
Understanding
Performance
Information;
Investment Policies
and Practices
Item 5. Management of the Fund Transaction and Fund
Expenses; Organization
and Management
Item 6. Capital Stock and Other Useful Information on
Securities Distributions and
Taxes; Organization
and Management
Item 7. Purchase of Securities Being Pricing Shares and
Offered Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements; Account
Requirements and
Transaction
Information;
Shareholder Services
Item 8. Redemption or Repurchase Pricing Shares and
Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements;
Shareholder Services
Item 9. Pending Legal Proceedings +
PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History +
PAGE 11
Item 13. Investment Objectives and Investment Objective
Policies and Policies; Risk
Factors Associated
with a Virginia
Portfolio; Investment
Program; Investment
Restrictions; Other
Risk Considerations;
Yield Information;
Investment Performance
Item 14. Management of the Registrant Management of the
Trust
Item 15. Control Persons and Principal Principal Holders of
Holders of Securities Securities
Item 16. Investment Advisory and Other Investment Management
Services Services; Custodian;
Independent
Accountants; Legal
Counsel
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Dividends;
Securities Organization of the
Trust
Item 19. Purchase, Redemption and Pricing Redemptions in Kind;
of Securities Being Offered Pricing of Securities;
Net Asset Value Per
Share; Federal and
State Registration of
Shares
Item 20. Tax Status Tax Status
Item 21. Underwriters Distributor for the
Trust
Item 22. Calculation of Yield Quotations
of Money Market Funds +
Item 23. Financial Statements Incorporated by
Reference from Annual
Report
PART C
Information required to be included in Part C is set forth under
the appropriate item, so numbered, in Part C to this Registration
Statement
___________________________________
+ Not applicable or negative answer
PAGE 12
NEW JERSEY TAX-FREE BOND FUND
CROSS REFERENCE SHEET
N-1A Item No. Location
____________ ________
PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis Transaction and Fund
Expenses
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of About the Fund;
Registrant Fund, Market, and Risk
Characteristics: What
to Expect;
Understanding
Performance
Information;
Investment Policies
and Practices
Item 5. Management of the Fund Transaction and Fund
Expenses; Organization
and Management
Item 6. Capital Stock and Other Useful Information on
Securities Distributions and
Taxes; Organization
and Management
Item 7. Purchase of Securities Being Pricing Shares and
Offered Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements; Account
Requirements and
Transaction
Information;
Shareholder Services
Item 8. Redemption or Repurchase Pricing Shares and
Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements;
Shareholder Services
Item 9. Pending Legal Proceedings +
PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History +
PAGE 13
Item 13. Investment Objectives and Investment Objective
Policies and Policies; Risk
Factors Associated
with a New Jersey
Portfolio; Investment
Program; Investment
Restrictions; Risk
Factors Associated
with a New Jersey
Portfolio; Other Risk
Considerations; Yield
Information;
Investment Performance
Item 14. Management of the Registrant Management of the
Trust
Item 15. Control Persons and Principal Principal Holders of
Holders of Securities Securities
Item 16. Investment Advisory and Other Investment Management
Services Services; Custodian;
Independent
Accountants; Legal
Counsel
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Dividends;
Securities Organization of the
Trust
Item 19. Purchase, Redemption and Pricing Redemptions in Kind;
of Securities Being Offered Pricing of Securities;
Net Asset Value Per
Share; Federal and
State Registration of
Shares
Item 20. Tax Status Tax Status
Item 21. Underwriters Distributor for the
Trust
Item 22. Calculation of Yield Quotations
of Money Market Funds +
Item 23. Financial Statements Incorporated by
Reference from Annual
Report
PART C
Information required to be included in Part C is set forth under
the appropriate item, so numbered, in Part C to this Registration
Statement
___________________________________
+ Not applicable or negative answer
PAGE 14
GEORGIA TAX-FREE BOND FUND
CROSS REFERENCE SHEET
N-1A Item No. Location
____________ ________
PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis Transaction and Fund
Expenses
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of About the Fund;
Registrant Fund, Market, and Risk
Characteristics: What
to Expect;
Understanding
Performance
Information;
Investment Policies
and Practices
Item 5. Management of the Fund Transaction and Fund
Expenses; Organization
and Management
Item 6. Capital Stock and Other Useful Information on
Securities Distributions and
Taxes; Organization
and Management
Item 7. Purchase of Securities Being Pricing Shares and
Offered Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements; Account
Requirements and
Transaction
Information;
Shareholder Services
Item 8. Redemption or Repurchase Pricing Shares and
Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements;
Shareholder Services
Item 9. Pending Legal Proceedings +
PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History +
PAGE 15
Item 13. Investment Objectives and Investment Objective
Policies and Policies; Risk
Factors Associated
with a Georgia
Portfolio; Risk
Factors; Investment
Program; Investment
Restrictions; Yield
Information;
Investment Performance
Item 14. Management of the Registrant Management of the
Trust
Item 15. Control Persons and Principal Principal Holders of
Holders of Securities Securities
Item 16. Investment Advisory and Other Investment Management
Services Services; Custodian;
Independent
Accountants; Legal
Counsel
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Dividends;
Securities Organization of the
Trust
Item 19. Purchase, Redemption and Pricing Pricing of Securities;
of Securities Being Offered Net Asset Value Per
Share; Redemptions in
Kind; Federal and
State Registration of
Shares
Item 20. Tax Status Tax Status
Item 21. Underwriters Distributor for the
Trust
Item 22. Calculation of Yield Quotations
of Money Market Funds +
Item 23. Financial Statements Incorporated by
Reference from Annual
Report
PART C
Information required to be included in Part C is set forth under
the appropriate item, so numbered, in Part C to this Registration
Statement
___________________________________
+ Not applicable or negative answer
PAGE 16
FLORIDA INSURED INTERMEDIATE TAX-FREE FUND
CROSS REFERENCE SHEET
N-1A Item No. Location
____________ ________
PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis Transaction and Fund
Expenses
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of
Registrant About the Fund; Fund,
Market, and Risk
Characteristics: What
to Expect;
Understanding
Performance
Information;
Investment Policies
and Practices
Item 5. Management of the Fund Transaction and Fund
Expenses; Organization
and Management
Item 6. Capital Stock and Other Useful Information on
Securities Distributions and
Taxes; Organization
and Management
Item 7. Purchase of Securities Being Pricing Shares and
Offered Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements; Account
Requirements and
Transaction
Information;
Shareholder Services
Item 8. Redemption or Repurchase Pricing Shares and
Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements;
Shareholder Services
Item 9. Pending Legal Proceedings +
PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History +
PAGE 17
Item 13. Investment Objectives and Investment Objective
Policies and Policies; Risk
Factors Associated
with a Florida
Portfolio; Risk
Factors; Investment
Program; Investment
Restrictions; Yield
Information;
Investment Performance
Item 14. Management of the Registrant Management of the
Trust
Item 15. Control Persons and Principal Principal Holders of
Holders of Securities Securities
Item 16. Investment Advisory and Other Investment Management
Services Services; Custodian;
Independent
Accountants; Legal
Counsel
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Dividends;
Securities Organization of the
Trust
Item 19. Purchase, Redemption and Pricing Pricing of Securities;
of Securities Being Offered Net Asset Value Per
Share; Redemptions in
Kind; Federal and
State Registration of
Shares
Item 20. Tax Status Tax Status
Item 21. Underwriters Distributor for the
Trust
Item 22. Calculation of Yield Quotations
of Money Market Funds +
Item 23. Financial Statements Incorporated by
Reference from Annual
Report
PART C
Information required to be included in Part C is set forth under
the appropriate item, so numbered, in Part C to this Registration
Statement
___________________________________
+ Not applicable or negative answer
PAGE 18
The printed version of each prospectus appears in a dual column
format.
PAGE 19
PAGE 1
Facts at a Glance
Investment Goal
A high level of income exempt from federal income taxes. An
investment in this fund is also expected to be exempt from
Florida's intangibles property tax.
As with all mutual funds, the fund may not meet its goal.
Strategy
Invests primarily in high-qualiity, insured Florida municipal
bonds whose interest and principal payments are guaranteed by
private insurance companies. Dollar-weighted average maturity is
expected to be between 5 and 10 years.
Risk/Reward
Higher income than a short-term municipal bond fund but also
greater price volatility. Less potential income and share price
fluctuation than a long-term fund. Insurance does not guarantee
the market value of portfolio holdings, which will fluctuate in
response to market conditions. (See discussion on insurance in
the section entitled "Investment Policies and Practices.")
Investor Profile
Florida taxpayers who, because of their tax bracket, can benefit
from an investment in municipal bonds, whose income is exempt
from federal income taxes and whose principal is exempt from the
state's intangibles property tax. Not appropriate for tax-
deferred retirement plans, such as IRAs.
Fees and Charges
100% no load. No fees or charges to buy or sell shares or to
reinvest dividends; no 12b-1 marketing fees; free telephone
exchange.
Investment Manager
Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe
Price Associates, Inc. ("T. Rowe Price") and its affiliates
managed over $82 billion, including over $5.7 billion in
municipal bond assets, for over four million individual and
institutional investor accounts as of March 31, 1996.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION, OR
ANY STATE SECURITIES COMMISSION, PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
T. Rowe Price
State Tax-Free
Income Trust
July 1, 1996
Prospectus
Contents
1
About the Fund
Transaction and Fund Expenses
Financial Highlights
Fund, Market, and Risk
Characteristics
PAGE 2
2
About Your Account
Pricing Shares and Receiving Sale Proceeds
Distributions and Taxes
Transaction Procedures and Special Requirements
3
More About the Fund
Organization and Management
Understanding Performance Information
Investment Policies and Practices
4
Investing With T. Rowe Price
Account Requirements and Transaction Information
Opening a New Account
Purchasing Additional Shares
Exchanging and Redeeming
Shareholder Services
This prospectus contains information you should know before
investing. Please keep it for future reference. A Statement of
Additional Information about the fund, dated July 1, 1996, has
been filed with the Securities and Exchange Commission and is
incorporated by reference in this prospectus. To obtain a free
copy, call 1-800-638-5660.
To Open an Account
Investor Services
1-800-638-5660
1-410-547-2308
For Existing Accounts
Shareholder Services
1-800-225-5132
1-410-625-6500
For Yields and Prices
Tele*AccessR
1-800-638-2587
1-410-625-7676
24 hours, 7 days
Investor Centers
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
PAGE 3
10th Floor
Tampa, FL 33607
Internet Address
http://www.troweprice.com
To help you achieve your financial goals, T. Rowe Price offers a
wide range of stock, bond, and money market investments, as well
as convenient services and timely, informative reports.
Prospectus
T. Rowe Price
Florida Insured
Intermediate Tax-Free
Fund
T. Rowe Price
State Tax-Free
Income Trust
July 1, 1996
A bond fund for investors seeking income exempt from federal
income taxes and principal exempt from the Florida intangibles
tax.
Invest With ConfidenceR
1
About the Fund
Transaction and Fund Expenses
Like all T. Rowe Price funds, this fund is 100% no load.
For the fiscal year ended February 29, 1996, the fund paid
$51,000 to T. Rowe Price Services, Inc., for transfer and
dividend disbursing functions and shareholder services, and
$61,000 to T. Rowe Price for accounting services.
These tables should help you understand the kinds of expenses you
will bear directly or indirectly as a fund shareholder.
In Table 1 below, "Shareholder Transaction Expenses," shows
that you pay no sales charges. All the money you invest in the
fund goes to work for you, subject to the fees explained below.
"Annual Fund Expenses" provides an estimate of how much it will
cost to operate the fund for a year, based on 1996 fiscal year
expenses (and any applicable expense limitations). These are
costs you pay indirectly, because they are deducted from the
fund's total assets before the daily share price is calculated
and before dividends and other distributions are made. In other
words, you will not see these expenses on your account
statement.
Shareholder Transaction Expenses
Sales charge "load" on purchases None
Sales charge "load" on reinvested
dividends None
Redemption fees None
Exchange fees None
Annual Fund Expenses Percentage of Fiscal 1996
Average Net Assets
PAGE 4
Management fee (after reduction) 0.27%a
Marketing fees (12b-1) None
Total other (shareholder
servicing, custodial,
auditing, etc.) 0.33%
Total fund expenses
(after reduction) 0.60%a
a The fund's management fee and its total expense ratio would
have been 0.39% and 0.72%, respectively, had T. Rowe Price not
agreed to reduce management fees and assume other expenses in
accordance with the expense limitation described below. To limit
the fund's expenses during its initial period of operations, T.
Rowe Price agreed to waive fees and bear any expenses through
February 28, 1995, to the extent such fees or expenses would
cause the fund's ratio of expenses to average net assets to
exceed 0.60%. Effective March 1, 1995, T. Rowe Price agreed to
extend the fund's 0.60% expense limitation for a period of two
years through February 28, 1997. Fees waived or expenses paid or
assumed under these agreements are subject to reimbursement to T.
Rowe Price by the fund whenever the fund's expense ratio is below
0.60%; however, no reimbursement will be made after February 28,
1997 (for the first agreement), or February 28, 1999 (for the
second agreement), or if it would result in the expense ratio
exceeding 0.60%. Any amounts reimbursed would have the effect of
increasing fees otherwise paid by the fund. Organizational
expenses will be charged to the fund over a period not to exceed
60 months.
Note: A $5 fee is charged for wire redemptions under $5,000,
subject to change without notice, and a $10 fee is charged for
small accounts when applicable (see "Small Account Fee" under
"Transaction Procedures and Special Requirements").
Table 1
The main types of expenses, which all mutual funds may charge
against fund assets, are:
o
A management fee:
the percent of fund assets paid to the fund's investment manager.
The fund's fee comprises a group fee, 0.33% as of March 31, 1996,
and an individual fund fee of 0.05%.
o
"Other" administrative expenses:
primarily the servicing of shareholder accounts, such as
providing statements, reports, disbursing dividends, as well as
custodial services.
o
Marketing or distribution fees:
an annual charge ("12b-1") to existing shareholders to defray the
cost of selling shares to new shareholders. T. Rowe Price funds
do not levy 12b-1 fees.
PAGE 5
For further details on fund expenses, please see "Organization
and Management."
o
Hypothetical example:
The table at right is just an example; actual expenses can be
higher or lower than those shown.
Assume you invest $1,000, the fund returns 5% annually, expense
ratios remain as listed previously, and you close your account at
the end of the time periods shown. Your expenses would be:
1 year 3 years 5 years 10 years
$6 $19 $33 $75
Table 2
Financial Highlights
The following table provides information about the fund's
financial history. It is based on a single share outstanding
throughout each fiscal year. The table is part of the fund's
financial statements which are included in the fund's annual
report and incorporated by reference into the Statement of
Additional Information. This document is available to
shareholders upon request. The financial statements in the annual
report have been audited by Coopers & Lybrand L.L.P., independent
accountants, whose unqualified report covers the periods shown.
Investment Activities Distributions
Net Real-
ized and
Net Unreal- Total
Asset ized Gain from Net Net
Value, Net (Loss) Invest-Invest- Real-
Period Begin- Invest- on ment ment ized Total
Ended ning of ment Invest- Activi-Income Gain Distri-
February 28 Period Income ments ties (Loss) (Loss) butions
_________________________________________________________________
1994a $10.00 $0.37b $0.31 $0.68 $(0.37) $(0.01)$(0.38)
1995 10.30 0.43b (0.14) 0.29 (0.43) (0.02) (0.45)
1996d 10.14 0.47b 0.47 0.94 (0.47) - (0.47)
_________________________________________________________________
End of Period
Ratio
of
Ratio Net
of Invest-
Net Total Expenses ment Port-
Asset Return to Income folio
Period Value, (Includes Net Average to Aver- Turn-
Ended End of Reinvested Assets ($ Net age Net over
February 28 Period Dividends) Thousands) Assets Assets Rate
_________________________________________________________________
1994a $10.30 6.84% $37,868 0.60%bc 3.57%c 70.6%c
1995 10.14 3.01% 51,922 0.60%b 4.38% 140.5%
1996d 10.61 9.41% 67,260 0.60%b 4.47% 98.7%
PAGE 6
_________________________________________________________________
a For the period March 31, 1993 (commencement of operations) to
February 28, 1994.
b Excludes expenses in excess of a 0.60% voluntary expense
limitation in effect through February 28, 1997.
c Annualized.
d Year ended February 29.
Table
Fund, Market, and Risk Characteristics: What to Expect
To help you decide whether this fund is appropriate for you,
this section takes a closer look at its investment objective and
approach.
What is the fund's objective and investment program?
The fund's income is expected to be exempt from federal income
taxes, and its principal exempt from the state's intangibles
property tax.
The fund's investment objective is to provide a high level of
income exempt from federal income taxes while minimizing credit
risk by investing primarily in insured Florida municipal bonds.
The fund invests primarily in high-quality, AAA-rated bonds which
are insured as to timely interest and principal payment. The
fund's dollar-weighted average maturity is expected to vary
between 5 and 10 years. An investment in the fund is expected to
be exempt from the Florida intangibles personal property tax.
(For a detailed discussion of this tax and the fund's eligibility
for exemption, please see "Useful Information on Distributions
and Taxes.")
Due to seasonal variations or shortages in the supply of suitable
Florida securities, and when deemed by T. Rowe Price to be in the
fund's best interest, the fund may invest up to 35% of its net
assets in a fiscal year in municipal securities that are not
exempt from the Florida intangibles property tax. Every effort
will be made to minimize such investments.
What are the fund's credit-quality guidelines?
At its discretion, the fund may retain a security whose credit
quality is downgraded after purchase.
At least 65% of total assets will consist of insured Florida
municipal bonds carrying the highest credit rating (e.g., AAA)
from a national rating organization (Standard & Poor's
Corporation, Moody's Investors Service, Inc. or a similar
service). The fund may invest up to 35% of its assets in high-
quality municipal securities rated AA (Aa) or higher, or, if
unrated, believed to be of a comparable quality. Up to 5% of the
fund's assets may be invested in upper-medium-quality, A-rated
bonds. The fund will not invest in any bond rated below A at the
time of purchase.
The insured bonds purchased by the fund will, at the time of
purchase, carry the highest credit rating available from a
national rating agency. Insurance, which is provided by private
(nongovernmental) insurers, guarantees the timely payment of
principal and interest on the insured bond, not their market
PAGE 7
value or the value of the fund's shares.
What are the main risks of investing in municipal bond funds?
A more detailed discussion of these and other risk considerations
is contained in the fund's Statement of Additional Information.
The fund's intermediate-term maturity structure should help
reduce interest rate risk because shorter-term bonds are less
sensitive to rising interest rates than long-term bonds. There
is, however, no limitation on the maturity of individual
securities in the fund's portfolio. Credit risk should be
reduced by the extra protection provided by municipal bond
insurance. (For more discussion of municipal bond insurance,
please see "Investment Policies and Practices.")
The potential for realizing a loss of principal in a bond fund
could derive from:
o
Interest rate or market risk:
the decline in fixed income securities and funds that may
accompany a rise in the overall level of interest rates (please
see Table 4).
o
Credit risk:
the chance that any of the fund's holdings will have its credit
rating downgraded or will default (fail to make scheduled
interest and principal payments), potentially reducing the fund's
income level and share price.
o
Political risk:
the chance that a significant restructuring of federal income tax
rates, or even serious discussion on the topic in Congress, could
cause municipal bond prices to fall. The demand for municipal
bonds is strongly influenced by the value of tax-exempt income to
investors. Broadly lower tax rates could reduce the advantage of
owning municipal bonds.
o
Geographical risk:
the chance of price declines resulting from developments in a
single state.
What are the particular risks associated with single-state funds
versus those that invest nationally?
Significant political and economic developments within a state
may have repercussions, direct and indirect, on virtually all
municipal bonds issued in the state.
A fund investing within a single state is, by definition, less
diversified geographically than one investing across many states.
The risk arises from the fund's greater exposure to that state's
economy and politics, factors that loom large in establishing the
credit quality of bonds issued by the state and its political
subdivisions. For example, general obligation bonds of a state or
locality that has a high income level, reasonable debt levels,
and a positive long-term outlook should have a higher credit
rating than those of a state without those attributes.
PAGE 8
Of course, many municipal bonds are not general obligations
backed by the state's "full faith and credit" (its full taxing
and revenue raising resources) and may not rely on any government
for money to service their debt. Bonds issued by governmental
authorities may depend wholly on revenues generated by the
project they financed or on other dedicated revenue streams. The
credit quality of these "revenue" bonds may vary significantly
from that of the state's general obligations.
How does the portfolio manager try to reduce risk?
Consistent with the fund's objective, the portfolio manager
actively manages the fund in an effort to manage risk and
increase total return. Risk management tools include:
o
Diversification of assets to reduce the impact of a single
holding on the fund s net asset value.
o
Thorough credit research by our own analysts.
o
Adjustment of fund duration to try to reduce the negative impact
of rising interest rates or take advantage of the benefits of
falling rates.
What is the credit quality of Florida general obligations?
Credit ratings and the financial and economic conditions of the
state, local governments, public authorities, and others in which
the fund may invest are subject to change at any time.
The major rating agencies (Moody's, Standard & Poor's, and Fitch)
have assigned an AA rating to Florida general obligations as of
June 1, 1996. The Florida constitution and statutes mandate that
the state budget be kept in balance. The state's revenue
structure is narrowly based, relying heavily on the sales and use
tax. Florida's financial performance has improved over the last
several years supported by above-average economic growth.
However, the demand for governmental services will continue to
grow because of population growth and state demographics.
What about the quality of the fund's other holdings?
The share price and yield of the fund will fluctuate with
changing market conditions and interest rate levels. When you
sell your shares, you may lose money.
In addition to the state's general obligations, the fund will
invest a substantial portion of its assets in bonds that are
rated according to the issuer's individual creditworthiness, such
as bonds of local governments and public authorities. While
local governments in Florida depend principally on their own
revenue sources, they could experience budget shortfalls due to
cutbacks in state aid.
The fund may invest in certain sectors with special risks, for
example health care, which could be affected by federal or state
legislation, electric utilities with exposure to nuclear power
plants, and private activity bonds without governmental backing.
The fund sometimes invests in obligations of the Commonwealth of
PAGE 9
Puerto Rico and its public corporations that are exempt from
federal taxes. These investments require careful assessment of
certain risk factors, including reliance on substantial federal
assistance and favorable tax programs which have recently come
under scrutiny by Congress. As of June 1, 1996, Puerto Rico
general obligations were rated Baa1 by Moody's and A (with a
negative outlook) by Standard & Poor's.
What are derivatives and can the fund invest in them?
The term derivative is used to describe financial instruments
whose value is derived from an underlying security (e.g., a stock
or bond) or a market benchmark (e.g., an interest rate index).
Many types of investments representing a wide range of potential
risks and rewards fall under the "derivatives" umbrella--from
conventional instruments such as callable bonds, futures, and
options, to more exotic investments such as stripped mortgage
securities and structured notes. While the term "derivative" has
only recently become widely known among the investing public,
derivatives have in fact been employed by investment managers for
many years.
The fund will invest in derivatives only if the expected risks
and rewards are consistent with its objective, policies, and
overall risk profile as described in this prospectus. The fund
limits its use of derivatives to situations in which they may
enable the fund to accomplish the following: increase yield;
hedge against a decline in principal value; invest in eligible
asset classes with greater efficiency and lower cost than is
possible through direct investment; or adjust the fund's
duration.
The fund will not invest in any high-risk, highly leveraged
derivative instrument that is expected to cause the price
volatility of the portfolio to be meaningfully different than
that of a long-term investment-grade bond.
Who issues municipal securities?
These are some characteristics of municipal securities.
State and local governments and governmental authorities sell
notes and bonds (usually called "municipals") to pay for public
projects and services.
Who buys municipal securities?
Individuals are the primary investors, and a principal way they
invest is through mutual funds. Prices of municipals may be
affected by major changes in cash flows of money into or out of
municipal funds. For example, substantial and sustained
redemptions from municipal bond funds could result in lower
prices for these securities.
Is interest income from municipal issues always exempt from
federal taxes?
Municipal securities are also called "tax-exempts" because the
interest income they provide is usually exempt from federal
income taxes.
No. For example, since 1986, income from so-called "private
activity" municipals has been subject to the federal alternative
PAGE 10
minimum tax (AMT). For instance, some bonds financing airports,
stadiums, and student loan programs fall into this category.
Shareholders subject to the AMT must include income derived from
private activity bonds in their AMT calculation. Relatively few
taxpayers are required to pay the tax. Normally, the fund will
not purchase any security if, as a result, more than 20% of the
fund's income would be subject to the AMT. The fund will report
annually to shareholders the portion of income, if any, subject
to the AMT. (Please see "Distributions and Taxes--Taxes on Fund
Distributions.")
Why are yields on municipals usually below those on otherwise
comparable taxable securities?
Since the income provided by most municipals is exempt from
federal taxation, investors are willing to accept lower yields on
a municipal bond than on an otherwise similar taxable bond. In
addition, Florida investors may accept a lower yield on Florida
securities because their principal is exempt from the Florida
intangibles personal property tax.
Why are the yields on Florida bonds often below those of
comparable issues for other states?
Strong demand for Florida securities tends to push their prices
up and yields down.
Is a fund's yield fixed or will it vary?
You may want to review some fundamentals that apply to all fixed
income investments.
It will vary. The yield is calculated every day by dividing the
fund's net income per share, expressed at annual rates, by the
share price. Since both income and share price will fluctuate,
the fund's yield will also vary.
Is a fund's "yield" the same thing as the "total return"?
Not for bond funds. The total return reported for a fund is the
result of reinvested distributions (income and capital gains) and
the change in share price for a given time period. Income is
always a positive contributor to total return and can enhance a
rise in share price or serve as an offset to a drop in share
price.
What is "credit quality" and how does it affect a fund's yield?
Credit-quality refers to a bond issuer's expected ability to make
all required interest and principal payments in a timely manner.
Because highly rated issuers represent less risk, they can borrow
at lower interest rates than less creditworthy issuers.
Therefore, a fund investing in high credit-quality securities
should have a lower yield than an otherwise comparable fund
investing in lower credit-quality securities.
What is meant by a bond fund's "maturity"?
Every bond has a stated maturity date when the issuer must
repay the security's entire principal value to the investor.
However, many bonds are "callable," meaning their principal can
be repaid before their stated maturity dates on (or after)
specified call dates. Bonds are most likely to be called when
interest rates are falling, because the issuer wants to refinance
at a lower rate. In such an environment, a bond's "effective
maturity" is calculated using its nearest call date.
PAGE 11
A bond mutual fund has no maturity in the strict sense of the
word, but it does have an average maturity and an average
effective maturity. This number is an average of the stated or
effective maturities of the underlying bonds, with each bond's
maturity "weighted" by the percentage of fund assets it
represents. Funds that target effective maturities would use the
effective (rather than stated) maturities of the underlying
instruments when computing the average. Targeting effective
maturity provides additional flexibility in portfolio management
but, all else being equal, could result in higher volatility than
a fund targeting a stated maturity or maturity range.
What is meant by a bond fund's "duration"?
Duration is a calculation that seeks to measure the price
sensitivity of a bond or a bond fund to changes in interest
rates. It measures bond price sensitivity to interest rate
changes more accurately than maturity because it takes into
account the time value of cash flows generated over the bond's
life. Future interest and principal payments are discounted to
reflect their present value and then are multiplied by the number
of years they will be received to produce a value that is
expressed in years, i.e., the duration. Effective duration takes
into account call features and sinking fund payments that may
shorten a bond's life.
Since duration can also be computed for bond funds, you can
estimate the effect of interest rates on a fund's share price.
Simply multiply the fund's duration (available for T. Rowe Price
bond funds in our shareholder reports) by an expected change in
interest rates. For example, the price of a bond fund with a
duration of five years would be expected to fall approximately 5%
if rates rose by one percentage point.
How is a municipal's price affected by changes in interest rates?
When interest rates rise, a bond's price usually falls, and vice
versa.
In general, the longer a bond's maturity, the greater the price
increase or decrease in response to a given change in interest
rates, as shown in the table at right.
How Interest Rates Affect Bond Prices
Bond Maturity Coupon Price Per $1,000 of a Municipal Bond
if Interest Rates:
Increase Decrease
1% 2% 1% 2%
1 year 3.65% $990 $981 $1,010 $1,020
5 years 4.55 957 916 1,045 1,093
10 years 5.05 926 858 1,082 1,171
20 years 5.75 891 798 1,128 1,280
30 years 5.80 873 769 1,158 1,356
Table 4
Coupons reflect yields on AAA-rated municipals as of April 30,
1996. This is an illustration and does not represent expected
yields or share price changes of any T. Rowe Price fund.
Is there other information I need to review before making a
PAGE 12
decision?
The fund should not represent your complete investment program,
nor be used for short-term trading purposes.
You should review "Investment Policies and Practices" in
Section 3, which discusses the following: Types of Portfolio
Securities (municipal securities, private activity bonds,
municipal lease obligations, municipal warrants, securities with
"puts" or other demand features, securities with credit
enhancements, synthetic or derivative securities, and private
placements); and Types of Management Practices (cash position,
when-issued securities and forwards, interest rate futures,
borrowing money and transferring assets, portfolio turnover,
sector concentration, and credit-quality considerations).
2
About Your Account
Pricing Shares and Receiving Sale Proceeds
Here are some procedures you should know when investing in a
T. Rowe Price tax-free fund.
How and when shares are priced
The various ways you can buy, sell, and exchange shares are
explained at the end of this prospectus and on the New Account
Form. These procedures may differ for institutional accounts.
Bond funds.
The share price (also called "net asset value" or NAV per share)
for the fund is calculated at 4 p.m. ET each day the New York
Stock Exchange is open for business. To calculate the NAV, the
fund's assets are valued and totaled, liabilities are subtracted,
and the balance, called net assets, is divided by the number of
shares outstanding.
How your purchase, sale, or exchange price is determined
If we receive your request in correct form by 4 p.m. ET, your
transaction will be priced at that day's NAV. If we receive it
after 4 p.m., it will be priced at the next business day's NAV.
We cannot accept orders that request a particular day or price
for your transaction or any other special conditions.
Note:
The time at which transactions and shares are priced and the
time until which orders are accepted may be changed in case of an
emergency or if the New York Stock Exchange closes at a time
other than 4 p.m. ET.
How you can receive the proceeds from a sale
When filling out the New Account Form, you may wish to give
yourself the widest range of options for receiving proceeds from
a sale.
If your request is received by 4 p.m. ET in correct form,
proceeds are usually sent on the next business day. Proceeds can
be sent to you by mail or to your bank account by ACH transfer or
bank wire. Proceeds sent by ACH transfer should be credited the
second day after the sale. ACH (Automated Clearing House) is an
automated method of initiating payments from and receiving
payments in your financial institution account. ACH is a payment
system supported by over 20,000 banks, savings banks, and credit
unions, which electronically exchanges the transactions primarily
PAGE 13
through the Federal Reserve Banks. Proceeds sent by bank wire
should be credited to your account the next business day.
Exception:
If for some reason we cannot accept your request to sell shares,
we will contact you.
o
Under certain circumstances and when deemed to be in the fund's
best interests, your proceeds may not be sent for up to five
business days after receiving your sale or exchange request. If
you were exchanging into a bond or money fund, your new
investment would not begin to earn dividends until the sixth
business day.
Useful Information on Distributions and Taxes
Dividends and Other Distributions
All net investment income and realized capital gains are
distributed to shareholders.
Dividend and capital gain distributions are reinvested in
additional fund shares in your account unless you select another
option on your New Account Form. The advantage of reinvesting
distributions arises from compounding; that is, you receive
income dividends and capital gain distributions on a rising
number of shares.
Distributions not reinvested are paid by check or transmitted to
your bank account via ACH. If the Post Office cannot deliver your
check, or if your check remains uncashed for six months, the fund
reserves the right to reinvest your distribution check in your
account at the NAV on the business day of the reinvestment and to
reinvest all subsequent distributions in shares of the fund.
Income dividends
o
Bond funds declare income dividends daily at 4 p.m. ET to
shareholders of record at that time provided payment has been
received on the previous business day.
o
Bond funds pay dividends on the first business day of each
month.
o
Bond fund shares will earn dividends through the date of
redemption; also, shares redeemed on a Friday or prior to a
holiday will continue to earn dividends until the next business
day. Generally, if you redeem all of your shares at any time
during the month, you will also receive all dividends earned
through the date of redemption in the same check. When you redeem
only a portion of your shares, all dividends accrued on those
shares will be reinvested, or paid in cash, on the next dividend
payment date.
Capital gains
o
A capital gain or loss is the difference between the purchase and
sale price of a security.
o
If the fund has net capital gains for the year (after subtracting
PAGE 14
any capital losses), they are usually declared and paid in
December to shareholders of record on a specified date that
month. If a second distribution is necessary, it is usually
declared and paid during the first quarter of the following year.
Tax Information
You will be sent timely information for your tax filing needs.
Although the regular monthly income dividends you receive from
the fund is expected to be exempt from federal and state and
lcoal (if any) income taxes, you need to be aware of the possible
tax consequences when:
o
You sell fund shares, including an exchange from one fund to
another.
o
The fund makes a distribution to your account.
Due to 1993 tax legislation, a portion of the capital gains
realized on the sale of market discount bonds with maturities
beyond one year may be treated as ordinary income and cannot be
offset by other capital losses. Therefore, to the extent the fund
invests in these securities, the likelihood of a taxable gain
distribution will be increased.
Note:
You must report your total tax-exempt income on IRS Form 1040.
The IRS uses this information to help determine the tax status of
any Social Security payments you may have received during the
year.
Taxes on fund redemptions.
When you sell shares in any fund, you may realize a gain or loss.
An exchange from one fund to another is still a sale for tax
purposes. If you realize a loss on the sale or exchange of fund
shares held six months or less, your capital loss is reduced by
the tax-exempt dividends received on those shares.
In January, you will be sent Form 1099-B, indicating the date
and amount of each sale you made in the fund during the prior
year. This information will also be reported to the IRS. For
accounts opened new or by exchange in 1983 or later, we will
provide you with the gain or loss of the shares you sold during
the year, based on the "average cost" method. This information is
not reported to the IRS, and you do not have to use it. You may
calculate the cost basis using other methods acceptable to the
IRS, such as "specific identification."
To help you maintain accurate records, we send you a confirmation
immediately following each transaction (except for systematic
purchases and redemptions) you make and a year-end statement
detailing all your transactions in each fund account during the
year.
Taxes on fund distributions.
Distributions are taxable whether reinvested in additional shares
or received in cash.
In January, the fund will send you Form 1099-DIV indicating the
tax status of any capital gain distribution made to you. This
information will also be reported to the IRS. All capital gain
PAGE 15
distributions are taxable to you for the year in which they were
paid. The only exception is that distributions declared during
the last three months of the year and paid in January are taxed
as though they were paid by December 31. Dividends are expected
to be tax-exempt.
Short-term capital gain distributions are taxable as ordinary
income and long-term gain distributions are taxable at the
applicable long-term gain rate. The gain is long- or short-term
depending on how long the fund held the securities, not how long
you held shares in the fund. If you realize a loss on the sale
or exchange of fund shares held six months or less, your short-
term loss recognized is reclassified to long-term to the extent
of any capital gain distribution received.
If the fund invests in certain "private activity" bonds,
shareholders who are subject to the alternative minimum tax (AMT)
must include income generated by these bonds in their AMT
computation. The portion of your fund's income which should be
included in your AMT calculation, if any, will be reported to you
in January.
Tax effect of buying shares before a capital gain distribution.
If you buy shares shortly before or on the "record date"--the
date that establishes you as the person to receive the upcoming
distribution--you will receive, in the form of a taxable
distribution, a portion of the money you just invested.
Therefore, you may also wish to find out the fund's record date
before investing. Of course, the fund's share price may, at any
time, reflect undistributed capital gains or income and
unrealized appreciation. When these amounts are eventually
distributed, they are taxable.
Note:
For shareholders who receive Social Security benefits, the
receipt of tax-exempt interest may increase the portion of
benefits that are subject to tax.
Intangibles tax.
Although Florida does not have a state income tax, it does impose
an intangibles property tax that applies to shares of mutual
funds. However, a fund that is invested solely in Florida
municipal obligations, U.S. government obligations, and certain
other designated securities on January 1 is exempt from the
intangibles tax. If a fund's portfolio is not 100% invested in
these exempt securities on January 1, the exemption applies only
to the portion of assets (if any) invested in U.S. government
obligations.
The fund will make every effort to have its portfolio invested
exclusively in exempt securities on January 1 and, therefore,
expects that the value of all fund shares will be exempt from the
intangibles tax. Nevertheless, exemption is not guaranteed, since
the fund has the right under certain conditions to invest in
nonexempt securities.
PAGE 16
Transaction Procedures and Special Requirements
Purchase Conditions
Following these procedures helps assure timely and accurate
transactions.
Nonpayment.
If your payment is not received or you pay with a check or ACH
transfer that does not clear, your purchase will be canceled. You
will be responsible for any losses or expenses incurred by the
fund or transfer agent, and the fund can redeem shares you own in
this or another identically registered T. Rowe Price fund as
reimbursement. The fund and its agents have the right to reject
or cancel any purchase, exchange, or redemption due to
nonpayment.
U.S. dollars.
All purchases must be paid for in U.S. dollars; checks must be
drawn on U.S. banks.
Sale (Redemption) Conditions
10-day hold.
If you sell shares that you just purchased and paid for by check
or ACH transfer, a fund will process your redemption, but will
generally delay sending you the proceeds for up to 10 calendar
days to allow the check or transfer to clear. If your redemption
request was sent by mail or mailgram, proceeds will be mailed no
later than the seventh calendar day following receipt unless the
check or ACH transfer has not cleared. If, during the clearing
period, we receive a check drawn against your bond or money
market account, it will be returned marked "uncollected." (The
10-day hold does not apply to the following: purchases paid for
by bank wire; cashier's, certified, or treasurer's checks; or
automatic purchases through your paycheck.)
Telephone, Tele*AccessR, and personal computer transactions.
These exchange and redemption services are established
automatically when you sign the New Account Form unless you check
the box which states that you do not want these services. The
fund uses reasonable procedures (including shareholder identity
verification) to confirm that instructions given by telephone are
genuine and is not liable for acting on these instructions. If
these procedures are not followed, it is the opinion of certain
regulatory agencies that the fund may be liable for any losses
that may result from acting on the instructions given. A
confirmation is sent promptly after the telephone transaction.
All conversations are recorded.
Redemptions over $250,000.
Large sales can adversely affect a portfolio manager's ability to
implement a fund's investment strategy by causing the premature
sale of securities that would otherwise be held. If, in any 90-
day period, you redeem (sell) more than $250,000, or your sale
amounts to more than 1% of the fund's net assets, the fund has
the right to delay sending your proceeds for up to five business
days after receiving your request, or to pay the difference
between the redemption amount and the lesser of the two
previously mentioned figures with securities from the fund.
Excessive Trading
PAGE 17
T. Rowe Price may bar excessive traders from purchasing shares.
Frequent trades, involving either substantial fund assets or a
substantial portion of your account or accounts controlled by
you, can disrupt management of the fund and raise its expenses.
We define "excessive trading" as exceeding one purchase and sale
involving the same fund within any 120-day period.
For example, you are in fund A. You can move substantial assets
from fund A to fund B and, within the next 120 days, sell your
shares in fund B to return to fund A or move to fund C.
If you exceed the number of trades described above, you may be
barred indefinitely from further purchases of T. Rowe Price
funds.
Three types of transactions are exempt from excessive trading
guidelines: 1) trades solely between money market funds; 2)
redemptions that are not part of exchanges; and 3) systematic
purchases or redemptions (see "Shareholder Services").
Keeping Your Account Open
Due to the relatively high cost to the fund of maintaining small
accounts, we ask you to maintain an account balance of at least
$1,000. If your balance is below $1,000 for three months or
longer, we have the right to close your account after giving you
60 days in which to increase your balance.
Small Account Fee
Because of the disproportionately high costs of servicing
accounts with low balances, a $10 fee, paid to T. Rowe Price
Services, the fund's transfer agent, will automatically be
deducted from nonretirement accounts with balances falling below
a minimum level. The valuation of accounts and the deduction are
expected to take place during the last five business days of
September. The fee will be deducted from accounts with balances
below $2,000, except for UGMA/UTMA accounts, for which the limit
is $500. The fee will be waived for any investor whose aggregate
T. Rowe Price mutual fund investments total $25,000 or more.
Accounts employing automatic investing (e.g., payroll deduction,
automatic purchase from a bank account, etc.) are also exempt
from the charge. The fee will not apply to IRAs and other
retirement plan accounts. (A separate custodial fee may apply to
IRAs and other retirement plan accounts.)
Signature Guarantees
A signature guarantee is designed to protect you and the T. Rowe
Price funds from fraud by verifying your signature.
You may need to have your signature guaranteed in certain
situations, such as:
o
Written requests 1) to redeem over $50,000, or 2) to wire
redemption proceeds.
o
Remitting redemption proceeds to any person, address, or bank
account not on record.
o
PAGE 18
Transferring redemption proceeds to a T. Rowe Price fund
account with a different registration (name/ownership) from
yours.
o
Establishing certain services after the account is opened.
You can obtain a signature guarantee from most banks, savings
institutions, broker-dealers, and other guarantors acceptable to
T. Rowe Price. We cannot accept guarantees from notaries public
or organizations that do not provide reimbursement in the case of
fraud.
3
More About the Fund
Organization and Management
How is the fund organized?
Shareholders benefit from T. Rowe Price's 59 years of
investment management experience.
The T. Rowe Price State Tax-Free Income Trust was organized in
1986 as a Massachusetts business trust and is a "nondiversified,
open-end investment company," or mutual fund. This fund was
organized in 1993. Mutual funds pool money received from
shareholders and invest it to try to achieve specified
objectives.
What is meant by "shares"?
As with all mutual funds, investors purchase shares when they put
money in a fund. These shares are part of a fund's authorized
capital stock, but share certificates are not issued.
Each share and fractional share entitles the shareholder to:
o
Receive a proportional interest in a fund's income and capital
gain distributions.
o
Cast one vote per share on certain fund matters, including the
election of fund directors, changes in fundamental policies, or
approval of changes in the fund's management contract.
Do T. Rowe Price funds have annual shareholder meetings?
The funds are not required to hold annual meetings and in
order to avoid unnecessary costs to fund shareholders, do not
intend to do so except when certain matters, such as a change in
a fund's fundamental policies, are to be decided. In addition,
shareholders representing at least 10% of all eligible votes may
call a special meeting if they wish for the purpose of voting on
the removal of any fund director or trustee. If a meeting is held
and you cannot attend, you can vote by proxy. Before the meeting,
the fund will send you proxy materials that explain the issues to
be decided and include a voting card for you to mail back.
Who runs the fund?
All decisions regarding the purchase and sale of fund investments
are made by T. Rowe Price--specifically by the fund's portfolio
managers.
General Oversight.
The fund is governed by a Board of Trustees that elects the
fund's officers and meets regularly to review the fund's
PAGE 19
investments, performance, expenses, and other business affairs.
The policy of the fund is that a majority of Board members will
be independent of T. Rowe Price.
Portfolio Management.
The fund has an Investment Advisory Committee, composed of the
following members: Charles B. Hill, Chairman, A. Gene Caponi,
Patricia S. Deford, Konstantine B. Mallas, Laura L. McAree, Mary
J. Miller, William T. Reynolds, and William F. Snider, Jr. The
committee chairman has day-to-day responsibility for managing the
portfolio and works with the committee in developing and
executing the fund's investment program. Mr. Hill was appointed
chairman of the fund's committee in 1996. He joined T. Rowe
Price in 1991, and has been managing investments since 1986.
Marketing.
T. Rowe Price Investment Services, Inc., a wholly owned
subsidiary of T. Rowe Price, distributes (sells) shares of these
and all other T. Rowe Price funds.
Shareholder Services.
T. Rowe Price Services, Inc., another wholly owned subsidiary,
acts as the fund's transfer and dividend disbursing agent and
provides shareholder and administrative services. Services for
certain types of retirement plans are provided by T. Rowe Price
Retirement Plan Services, Inc., also a wholly owned subsidiary.
The address for each is 100 East Pratt St., Baltimore, MD 21202.
How are fund expenses determined?
The management agreement spells out the expenses to be paid by
the fund.
In addition to the management fee, the fund pays for the
following: shareholder service expenses; custodial, accounting,
legal, and audit fees; costs of preparing and printing
prospectuses and reports sent to shareholders; registration fees
and expenses; proxy and annual meeting expenses (if any); and
director/trustee fees and expenses.
The Management Fee.
This fee has two parts--an "individual fund fee" (discussed under
"Transaction and Fund Expenses"), which reflects a fund's
particular investment management costs, and a "group fee." The
group fee, which is designed to reflect the benefits of the
shared resources of the T. Rowe Price investment management
complex, is calculated daily based on the combined net assets of
all T. Rowe Price funds (except Equity Index and the Spectrum
Funds and any institutional or private label mutual funds). The
group fee schedule (shown below) is graduated, declining as the
asset total rises, so shareholders benefit from the overall
growth in mutual fund assets.
0.480% First $1 billion 0.350% Next $2 billion
0.450% Next $1 billion 0.340% Next $5 billion
0.420% Next $1 billion 0.330% Next $10 billion
0.390% Next $1 billion 0.320% Next $10 billion
0.370% Next $1 billion 0.310% Next $16 billion
0.360% Next $2 billion 0.305% Thereafter
PAGE 20
The fund's portion of the group fee is determined by the ratio of
its daily net assets to the daily net assets of all the Price
funds described previously. Based on combined Price funds' assets
of approximately $53.5 billion at March 31, 1996, the group fee
was 0.33%.
Understanding Performance Information
This section should help you understand the terms used to
describe fund performance. You will come across them in
shareholder reports you receive from us, in our newsletter, The
Price Report, in Insights articles, in T. Rowe Price
advertisements, and in the media.
Total Return
Total return is the most widely used performance measure.
Detailed performance information is included in the fund's annual
and semiannual shareholder reports, and in the quarterly
Performance Update, which are all available without charge.
This tells you how much an investment in a fund has changed in
value over a given time period. It reflects any net increase or
decrease in the share price and assumes that all dividends and
capital gains (if any) paid during the period were reinvested in
additional shares. Including reinvested distributions means that
total return numbers include the effect of compounding, i.e., you
receive income and capital gain distributions on a rising number
of shares.
Advertisements for a fund may include cumulative or compound
average annual total return figures, which may be compared with
various indices, other performance measures, or other mutual
funds.
Cumulative Total Return
This is the actual rate of return on an investment for a
specified period. A cumulative return does not indicate how much
the value of the investment may have fluctuated between the
beginning and the end of the period specified.
Average Annual Total Return
This is always hypothetical. Working backward from the actual
cumulative return, it tells you what constant year-by-year return
would have produced the actual, cumulative return. By smoothing
out all the variations in annual performance, it gives you an
idea of the investment's annual contribution to your portfolio
provided you held it for the entire period in question.
Yield
You will see frequent references to the fund's yield in our
reports, in advertisements, in media stories, and so on.
The current or "dividend" yield on a fund or any investment
tells you the relationship between the investment's current level
of annual income and its price on a particular day. The dividend
yield reflects the actual income paid to shareholders for a given
period, annualized, and divided by the average price during the
given period. For example, a fund providing $5 of annual income
per share and a price of $50 has a current yield of 10%. Yields
can be calculated for any time period.
PAGE 21
The advertised or "SEC" yield is found by determining the net
income per share (as defined by the SEC) earned by a fund during
a 30-day base period and dividing this amount by the per share
price on the last day of the base period. The SEC yield may
differ from the dividend yield.
Investment Policies and Practices
Fund managers have considerable leeway in choosing investment
strategies and selecting securities they believe will help the
fund achieve its objective.
This section takes a detailed look at some of the types of
securities the fund may hold in its portfolio and the various
kinds of investment practices that may be used in day-to-day
portfolio management. The fund's investment program is subject to
further restrictions and risks described in the Statement of
Additional Information.
Shareholder approval is required to substantively change the
fund's objective and certain investment restrictions noted in the
following section as "fundamental policies." The managers also
follow certain "operating policies" which can be changed without
shareholder approval. However, significant changes are discussed
with shareholders in fund reports. The fund adheres to applicable
investment restrictions and policies at the time it makes an
investment. A later change in circumstances will not require the
sale of an investment if it was proper at the time it was made.
The fund's holdings of certain kinds of investments cannot
exceed maximum percentages of total assets, which are set forth
herein. For instance, this fund is not permitted to invest more
than 10% of total assets in residual interest bonds. While these
restrictions provide a useful level of detail about the fund's
investment program, investors should not view them as an accurate
gauge of the potential risk of such investments. For example, in
a given period, a 5% investment in residual interest bonds could
have significantly more of an impact on the fund's share price
than its weighting in the portfolio. The net effect of a
particular investment depends on its volatility and the size of
its overall return in relation to the performance of all the
fund's other investments.
Changes in the fund's holdings, the fund's performance, and the
contribution of various investments are discussed in the
shareholder reports sent to you.
Types of Portfolio Securities
In seeking to meet its investment objective, the fund may
invest in any type of municipal security or instrument (including
certain potentially high-risk derivatives) whose investment
characteristics are consistent with the fund's investment
program. The following pages describe the principal types of
portfolio securities and investment management practices of the
fund.
Fundamental policy:
The fund is registered as a nondiversified mutual fund. This
PAGE 22
means that the fund may invest a greater portion of its assets in
a single issuer than a diversified fund which may subject the
fund to greater risk with respect to its portfolio securities.
However, because the fund intends to qualify as a "regulated
investment company" under the Internal Revenue Code, it must
invest so that, at the end of each quarter, with respect to 50%
of its total assets, not more than 5% of its assets are invested
in the securities of a single issuer, and with respect to the
remaining 50%, no more than 25% of fund assets are invested in a
single issuer.
Municipal Securities.
In purchasing municipals, the fund relies on the opinion of the
issuer's bond counsel regarding the tax-exempt status of the
investment.
The fund's assets are invested primarily in various tax-free
municipal debt securities. The issuers have a contractual
obligation to pay interest at a stated rate on specific dates and
to repay principal (the bond's face value) on a specified date or
dates. An issuer may have the right to redeem or "call" a bond
before maturity, and the investor may have to reinvest the
proceeds at lower rates.
There are two broad categories of municipal bonds. General
obligation bonds are backed by the issuer's "full faith and
credit," that is, its full taxing and revenue raising power.
Revenue bonds usually rely exclusively on a specific revenue
source, such as charges for water and sewer service, to generate
money for debt service.
Private Activity Bonds.
While income from most municipals is exempt from federal income
taxes, the income from certain types of so-called private
activity bonds (a type of revenue bond) may be subject to the
alternative minimum tax (AMT). However, only persons subject to
the AMT pay this tax. Private activity bonds may be issued for
purposes such as housing or airports or to benefit a private
company. (Being subject to the AMT does not mean the investor
necessarily pays this tax. For further information, please see
"Distributions and Taxes.")
Fundamental policy:
Under normal market conditions, the fund will not purchase any
security if, as a result, less than 80% of the fund's income
would be exempt from federal income taxes. The income included
under the 80% test does not include income from securities
subject to the alternative minimum tax.
Operating policy:
During periods of abnormal market conditions, for temporary
defensive purposes, the fund may invest without limit in high-
quality, short-term securities whose income is subject to
federal, state and/or local income tax.
In addition to general obligation and revenue bonds, the fund's
investments may include, but are not limited to, the following
types of securities:
PAGE 23
Municipal Lease Obligations.
A lease is not a full faith and credit obligation of the
issuer and is usually backed only by the borrowing government's
unsecured pledge to make annual appropriation for lease payments.
There have been challenges to the legality of lease financing in
numerous states and, from time to time, certain municipalities
have considered not appropriating money for lease payments. In
deciding whether to purchase a lease obligation, the fund would
assess the financial condition of the borrower, the merits of the
project, the level of public support for the project, and the
legislative history of lease financing in the state. These
securities may be less readily marketable than other municipals.
The fund may also purchase unrated lease obligations.
Municipal Warrants.
Municipal warrants are essentially call options on municipal
bonds. In exchange for a premium, they give the purchaser the
right, but not the obligation, to purchase a municipal bond in
the future. The fund might purchase a warrant to lock in forward
supply in an environment where the current issuance of bonds is
sharply reduced. Like options, warrants may expire worthless and
they may have reduced liquidity.
Operating policy:
The fund will not invest more than 2% of its total assets in
municipal warrants.
Securities with "Puts" or other Demand Features.
Some longer-term municipals give the investor the right to "put"
or sell the security at par (face value) within a specified
number of days following the investor's request--usually one to
seven days. This demand feature enhances a security's liquidity
by dramatically shortening its effective maturity and enables it
to trade at a price equal to or very close to par. If the demand
feature were terminated prior to being exercised, the fund would
hold the longer-term security.
Securities With Credit Enhancements.
o
Letters of Credit.
Letters of credit are issued by a third party, usually a bank, to
enhance liquidity and ensure repayment of principal and any
accrued interest if the underlying municipal security should
default.
o
Municipal Bond Insurance.
T. Rowe Price periodically reviews the credit-quality of the
insurer.
This insurance, which is usually purchased by the bond issuer
from a private, nongovernmental insurance company, provides an
unconditional and irrevocable guarantee that the insured bond's
principal and interest will be paid when due. Insurance does not
guarantee the price of the bond or the share price of any fund.
The credit rating of an insured bond reflects the credit rating
of the insurer, based on its claims-paying ability.
PAGE 24
The obligation of a municipal bond insurance company to pay a
claim extends over the life of each insured bond. Although
defaults on insured municipal bonds have been low to date and
municipal bond insurers have met their claims, there is no
assurance this will continue. A higher than expected default rate
could strain the insurer's loss reserves and adversely affect its
ability to pay claims to bondholders, such as the fund. The
number of municipal bond insurers is relatively small, and not
all of them have the highest rating.
o
Standby Purchase Agreements.
A Standby Bond Purchase Agreement (SBPA) is a liquidity
facility provided to pay the purchase price of bonds that cannot
be remarketed. The obligation of the liquidity provider (usually
a bank) is only to advance funds to purchase tendered bonds that
cannot be remarketed and does not cover principal or interest
under any other circumstances. The liquidity provider's
obligations under the SBPA are usually subject to numerous
conditions, including the continued creditworthiness of the
underlying borrower.
Synthetic or Derivative Securities.
These securities are created from existing municipal bonds:
o
Residual Interest Bonds (a potentially high-risk derivative).
The income stream provided by an underlying bond is divided to
create two securities, one short-term and one long-term. The
interest rate on the short-term component is reset by an index or
auction process normally every 7 to 35 days. After income is paid
on the short-term securities at current rates, the residual
income goes to the long-term securities. Therefore, rising short-
term interest rates result in lower income for the longer-term
portion, and vice versa. The longer-term bonds can be very
volatile and may be less liquid than other municipals of
comparable maturity.
Operating policy:
The fund will not invest more than 10% of its total assets in
residual interest bonds.
o
Participation Interests.
This term covers various types of securities created by
converting fixed rate bonds into short-term, variable rate
certificates. These securities have been developed in the
secondary market to meet the demand for short-term, tax-exempt
securities. The fund will invest only in securities deemed tax-
exempt by a nationally recognized bond counsel, but there is no
guarantee the interest will be exempt because the IRS has not
issued a definitive ruling on the matter.
o
Embedded Interest Rate Swaps and Caps.
Embedded interest rate swaps enhance yields, but also increase
interest rate risk.
In a fixed rate, long-term municipal bond with an interest rate
swap attached to it, the bondholder usually receives the bond's
PAGE 25
fixed coupon payment as well as a variable rate payment that
represents the difference between a fixed rate for the term of
the swap (which is typically shorter than the bond it is attached
to) and a variable rate short-term municipal index. The
bondholder receives excess income when short-term rates remain
below the fixed interest rate swap rate. If short-term rates rise
above the fixed income swap rate, the bondholder's income is
reduced. At the end of the interest rate swap term, the bond
reverts to a single fixed coupon payment.
An embedded interest rate cap allows the bondholder to receive
payments whenever short-term rates rise above a level established
at the time of purchase. They normally are used to hedge against
rising short-term interest rates.
Both instruments may be volatile and of limited liquidity and
their use may adversely affect a fund's total return.
Operating policy:
The fund will not invest more than 10% of its total assets in
embedded interest rate swaps and caps.
Private Placements.
The fund may seek to enhance its yield through the purchase of
private placements. These securities are sold through private
negotiations, usually to institutions or mutual funds, and may
have resale restrictions. Their yields are usually higher than
comparable public securities to compensate the investor for their
limited marketability.
Operating policy:
The fund may not invest more than 15% of its net assets in
illiquid securities, including unmarketable private placements.
Types of Management Practices
Cash reserves provide flexibility and serve as a short-term
defense during periods of unusual market volatility.
Cash Position.
The fund will hold a portion of its assets in short-term, tax-
exempt money market securities maturing in one year or less. The
reserve position accomplishes the following: provides flexibility
in meeting redemptions, expenses, and the timing of new
investments; can help in structuring the fund's weighted average
maturity; and serves as a short-term defense during periods of
unusual market volatility. The fund's cash reserve position will
be comprised of short-term, investment-grade securities including
tax-exempt commercial paper, municipal notes, and short-term
maturity bonds. Some of these securities may have adjustable,
variable, or floating rates.
When-Issued Securities and Forwards.
New issues of municipals are often sold on a "when-issued"
basis, that is, delivery and payment take place 15-45 days after
the buyer has agreed to the purchase. Some bonds, called
"forwards," have longer than standard settlement dates, typically
6 to 24 months. When buying these securities, the fund will
maintain cash or high-grade marketable securities held by its
custodian equal in value to its commitment for these securities.
PAGE 26
The fund does not earn interest on when-issued and forward
securities until settlement, and the value of the securities may
fluctuate between purchase and settlement. Municipal "forwards"
typically carry a substantial yield premium to compensate the
buyer for their greater interest rate, credit, and liquidity
risks.
Interest Rate Futures.
Futures (a type of potentially high-risk derivative) are often
used to manage risk, because they enable the investor to buy or
sell an asset in the future at an agreed-upon price.
Specifically, the fund may use futures (and options on futures)
for any number of reasons, including: to hedge against a
potentially unfavorable change in interest rates and to adjust
its exposure to the municipal bond market; to protect portfolio
value; in an effort to enhance income; and to adjust the
portfolio s duration. The use of futures for hedging and non-
hedging purposes may not always be successful. Their prices can
be highly volatile, using them could lower the fund's total
return, and the potential loss from their use could exceed the
fund's initial exposure to such contracts.
Operating policy:
Initial margin deposits on futures and premiums on options used
for non-hedging purposes will not equal more than 5% of the
fund's net asset value.
Borrowing Money and Transferring Assets.
The fund can borrow money from banks as a temporary measure for
emergency purposes, to facilitate redemption requests, or for
other purposes consistent with the fund's investment objective
and program. Such borrowings may be collateralized with fund
assets, subject to restrictions.
Fundamental policy:
Borrowings may not exceed 33 1/3% of total fund assets.
Operating policy:
The fund may not transfer as collateral any portfolio securities
except as necessary in connection with permissible borrowings or
investments, and then such transfers may not exceed 33 1/3% of
the fund's total assets. The fund may not purchase additional
securities when borrowings exceed 5% of total assets.
Portfolio Turnover.
The fund generally purchases securities with the intention of
holding them for investment; however, when market conditions or
other circumstances warrant, securities may be purchased and sold
without regard to the length of time held. Although the fund does
not expect to generate any taxable income, a high turnover rate
may increase transaction costs and may affect taxes paid by
shareholders to the extent short-term gains are distributed. The
fund's portfolio turnover rates for the fiscal years ended
February 29, 1996, February 28, 1995, and February 28, 1994, were
98.7%, 140.5%, and 70.6%, respectively.
Sector Concentration.
It is possible that the fund could have a considerable amount of
assets (25% or more) in securities that would tend to respond
similarly to particular economic or political developments. An
PAGE 27
example would be securities of issuers related to a single
industry, such as health care or nuclear energy.
Operating policy:
The fund will not invest more than 25% of total assets in
industrial development bonds of projects in the same industry
(such as solid waste, nuclear utility, or airlines). Bonds which
are refunded with escrowed U.S. government securities are not
subject to the 25% limitation.
Credit-Quality Considerations.
The credit quality of most bond issues is evaluated by rating
agencies such as Moody's and Standard & Poor's. Credit quality
refers to the issuer's ability to meet all required interest and
principal payments. The highest ratings are assigned to issuers
perceived to be the best credit risks. T. Rowe Price research
analysts also evaluate all portfolio holdings of the fund,
including those rated by outside agencies. The lower the rating
on a bond, the higher the yield, other things being equal.
Table 5 shows the rating scale used by the major rating agencies.
T. Rowe Price considers publicly available ratings, but
emphasizes its own credit analysis when selecting investments.
Ratings of Municipal Debt Securities
Moody's Standard Fitch Defin-
Investors & Poor's Investors ition
Service, Inc. Corporation Service, Inc.
Long-Term Aaa AAA AAA Highest
quality
Aa AA AA High
quality
A A A Upper
medium
grade
Baa BBB BBB Medium
grade
Moody's S&P Fitch
Short-Term MIG1/VMIG1 Best quality SP1+ Very F-1+
strong Except-
quality ionally
strong
quality
SP1 Strong F-1 Very
grade strong
quality
MIG2/VMIG2 High quality SP2 Satisfac- F-2
tory grade Good
credit
quality
Commercial P-1 Superior A-1+ Extremely F-1+
Paper quality strong quality Except-
ionally
strong
quality
A-1 Strong F-1 Very
PAGE 28
quality strong
quality
P-2 Strong A-2 Satisfac- F-2
quality tory quality Good
credit
quality
Table 5
Explanation of Quality Ratings
Bond Rating Explanation
Moody's Investors
Service, Inc. Aaa Highest quality, smallest
degree of investment risk.
Aa High quality; together with
Aaa bonds, they compose the
high-grade bond group.
A Upper-medium-grade
obligations; many favorable
investment attributes.
Baa Medium-grade obligations;
neither highly protected nor
poorly secured. Interest and
principal appear adequate for
the present but certain
protective elements may be
lacking or may be unreliable
over any great length of time.
Ba More uncertain, with
speculative elements.
Protection of interest and
principal payments not well
safeguarded during good and
bad times.
B Lack characteristics of
desirable investment;
potentially low assurance of
timely interest and principal
payments or maintenance of
other contract terms over
time.
Caa Poor standing, may be in
default; elements of danger
with respect to principal or
interest payments.
Ca Speculative in a high degree;
could be in default or have
other marked shortcomings.
C Lowest rated; extremely poor
prospects of ever attaining
investment standing.
Standard & Poor's
Corporation AAA Highest rating; extremely
strong capacity to pay
principal and interest.
PAGE 29
AA High quality; very strong
capacity to pay principal and
interest.
A Strong capacity to pay
principal and interest;
somewhat more susceptible to
the adverse effects of
changing circumstances and
economic conditions.
BBB Adequate capacity to pay
principal and interest;
normally exhibit adequate
protection parameters, but
adverse economic conditions or
changing circumstances more
likely to lead to a weakened
capacity to pay principal and
interest than for higher-rated
bonds.
BB, B, CCC, CC Predominantly speculative with
respect to the issuer's
capacity to meet required
interest and principal
payments. BB-lowest degree of
speculation; CC-the highest
degree of speculation. Quality
and protective characteristics
outweighedby large
uncertainties or major risk
exposure to adverse
conditions.
D In default.
Fitch Investors
Service, Inc. AAA Highest quality; obligor has
exceptionally strong ability
to pay interest and repay
principal, which is unlikely
to be affected by reasonably
foreseeable events.
AA Very high quality; obligor's
ability to pay interest and
repay principal is very
strong. Because bonds rated
in the AAA and AA categories
are not significantly
vulnerable to foreseeable
future developments, short-
term debt of these issuers is
generally rated F-1+.
A High quality; obligor's
ability to pay interest and
repay principal is considered
to be strong, but may be more
PAGE 30
vulnerable to adverse changes
in economic conditions and
circumstances than higher-
rated bonds.
BBB Satisfactory credit quality;
obligor's ability to pay
interest and repay principal
is considered adequate.
Unfavorable changes in
economic conditions and
circumstances are more likely
to adversely affect these
bonds and impair timely
payment. The likelihood that
the ratings of these bonds
will fall below investment
grade is higher than for
higher-rated bonds.
BB, CCC, CC, C Not investment grade;
predominantly speculative with
respect to the issuer's
capacity to repay interest and
repay principal in accordance
with the terms of the
obligation for bond issues not
in default. BB is the least
speculative. C is the most
speculative.
Table 6
PAGE 1
4 Investing with T. Rowe Price
Account Requirements and Transaction Information
Always verify your transactions by carefully reviewing the
confirmation we send you. Please report any discrepancies to
Shareholder Services promptly.
Tax Identification Number
We must have your correct social security or corporate tax
identification number on a signed New Account Form or W-9 Form.
Otherwise, federal law requires the funds to withhold a
percentage (currently 31%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS
fine. If this information is not received within 60 days after
your account is established, your account may be redeemed, priced
at the NAV on the date of redemption.
Unless you request otherwise, one shareholder report will be
mailed to multiple account owners with the same tax
identification number and same ZIP code and to shareholders who
have requested that their account be combined with someone
else's for financial reporting.
Institutional Accounts
Transaction procedures in the following sections may not apply to
institutional accounts. For institutional account procedures,
please call your designated account manager or service
representative.
Opening a New Account: $2,500 minimum initial investment; $1,000
for gifts or transfers to minors (UGMA/UTMA) accounts
Account Registration
If you own other T. Rowe Price funds, be sure to register any new
account just like your existing accounts so you can exchange
among them easily. (The name and account type would have to be
identical.)
Regular Mail
T. Rowe Price
Account Services
P.O. Box 17300
Baltimore, MD
21298-9353
Mailgram, Express,
Registered, or Certified
Mail
T. Rowe Price
Account Services
10090 Red Run Blvd.
PAGE 2
Owings Mills, MD 21117
By Mail
Please make your check payable to T. Rowe Price Funds
(otherwise it will be returned) and send your check together
with the New Account Form to the address at left. We do not
accept third party checks to open new accounts.
By Wire
o Call Investor Services for an account number and give the
following wire address to your bank:
Morgan Guaranty Trust Co. of New York
ABA# 021000238
T. Rowe Price [fund name]
AC-00153938
account name(s), and account number
o Complete a New Account Form and mail it to one of the
appropriate addresses listed on the previous page.
Note: No services will be established and IRS penalty
withholding may occur until a signed New Account Form is
received.
By Exchange
Call Shareholder Services or use Tele*Access or your personal
computer (see "Automated Services" under "Shareholder Services").
The new account will have the same registration as the account
from which you are exchanging. Services for the new account may
be carried over by telephone request if preauthorized on the
existing account. (See explanation of "Excessive Trading" under
"Transaction Procedures.")
In Person
Drop off your New Account Form at any of the locations listed on
the cover and obtain a receipt.
Purchasing Additional Shares: $100 minimum purchase; $50 minimum
for Automatic Asset Builder and gifts or transfers to minors
(UGMA/UTMA) accounts
By ACH Transfer
Use Tele*Access, your personal computer, or call Investor
Services if you have established electronic transfers using the
ACH network.
By Wire
Call Shareholder Services or use the wire address in "Opening a
New Account."
Regular Mail
T. Rowe Price Funds
PAGE 3
Account Services
P.O. Box 89000
Baltimore, MD
21289-1500
(For mailgrams,
express, registered,
or certified mail,
see previous section.)
By Mail
o Make your check payable to T. Rowe Price Funds (otherwise
it may be returned).
o Mail the check to us at the address shown at left with
either a fund reinvestment slip or a note indicating the
fund you want to buy and your fund account number.
o Remember to provide your account number and the fund name on
your check.
By Automatic Asset Builder
Fill out the Automatic Asset Builder
section on the New Account or Shareholder Services Form.
Exchanging and Redeeming Shares
By Phone
Call Shareholder Services. If you find our phones busy during
unusually volatile markets, please consider placing your order by
your personal computer, Tele*Access (if you have previously
authorized telephone services), mailgram or by express mail. For
exchange policies, please see "Transaction Procedures and Special
Requirements--Excessive Trading."
Redemption proceeds can be mailed to your account address, sent
by ACH transfer, or wired to your bank (provided your bank
information is already on file). For charges, see "Electronic
Transfers--By Wire" under "Shareholder Services".
By Mail
For each account involved, provide the account name, number, fund
name, and exchange or redemption amount. For exchanges, be sure
to indicate any fund you are exchanging out of and the fund or
funds you are exchanging into. Please mail to the appropriate
address below or as indicated at left. T. Rowe Price requires the
signatures of all owners exactly as registered, and possibly a
signature guarantee (see "Transaction Procedures and Special
Requirements--Signature Guarantees").
Mailgram, Express, Registered Regular Mail:
or Certified mail:
PAGE 4
T. Rowe Price T. Rowe Price
Account Services Account Services
10090 Red Run Boulevard P.O. Box 89000
Owings Mills, MD 21117 Baltimore, MD 21289-0220
Rights Reserved by the Fund
The fund and its agents reserve the right to waive or lower
investment minimums; to accept initial purchases by telephone or
mailgram; to cancel or rescind any purchase or exchange (for
example, if an account has been restricted due to excessive
trading or fraud) upon notice to the shareholder within five
business days of the trade or if the written confirmation has not
been received by the shareholder, whichever is sooner; to freeze
any account and suspend account services when notice has been
received of a dispute between the registered or beneficial
account owners or there is reason to believe a fraudulent
transaction may occur; to otherwise modify the conditions of
purchase and any services at any time; or to act on instructions
believed to be genuine.
Shareholder Services
1-800-225-5132
1-410-625-6500
Shareholder Services
Many services are available to you as a T. Rowe Price
shareholder; some you receive automatically and others you must
authorize on the New Account Form. By signing up for services on
the New Account Form rather than later, you avoid having to
complete a separate form and obtain a signature guarantee. This
section reviews some of the principal services currently offered.
Our Services Guide contains detailed descriptions of these and
other services.
If you are a new T. Rowe Price investor, you will receive a
Services Guide with our Welcome Kit.
Investor Services
1-800-638-5660
1-410-547-2308
Note: Corporate and other entity accounts require an original or
certified resolution to establish services and to redeem by mail.
For more information, call Investor Services.
Retirement Plans
We offer a wide range of plans for individuals and
institutions, including large and small businesses: IRAs,
SEP-IRAs, Keoghs (profit sharing and money purchase pension),
401(k), and 403(b)(7). For information on IRAs, call Investor
Services. For information on all other retirement plans, please
PAGE 5
call our Trust Company at 1-800-492-7670.
Exchange Service
You can move money from one account to an existing identically
registered account, or open a new identically registered account.
Remember, exchanges are purchases and sales for tax purposes.
(Exchanges into a state tax-free fund are limited to investors
living in states where the funds are registered.) Some of the T.
Rowe Price funds may impose a redemption fee of .50% to 2%,
payable to such funds, on shares held for less than one year, or
in some funds, six months.
Automated Services
Tele*Access
1-800-638-2587
1-410-625-7676
Tele*Access. 24-hour service via toll-free number provides
information on fund yields and prices, dividends, account
balances, and your latest transaction, as well as the ability to
request prospectuses, account and tax forms, duplicate
statements, and checks, and to initiate purchase, redemption and
exchange orders in your accounts (see "Electronic Transfers"
below).
Personal Computer Access. 24-hour service via dial-up modem
provides the same information as Tele*Access, but on a personal
computer. Please call Investor Services to order.
Telephone and Walk-In Services
Buy, sell, or exchange shares by calling one of our service
representatives or by visiting one of our investor center
locations whose addresses are listed on the cover.
Electronic Transfers
By ACH. With no charges to pay, you can initiate a purchase or
redemption for as little as $100 or as much as $100,000 between
your bank account and fund account using the ACH network. Enter
instructions via Tele*Access or your personal computer or call
Shareholder Services.
By Wire. Electronic transfers can also be conducted via bank
wire. There is currently a $5 fee for wire redemptions under
$5,000, and your bank may charge for incoming or outgoing wire
transfers regardless of size.
Checkwriting (not available for equity funds, or the High Yield
Fund or Emerging Markets Bond Fund)
You may write an unlimited number of free checks on any money
market fund, and most bond funds, with a minimum of $500 per
check. Keep in mind, however that a check results in a
redemption; a check written on a bond fund will create a taxable
PAGE 6
event which you and we must report to the IRS.
Automatic Investing ($50 minimum)
You can invest automatically in several different ways,
including:
Automatic Asset Builder. You instruct us to move $50 or more
from your bank account, or you can instruct your employer to send
all or a portion of your paycheck to the fund or funds you
designate.
Note: If you are moving money from your bank account, and if
the date you select for your transactions falls on a Sunday or a
Monday which is a holiday, your order will be priced on the
second business day following this date.
Automatic Exchange. You can set up systematic investments from
one fund account into another, such as from a money fund into a
stock fund.
Discount Brokerage
Discount Brokerage is a division of T. Rowe Price Investment
Services, Inc., Member NASD/SIPC.
This additional service gives you the opportunity to easily
consolidate all your investments with one company. Through our
discount brokerage, you can buy and sell individual securities--
stocks, bonds, options, and others--at considerable commission
savings. We also provide a wide range of services, including:
Automated telephone and on-line services - You can enter trades,
access quotes, and review account information 24 hours a day,
seven days a week. Any trades executed through these programs
save you an additional 10% on commissions.
Note: Discount applies to our current commission schedule,
subject to our $35 minimum commission.
To open an account:
1-800-638-5660
For existing discount brokerage investors:
1-800-225-7720
Investor Information - A variety of informative reports, such as
our Brokerage Insights series, S&P Market Month Newsletter, and
optional Stock Reports can help you better evaluate economic
trends and investment opportunities.
Dividend Reinvestment Service - Virtually all stock held in
customer accounts are eligible for this service--free of
charge.
PAGE 1
Facts at a Glance
Investment Goal
A high level of income exempt from federal and Georgia state
income taxes. As with all mutual funds, this fund may not meet
its goal.
Strategy
Invests primarily in investment-grade Georgia municipal bonds.
Dollar-weighted average maturity is expected to exceed 15 years.
Risk/Reward
Higher income but also greater potential price fluctuation than
shorter-term municipal bond funds.
Investor Profile
Georgia taxpayers who, because of their tax bracket, can benefit
from income that is exempt from federal and Georgia state income
taxes. Not appropriate for tax-deferred retirement plans, such as
IRAs.
Fees and Charges
100% no load. No fees or charges to buy or sell shares or to
reinvest dividends; no 12b-1 marketing fees; free telephone
exchange.
Investment Manager
Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe
Price Associates, Inc. ("T. Rowe Price") and its affiliates
managed over $82 billion, including over $5.7 billion in
municipal bond assets, for over four million individual and
institutional investor accounts as of March 31, 1996.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION, OR
ANY STATE SECURITIES COMMISSION, PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
T. Rowe Price
State Tax-Free
Income Trust
July 1, 1996
Prospectus
Contents
1
About the Fund
Transaction and Fund Expenses
Financial Highlights
Fund, Market, and Risk
Characteristics
2
About Your Account
Pricing Shares and Receiving Sale Proceeds
Distributions and Taxes
Transaction Procedures and Special Requirements
3
More About the Fund
Organization and Management
Understanding Performance Information
PAGE 2
Investment Policies and Practices
4
Investing With T. Rowe Price
Account Requirements and Transaction Information
Opening a New Account
Purchasing Additional Shares
Exchanging and Redeeming
Shareholder Services
This prospectus contains information you should know before
investing. Please keep it for future reference. A Statement of
Additional Information about the fund, dated July 1, 1996, has
been filed with the Securities and Exchange Commission and is
incorporated by reference in this prospectus. To obtain a free
copy, call 1-800-638-5660.
To Open an Account
Investor Services
1-800-638-5660
1-410-547-2308
For Existing Accounts
Shareholder Services
1-800-225-5132
1-410-625-6500
For Yields and Prices
Tele*AccessR
1-800-638-2587
1-410-625-7676
24 hours, 7 days
Investor Centers
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
Internet Address
http://www.troweprice.com
To help you achieve your financial goals, T. Rowe Price offers a
wide range of stock, bond, and money market investments, as well
as convenient services and timely, informative reports.
Prospectus
T. Rowe Price
PAGE 3
Georgia Tax-Free
Bond Fund
T. Rowe Price
State Tax-Free
Income Trust
July 1, 1996
A bond fund for investors seeking income that is exempt from
federal and Georgia state income taxes.
Invest With ConfidenceR
1
About the Fund
Transaction and Fund Expenses
Like all T. Rowe Price funds, this fund is 100% no load.
For the fiscal year ended February 29, 1996, the fund paid
$41,000, to T. Rowe Price Services, Inc., for transfer and
dividend disbursing functions and shareholder services, and
$61,000 to T. Rowe Price for accounting services.
These tables should help you understand the kinds of expenses you
will bear directly or indirectly as a fund shareholder.
In Table 1 below, "Shareholder Transaction Expenses," shows
that you pay no sales charges. All the money you invest in the
fund goes to work for you, subject to the fees explained below.
"Annual Fund Expenses" provides an estimate of how much it will
cost to operate the fund for a year, based on 1996 fiscal year
expenses (and any applicable expense limitations). These are
costs you pay indirectly, because they are deducted from the
fund's total assets before the daily share price is calculated
and before dividends and other distributions are made. In other
words, you will not see these expenses on your account
statement.
Shareholder Transaction Expenses
Sales charge "load" on purchases None
Sales charge "load" on reinvested
dividends None
Redemption fees None
Exchange fees None
Annual Fund Expenses Percentage of Fiscal 1996
Average Net Assets
Management fee (after reduction) 0.05%a
Marketing fees (12b-1) None
Total other (shareholder
servicing, custodial,
auditing, etc.) 0.60%
Exchange fees None
Total fund expenses
(after reduction) 0.65%a
a The fund's management fee and total expense ratio would have
been 0.44% and 1.04%, respectively, had T. Rowe Price not agreed
to reduce management fees and assume other expenses in accordance
PAGE 4
with the expense limitation described below. To limit the fund's
expenses during its initial period of operations, T. Rowe Price
agreed to waive fees and bear any expenses through February 28,
1995, to the extent such fees or expenses would cause the fund's
ratio of expenses to average net assets to exceed 0.65%.
Effective March 1, 1995, T. Rowe Price agreed to extend the
existing expense limitation of 0.65% for a period of two years
through February 28, 1997. Fees waived or expenses paid or
assumed under these agreements are subject to reimbursement to T.
Rowe Price by the fund whenever the fund's expense ratio is below
0.65%; however, no reimbursement will be made after February 28,
1997 (for the first agreement), or February 28, 1999 (for the
second agreement), or if it would result in the expense ratio
exceeding 0.65%. Any amounts reimbursed will have the effect of
increasing fees otherwise paid by the fund. Organizational
expenses will be charged to the fund over a period not to exceed
60 months.
Note: A $5 fee is charged for wire redemptions under $5,000,
subject to change without notice, and a $10 fee is charged for
small accounts when applicable (see "'Small Account Fee" under
"Transaction Procedures and Special Requirements").
Table 1
The main types of expenses, which all mutual funds may charge
against fund assets, are:
o
A management fee:
the percent of fund assets paid to the fund's investment manager.
The fund's fee comprises a group fee, 0.33% as of March 31, 1996,
and an individual fund fee of 0.10%.
o
"Other" administrative expenses:
primarily the servicing of shareholder accounts, such as
providing statements, reports, disbursing dividends, as well as
custodial services.
o
Marketing or distribution fees:
an annual charge ("12b-1") to existing shareholders to defray the
cost of selling shares to new shareholders. T. Rowe Price funds
do not levy 12b-1 fees.
For further details on fund expenses, please see "Organization
and Management."
o
Hypothetical example:
The table at right is just an example; actual expenses can be
higher or lower than those shown.
Assume you invest $1,000, the fund returns 5% annually, expense
ratios remain as listed previously, and you close your account at
the end of the time periods shown. Your expenses would be:
1 year 3 years 5 years 10 years
$7 $21 $36 $81
Table 2
PAGE 5
Financial Highlights
The following table provides information about the fund's
financial history. It is based on a single share outstanding
throughout each fiscal year. The table is part of the fund's
financial statements which are included in the fund's annual
report, and are incorporated by reference into the Statement of
Additional Information. This document is available to
shareholders upon request. The financial statements in the
February 29, 1996 annual report have been audited by Coopers &
Lybrand L.L.P., independent accountants, who issued an
unqualified report thereon. The annual reports for the prior
years were audited by the fund's previous independent accountant
whose unqualified reports cover those periods.
Investment Activities Distributions
Net Real-
ized and
Net Unreal- Total
Asset Net ized Gain from Net Net
Value, Invest-(Loss) Invest-Invest- Real-
Period Begin- ment on ment ment ized Total
Ended ning of Income Invest- Activi-Income Gain Distri-
February 28 Period (Loss) ments ties (Loss) (Loss) butions
_________________________________________________________________
1994a $10.00 $0.43b $0.41 $0.84 $(0.43)$(0.04)$(0.47)
1995 10.37 0.51b (0.39) 0.12 (0.51) (0.05) (0.56)
1996d 9.93 0.52b 0.51 1.03 (0.52) -- (0.52)
_________________________________________________________________
End of Period
Ratio
of
Ratio Net
of Invest-
Net Total Expenses ment Port-
Asset Return to Income folio
Period Value, (Includes Net Average to Aver- Turn-
Ended End of Reinvested Assets ($ Net age Net over
February 28 Period Dividends) Thousands) Assets Assets Rate
_________________________________________________________________
1994a $10.37 8.45% $22,614 0.65%bc 4.48%c 154.8%c
1995 9.93 1.42% 23,338 0.65%b 5.26% 170.2%
1996d 10.44 10.62% 32,500 0.65%b 5.09% 71.5%
_________________________________________________________________
a For the period March 31, 1993 (commencement of operations) to
February 28, 1994.
b Excludes expenses in excess of a 0.65% voluntary expense
limitation in effect through February 28, 1997.
c Annualized.
d Year ended February 29.
Table 3
PAGE 6
Fund, Market, and Risk Characteristics: What to Expect
To help you decide whether this fund is appropriate for you,
this section takes a closer look at its investment objective and
approach.
What is the fund's objective and investment program?
Income from Georgia municipal securities is exempt from federal
and Georgia state income taxes.
The fund's investment objective is to provide, consistent with
prudent portfolio management, the highest level of income exempt
from federal and Georgia state income taxes by investing
primarily in investment-grade Georgia municipal bonds.
The fund will invest at least 65% of its total assets in Georgia
municipal bonds. The fund's dollar-weighted average maturity is
expected to exceed 15 years. Due to seasonal variations or
shortages in the supply of suitable short-term Georgia
securities, the fund may invest periodically in municipals whose
interest is exempt from federal but not state income taxes. Every
effort will be made to minimize such investments, but they could
compose up to 10% of the fund's annual income.
What are the fund's credit-quality guidelines?
At its discretion, the fund may retain a security whose credit-
quality is downgraded after purchase.
The fund will generally purchase investment-grade securities,
which means their ratings are within the four highest credit
categories (e.g., AAA, AA, A, BBB) as determined by a national
rating organization or, if unrated, by T. Rowe Price. The fund
may occasionally purchase below-investment-grade securities
(including those with the lowest or no rating), but no such
purchase will be made if it would cause the fund's noninvestment-
grade bonds to exceed 5% of its net assets. Unrated bonds may be
less liquid than rated bonds.
Investment-grade securities include a range from the highest
rated to medium quality (BBB). Securities in the BBB category may
be more susceptible to adverse economic conditions or changing
circumstances and the securities at the lower end of the BBB
category have certain speculative characteristics.
What are the main risks of investing in municipal bond funds?
A more detailed discussion of these and other risk considerations
is contained in the fund's Statement of Additional Information.
The potential for realizing a loss of principal in a bond fund
could derive from:
o
Interest rate or market risk:
the decline in fixed income securities and funds that may
accompany a rise in the overall level of interest rates (please
see Table 4).
o
Credit risk:
the chance that any of the fund's holdings will have its credit
rating downgraded or will default (fail to make scheduled
interest and principal payments), potentially reducing the fund's
PAGE 7
income level and share price.
o
Political risk:
the chance that a significant restructuring of federal income tax
rates, or even serious discussion on the topic in Congress, could
cause municipal bond prices to fall. The demand for municipal
bonds is strongly influenced by the value of tax-exempt income to
investors. Broadly lower tax rates could reduce the advantage of
owning municipal bonds.
o
Geographical risk:
the chance of price declines resulting from developments in a
single state.
What are the particular risks associated with single-state funds
versus those that invest nationally?
Significant political and economic developments within a state
may have repercussions, direct and indirect, on virtually all
municipal bonds issued in the state.
A fund investing within a single state is, by definition, less
diversified geographically than one investing across many states.
The risk arises from the fund's greater exposure to that state's
economy and politics, factors that loom large in establishing the
credit quality of bonds issued by the state and its political
subdivisions. For example, general obligation bonds of a state or
locality that has a high income level, reasonable debt levels,
and a positive long-term outlook should have a higher credit
rating than those of a state without those attributes.
Of course, many municipal bonds are not general obligations
backed by the state's "full faith and credit" (its full taxing
and revenue raising resources) and may not rely on any government
for money to service their debt. Bonds issued by governmental
authorities may depend wholly on revenues generated by the
project they financed or on other dedicated revenue streams. The
credit quality of these "revenue" bonds may vary significantly
from that of the state's general obligations.
How does the portfolio manager try to reduce risk?
Consistent with the fund's objective, the portfolio manager
actively manages the fund in an effort to manage risk and
increase total return. Risk management tools include:
o
Diversification of assets to reduce the impact of a single
holding on the fund s net asset value.
o
Thorough credit research by our own analysts.
o
Adjustment of fund duration to try to reduce the negative impact
of rising interest rates or take advantage of the benefits of
falling rates.
What is the credit-quality of Georgia general obligations?
Credit ratings and the financial and economic conditions of the
state, local governments, public authorities, and others in which
PAGE 8
the fund may invest are subject to change at any time.
As of June 1, 1996, the state was rated Aaa by Moody's, AA+ by
Standard & Poor's and AAA by Fitch. Since 1973, the state of
Georgia has financed its capital needs through the issuance of
general obligation bonds. The state constitution and current law
limit maximum annual debt service to general obligation debt to
10% of total revenue receipts of the state treasury. The state
has never defaulted on the payment of principal and interest on
its general obligation bonds and has not issued short-term tax
anticipation notes for its seasonal cash flow requirements.
What about the quality of the fund's other holdings?
The share price and yield of the fund will fluctuate with
changing market conditions and interest rate levels. When you
sell your shares, you may lose money.
In addition to the state's general obligations, the fund will
invest a substantial portion of assets in bonds that are rated
according to the issuer's individual creditworthiness, such as
bonds of local governments and public authorities. While
governments in Georgia depend principally on their own revenue
sources, they could experience budget shortfalls due to cutbacks
in state aid.
The fund may invest in certain sectors with special risks, for
example health care, which could be affected by federal or state
legislation, electric utilities with exposure to nuclear power
plants, and private activity bonds without governmental backing.
The fund sometimes invests in obligations of the Commonwealth of
Puerto Rico and its public corporations (as well as the U.S.
territories of Guam and the Virgin Islands) that are exempt from
federal and Georgia state income taxes. These investments require
careful assessment of certain risk factors, including reliance on
substantial federal assistance and favorable tax programs, which
have recently come under scrutiny by Congress. As of June 1,
1996, Puerto Rico's general obligations were rated Baa1 by
Moody's and A (with a negative outlook) by Standard & Poor's.
What are derivatives and can the fund invest in them?
The term derivative is used to describe financial instruments
whose value is derived from an underlying security (e.g., a stock
or bond) or a market benchmark (e.g., an interest rate index).
Many types of investments representing a wide range of potential
risks and rewards fall under the "derivatives" umbrella--from
conventional instruments such as callable bonds, futures, and
options, to more exotic investments such as stripped mortgage
securities and structured notes. While the term "derivative" has
only recently become widely known among the investing public,
derivatives have in fact been employed by investment managers for
many years.
The fund will invest in derivatives only if the expected risks
and rewards are consistent with its objective, policies, and
overall risk profile as described in this prospectus. The fund
limits its use of derivatives to situations in which they may
PAGE 9
enable the fund to accomplish the following: increase yield;
hedge against a decline in principal value; invest in eligible
asset classes with greater efficiency and lower cost than is
possible through direct investment; or adjust the fund's
duration.
The fund will not invest in any high-risk, highly leveraged
derivative instrument that is expected to cause the price
volatility of the portfolio to be meaningfully different than
that of a long-term investment-grade bond.
Who issues municipal securities?
These are some characteristics of municipal securities.
State and local governments and governmental authorities sell
notes and bonds (usually called "municipals") to pay for public
projects and services.
Who buys municipal securities?
Individuals are the primary investors, and a principal way they
invest is through mutual funds. Prices of municipals may be
affected by major changes in cash flows of money into or out of
municipal funds. For example, substantial and sustained
redemptions from municipal bond funds could result in lower
prices for these securities.
Is interest income from municipal issues always exempt from
federal taxes?
Municipal securities are also called "tax-exempts" because the
interest income they provide is usually exempt from federal
income taxes.
No. For example, since 1986, income from so-called "private
activity" municipals has been subject to the federal alternative
minimum tax (AMT). For instance, some bonds financing airports,
stadiums, and student loan programs fall into this category.
Shareholders subject to the AMT must include income derived from
private activity bonds in their AMT calculation. Relatively few
taxpayers are required to pay the tax. Normally, the fund will
not purchase any security if, as a result, more than 20% of the
fund's income would be subject to the AMT. The fund will report
annually to shareholders the portion of income, if any, subject
to the AMT. (Please see "Distributions and Taxes--Taxes on Fund
Distributions.")
Why are yields on municipals usually below those on otherwise
comparable taxable securities?
Since the income provided by most municipals is exempt from
federal taxation, investors are willing to accept lower yields on
a municipal bond than on an otherwise similar (in quality and
maturity) taxable bond.
Why are the yields on Georgia bonds often below those of
comparable issues from other states?
Strong demand for Georgia securities, due to a relatively high
state income tax rate and an often limited supply, tends to push
their prices up and yields down.
Is there an easy way to compare after-tax yields on a Georgia
fund with a similar tax-exempt fund that invests nationally?
Subtract your state tax rate from 1 and multiply this number
PAGE 10
times the yield on the national fund. The result is the yield to
you on the national fund after paying Georgia income tax. Compare
this with the Georgia Fund's yield.
Is a fund's yield fixed or will it vary?
You may want to review some fundamentals that apply to all fixed
income investments.
It will vary. The yield is calculated every day by dividing the
fund's net income per share, expressed at annual rates, by the
share price. Since both income and share price will fluctuate,
the fund's yield will also vary.
Is a fund's "yield" the same thing as the "total return"?
Not for bond funds. The total return reported for a fund is the
result of reinvested distributions (income and capital gains) and
the change in share price for a given time period. Income is
always a positive contributor to total return and can enhance a
rise in share price or serve as an offset to a drop in share
price.
What is "credit-quality" and how does it affect a fund's yield?
Credit-quality refers to a bond issuer's expected ability to make
all required interest and principal payments in a timely manner.
Because highly rated issuers represent less risk, they can borrow
at lower interest rates than less creditworthy issuers.
Therefore, a fund investing in high credit-quality securities
should have a lower yield than an otherwise comparable fund
investing in lower credit-quality securities.
What is meant by a bond fund's "maturity"?
Every bond has a stated maturity date when the issuer must
repay the security's entire principal value to the investor.
However, many bonds are "callable," meaning their principal can
be repaid before their stated maturity dates on (or after)
specified call dates. Bonds are most likely to be called when
interest rates are falling, because the issuer wants to refinance
at a lower rate. In such an environment, a bond's "effective
maturity" is calculated using its nearest call date.
A bond mutual fund has no maturity in the strict sense of the
word, but it does have an average maturity and an average
effective maturity. This number is an average of the stated or
effective maturities of the underlying bonds, with each bond's
maturity "weighted" by the percentage of fund assets it
represents. Funds that target effective maturities would use the
effective (rather than stated) maturities of the underlying
instruments when computing the average. Targeting effective
maturity provides additional flexibility in portfolio management
but, all else being equal, could result in higher volatility than
a fund targeting a stated maturity or maturity range.
What is meant by a bond fund's "duration"?
Duration is a calculation that seeks to measure the price
sensitivity of a bond or a bond fund to changes in interest
rates. It measures bond price sensitivity to interest rate
changes more accurately than maturity because it takes into
account the time value of cash flows generated over the bond's
life. Future interest and principal payments are discounted to
reflect their present value and then are multiplied by the number
PAGE 11
of years they will be received to produce a value that is
expressed in years, i.e., the duration. Effective duration takes
into account call features and sinking fund payments that may
shorten a bond's life.
Since duration can also be computed for bond funds, you can
estimate the effect of interest rates on a fund's share price.
Simply multiply the fund's duration (available for T. Rowe Price
bond funds in our shareholder reports) by an expected change in
interest rates. For example, the price of a bond fund with a
duration of five years would be expected to fall approximately 5%
if rates rose by one percentage point.
How is a municipal's price affected by changes in interest rates?
When interest rates rise, a bond's price usually falls, and vice
versa.
In general, the longer a bond's maturity, the greater the price
increase or decrease in response to a given change in interest
rates, as shown in the table at right.
How Interest Rates Affect Bond Prices
Bond Maturity Coupon Price Per $1,000 of a Municipal Bond
if Interest Rates:
Increase Decrease
1% 2% 1% 2%
1 year 3.65% $990 $981 $1,010 $1,020
5 years 4.55 957 916 1,045 1,093
10 years 5.05 926 858 1,082 1,171
20 years 5.75 891 798 1,128 1,280
30 years 5.80 873 769 1,158 1,356
Table 4
Coupons reflect yields on AAA-rated municipals as of April 30,
1996. This is an illustration and does not represent expected
yields or share price changes of any T. Rowe Price fund.
Is there other information I need to review before making a
decision?
The fund should not represent your complete investment program,
nor be used for short-term trading purposes.
You should review "Investment Policies and Practices" in
Section 3, which discusses the following: Types of Portfolio
Securities (municipal securities, private activity bonds,
municipal lease obligations, municipal warrants, securities with
"puts" or other demand features, securities with credit
enhancements, synthetic or derivative securities, and private
placements); and Types of Management Practices (cash position,
when-issued securities and forwards, interest rate futures,
borrowing money and transferring assets, portfolio turnover,
sector concentration, and credit-quality considerations).
2
About Your Account
Pricing Shares and Receiving Sale Proceeds
Here are some procedures you should know when investing in a
T. Rowe Price tax-free fund.
How and when shares are priced
PAGE 12
The various ways you can buy, sell, and exchange shares are
explained at the end of this prospectus and on the New Account
Form. These procedures may differ for institutional accounts.
Bond funds:
The share price (also called "net asset value" or NAV per share)
for the fund is calculated at 4 p.m. ET each day the New York
Stock Exchange is open for business. To calculate the NAV, the
fund's assets are valued and totaled, liabilities are subtracted,
and the balance, called net assets, is divided by the number of
shares outstanding.
How your purchase, sale, or exchange price is determined
If we receive your request in correct form by 4 p.m. ET, your
transaction will be priced at that day's NAV. If we receive it
after 4 p.m., it will be priced at the next business day's NAV.
We cannot accept orders that request a particular day or price
for your transaction or any other special conditions.
Note:
The time at which transactions and shares are priced and the
time until which orders are accepted may be changed in case of an
emergency or if the New York Stock Exchange closes at a time
other than 4 p.m. ET.
How you can receive the proceeds from a sale
When filling out the New Account Form, you may wish to give
yourself the widest range of options for receiving proceeds from
a sale.
If your request is received by 4 p.m. ET in correct form,
proceeds are usually sent on the next business day. Proceeds can
be sent to you by mail or to your bank account by ACH transfer or
bank wire. Proceeds sent by ACH transfer should be credited the
second day after the sale. ACH (Automated Clearing House) is an
automated method of initiating payments from and receiving
payments in your financial institution account. ACH is a payment
system supported by over 20,000 banks, savings banks, and credit
unions, which electronically exchanges the transactions primarily
through the Federal Reserve Banks. Proceeds sent by bank wire
should be credited to your account the next business day.
Exception:
If for some reason we cannot accept your request to sell shares,
we will contact you.
o
Under certain circumstances and when deemed to be in the fund's
best interests, your proceeds may not be sent for up to five
business days after receiving your sale or exchange request. If
you were exchanging into a bond or money fund, your new
investment would not begin to earn dividends until the sixth
business day.
Useful Information on Distributions and Taxes
Dividends and Other Distributions
All net investment income and realized capital gains are
distributed to shareholders.
Dividend and capital gain distributions are reinvested in
additional fund shares in your account unless you select another
option on your New Account Form. The advantage of reinvesting
PAGE 13
distributions arises from compounding; that is, you receive
income dividends and capital gain distributions on a rising
number of shares.
Distributions not reinvested are paid by check or transmitted to
your bank account via ACH. If the Post Office cannot deliver your
check, or if your check remains uncashed for six months, the fund
reserves the right to reinvest your distribution check in your
account at the NAV on the business day of the reinvestment and to
reinvest all subsequent distributions in shares of the fund.
Income dividends
o
Bond funds declare income dividends daily at 4 p.m. ET to
shareholders of record at that time provided payment has been
received on the previous business day.
o
Bond funds pay dividends on the first business day of each
month.
o
Bond fund shares will earn dividends through the date of
redemption; also, shares redeemed on a Friday or prior to a
holiday will continue to earn dividends until the next business
day. Generally, if you redeem all of your shares at any time
during the month, you will also receive all dividends earned
through the date of redemption in the same check. When you redeem
only a portion of your shares, all dividends accrued on those
shares will be reinvested, or paid in cash, on the next dividend
payment date.
Capital gains
o
A capital gain or loss is the difference between the purchase and
sale price of a security.
o
If the fund has net capital gains for the year (after subtracting
any capital losses), they are usually declared and paid in
December to shareholders of record on a specified date that
month. If a second distribution is necessary, it is usually
declared and paid during the first quarter of the following year.
Tax Information
You will be sent timely information for your tax filing needs.
Although the regular monthly income dividends you receive from
the funds are expected to be exempt from federal and state and
local (if any)income taxes, you need to be aware of the possible
tax consequences when:
o
You sell fund shares, including an exchange from one fund to
another.
o
The fund makes a distribution to your account.
Due to 1993 tax legislation, a portion of the capital gains
realized on the sale of market discount bonds with maturities
beyond one year may be treated as ordinary income and cannot be
offset by other capital losses. Therefore, to the extent the fund
PAGE 14
invests in these securities, the likelihood of a taxable gain
distribution will be increased.
Note:
You must report your total tax-exempt income on IRS Form 1040.
The IRS uses this information to help determine the tax status of
any Social Security payments you may have received during the
year.
Taxes on fund redemptions.
When you sell shares in any fund, you may realize a gain or loss.
An exchange from one fund to another is still a sale for tax
purposes. If you realize a loss on the sale or exchange of fund
shares held six months or less, your capital loss is reduced by
the tax-exempt dividends received on those shares.
In January, you will be sent Form 1099-B, indicating the date
and amount of each sale you made in the fund during the prior
year. This information will also be reported to the IRS. For
accounts opened new or by exchange in 1983 or later, we will
provide you with the gain or loss of the shares you sold during
the year, based on the "average cost" method. This information is
not reported to the IRS, and you do not have to use it. You may
calculate the cost basis using other methods acceptable to the
IRS, such as "specific identification."
To help you maintain accurate records, we send you a confirmation
immediately following each transaction (except for systematic
purchases and redemptions) you make and a year-end statement
detailing all your transactions in each fund account during the
year.
Taxes on fund distributions.
Distributions are taxable whether reinvested in additional shares
or received in cash.
In January, the fund will send you Form 1099-DIV indicating the
tax status of any capital gain distribution made to you. This
information will also be reported to the IRS. All capital gain
distributions are taxable to you for the year in which they were
paid. The only exception is that distributions declared during
the last three months of the year and paid in January are taxed
as though they were paid by December 31. Dividends are expected
to be tax-exempt.
Short-term capital gain distributions are taxable as ordinary
income and long-term gain distributions are taxable at the
applicable long-term gain rate. The gain is long- or short-term
depending on how long the fund held the securities, not how long
you held shares in the fund. If you realize a loss on the sale
or exchange of fund shares held six months or less, your short-
term loss recognized is reclassified to long-term to the extent
of any capital gain distribution received.
If the fund invests in certain "private activity" bonds,
shareholders who are subject to the alternative minimum tax (AMT)
must include income generated by these bonds in their AMT
computation. The portion of your fund's income which should be
PAGE 15
included in your AMT calculation, if any, will be reported to you
in January.
Tax effect of buying shares before a capital gain distribution.
If you buy shares shortly before or on the "record date"--the
date that establishes you as the person to receive the upcoming
distribution--you will receive, in the form of a taxable
distribution, a portion of the money you just invested.
Therefore, you may also wish to find out the fund's record date
before investing. Of course, the fund's share price may, at any
time, reflect undistributed capital gains or income and
unrealized appreciation. When these amounts are eventually
distributed, they are taxable.
Note:
For shareholders who receive Social Security benefits, the
receipt of tax-exempt interest may increase the portion of
benefits that are subject to tax.
Transaction Procedures and Special Requirements
Purchase Conditions
Following these procedures helps assure timely and accurate
transactions.
Nonpayment.
If your payment is not received or you pay with a check or ACH
transfer that does not clear, your purchase will be canceled. You
will be responsible for any losses or expenses incurred by the
fund or transfer agent, and the fund can redeem shares you own in
this or another identically registered T. Rowe Price fund as
reimbursement. The fund and its agents have the right to reject
or cancel any purchase, exchange, or redemption due to
nonpayment.
U.S. dollars.
All purchases must be paid for in U.S. dollars; checks must be
drawn on U.S. banks.
Sale (Redemption) Conditions
10-day hold.
If you sell shares that you just purchased and paid for by check
or ACH transfer, a fund will process your redemption but, will
generally delay sending you the proceeds for up to 10 calendar
days to allow the check or transfer to clear. If your redemption
request was sent by mail or mailgram, proceeds will be mailed no
later than the seventh calendar day following receipt unless the
check or ACH transfer has not cleared. If during the clearing
period, we receive a check drawn against your bond or money
market account, it will be returned marked "uncollected." (The
10-day hold does not apply to the following: purchases paid for
by bank wire; cashier's, certified, or treasurer's checks; or
automatic purchases through your paycheck.)
Telephone, Tele*AccessR, and Personal Computer transactions.
These exchange and redemption services are established
automatically when you sign the New Account Form unless you check
the box which states that you do not want these services. The
fund uses reasonable procedures (including shareholder identity
verification) to confirm that instructions given by telephone are
genuine and is not liable for acting on these instructions. If
PAGE 16
these procedures are not followed, it is the opinion of certain
regulatory agencies that the fund may be liable for any losses
that may result from acting on the instructions given. A
confirmation is sent promptly after the telephone transaction.
All conversations are recorded.
Redemptions over $250,000.
Large sales can adversely affect a portfolio manager's ability to
implement a fund's investment strategy by causing the premature
sale of securities that would otherwise be held. If, in any 90-
day period, you redeem (sell) more than $250,000, or your sale
amounts to more than 1% of the fund's net assets, the fund has
the right to delay sending your proceeds for up to five business
days after receiving your request, or to pay the difference
between the redemption amount and the lesser of the two
previously mentioned figures with securities from the fund.
Excessive Trading
T. Rowe Price may bar excessive traders from purchasing shares.
Frequent trades, involving either substantial fund assets or a
substantial portion of your account or accounts controlled by
you, can disrupt management of the fund and raise its expenses.
We define "excessive trading" as exceeding one purchase and sale
involving the same fund within any 120-day period.
For example, you are in fund A. You can move substantial assets
from fund A to fund B and, within the next 120 days, sell your
shares in fund B to return to fund A or move to fund C.
If you exceed the number of trades described above, you may be
barred indefinitely from further purchases of T. Rowe Price
funds.
Three types of transactions are exempt from excessive trading
guidelines: 1) trades solely between money market funds; 2)
redemptions that are not part of exchanges; and 3) systematic
purchases or redemptions (see "Shareholder Services").
Keeping Your Account Open
Due to the relatively high cost to the fund of maintaining small
accounts, we ask you to maintain an account balance of at least
$1,000. If your balance is below $1,000 for three months or
longer, we have the right to close your account after giving you
60 days in which to increase your balance.
Small Account Fee
Because of the disproportionately high costs of servicing
accounts with low balances, a $10 fee, paid to T. Rowe Price
Services, the fund's transfer agent, will automatically be
deducted from nonretirement accounts with balances falling below
a minimum level. The valuation of accounts and the deduction are
expected to take place during the last five business days of
September. The fee will be deducted from accounts with balances
below $2,000, except for UGMA/UTMA accounts, for which the limit
is $500. The fee will be waived for any investor whose aggregate
T. Rowe Price mutual fund investments total $25,000 or more.
Accounts employing automatic investing (e.g., payroll deduction,
PAGE 17
automatic purchase from a bank account, etc.) are also exempt
from the charge. The fee will not apply to IRAs and other
retirement plan accounts. (A separate custodial fee may apply to
IRAs and other retirement plan accounts.)
Signature Guarantees
A signature guarantee is designed to protect you and the T. Rowe
Price funds from fraud by verifying your signature.
You may need to have your signature guaranteed in certain
situations, such as:
o
Written requests 1) to redeem over $50,000, or 2) to wire
redemption proceeds.
o
Remitting redemption proceeds to any person, address, or bank
account not on record.
o
Transferring redemption proceeds to a T. Rowe Price fund
account with a different registration (name/ownership) from
yours.
o
Establishing certain services after the account is opened.
You can obtain a signature guarantee from most banks, savings
institutions, broker-dealers, and other guarantors acceptable to
T. Rowe Price. We cannot accept guarantees from notaries public
or organizations that do not provide reimbursement in the case of
fraud.
3
More About the Fund
Organization and Management
How is the fund organized?
Shareholders benefit from T. Rowe Price's 59 years of
investment management experience.
The T. Rowe Price State Tax-Free Income Trust was organized in
1986 as a Massachusetts business trust and is a "nondiversified,
open-end investment company," or mutual fund. This fund was
organized in 1993. Mutual funds pool money received from
shareholders and invest it to try to achieve specified
objectives.
What is meant by "shares"?
As with all mutual funds, investors purchase shares when they put
money in a fund. These shares are part of a fund's authorized
capital stock, but share certificates are not issued.
Each share and fractional share entitles the shareholder to:
o
Receive a proportional interest in a fund's income and capital
gain distributions.
o
Cast one vote per share on certain fund matters, including the
election of fund directors, changes in fundamental policies, or
approval of changes in the fund's management contract.
Do T. Rowe Price funds have annual shareholder meetings?
The funds are not required to hold annual meetings and in
PAGE 18
order to avoid unnecessary costs to fund shareholders, do not
intend to do so except when certain matters, such as a change in
a fund's fundamental policies, are to be decided. In addition,
shareholders representing at least 10% of all eligible votes may
call a special meeting if they wish for the purpose of voting on
the removal of any fund director or trustee. If a meeting is held
and you cannot attend, you can vote by proxy. Before the meeting,
the fund will send you proxy materials that explain the issues to
be decided and include a voting card for you to mail back.
Who runs the fund?
All decisions regarding the purchase and sale of fund investments
are made by T. Rowe Price--specifically by the fund's portfolio
managers.
General Oversight.
The fund is governed by a Board of Trustees that elects the
fund's officers and meets regularly to review the fund's
investments, performance, expenses, and other business affairs.
The policy of the fund is that a majority of Board members will
be independent of T. Rowe Price.
Portfolio Management.
The fund has an Investment Advisory Committee, composed of the
following members: Mary J. Miller, Chairman, A. Gene Caponi,
Patricia S. Deford, Hugh D. McGuirk, and William T. Reynolds. The
committee chairman has day-to-day responsibility for managing the
portfolio and works with the committee in developing and
executing the fund's investment program. Mrs. Miller has been
chairman of the fund's committee since the fund's inception in
1993. She joined T. Rowe Price in 1983 and has been managing
investments since 1987.
Marketing.
T. Rowe Price Investment Services, Inc., a wholly owned
subsidiary of T. Rowe Price, distributes (sells) shares of these
and all other T. Rowe Price funds.
Shareholder Services.
T. Rowe Price Services, Inc., another wholly owned subsidiary,
acts as the fund's transfer and dividend disbursing agent and
provides shareholder and administrative services. Services for
certain types of retirement plans are provided by T. Rowe Price
Retirement Plan Services, Inc., also a wholly owned subsidiary.
The address for each is 100 East Pratt St., Baltimore, MD 21202.
How are fund expenses determined?
The management agreement spells out the expenses to be paid by
the fund.
In addition to the management fee, the fund pays for the
following: shareholder service expenses; custodial, accounting,
legal, and audit fees; costs of preparing and printing
prospectuses and reports sent to shareholders; registration fees
and expenses; proxy and annual meeting expense (if any); and
director/trustee fees and expenses.
The Management Fee.
This fee has two parts--an "individual fund fee" (discussed under
"Transaction and Fund Expenses"), which reflects a fund's
particular investment management costs, and a "group fee." The
PAGE 19
group fee, which is designed to reflect the benefits of the
shared resources of the T. Rowe Price investment management
complex, is calculated daily based on the combined net assets of
all T. Rowe Price funds (except Equity Index and the Spectrum
Funds and any institutional or private label mutual funds). The
group fee schedule (shown below) is graduated, declining as the
asset total rises, so shareholders benefit from the overall
growth in mutual fund assets.
0.480% First $1 billion 0.350% Next $2 billion
0.450% Next $1 billion 0.340% Next $5 billion
0.420% Next $1 billion 0.330% Next $10 billion
0.390% Next $1 billion 0.320% Next $10 billion
0.370% Next $1 billion 0.310% Next $16 billion
0.360% Next $2 billion 0.305% Thereafter
The fund's portion of the group fee is determined by the ratio of
its daily net assets to the daily net assets of all the Price
funds described previously. Based on combined Price funds' assets
of approximately $53.5 billion at March 31, 1996, the group fee
was 0.33%.
Understanding Performance Information
This section should help you understand the terms used to
describe fund performance. You will come across them in
shareholder reports you receive from us, in our newsletter, The
Price Report, in Insights articles, in T. Rowe Price
advertisements, and in the media.
Total Return
Total return is the most widely used performance measure.
Detailed performance information is included in the fund's annual
and semiannual shareholder reports, and in the quarterly
Performance Update, which are all available without charge.
This tells you how much an investment in a fund has changed in
value over a given time period. It reflects any net increase or
decrease in the share price and assumes that all dividends and
capital gains (if any) paid during the period were reinvested in
additional shares. Including reinvested distributions means that
total return numbers include the effect of compounding, i.e., you
receive income and capital gain distributions on a rising number
of shares.
Advertisements for a fund may include cumulative or compound
average annual total return figures, which may be compared with
various indices, other performance measures, or other mutual
funds.
Cumulative Total Return
This is the actual rate of return on an investment for a
specified period. A cumulative return does not indicate how much
the value of the investment may have fluctuated between the
beginning and the end of the period specified.
Average Annual Total Return
This is always hypothetical. Working backward from the actual
cumulative return, it tells you what constant year-by-year return
PAGE 20
would have produced the actual, cumulative return. By smoothing
out all the variations in annual performance, it gives you an
idea of the investment's annual contribution to your portfolio
provided you held it for the entire period in question.
Yield
You will see frequent references to a fund's yield in our
reports, in advertisements, in media stories, and so on.
The current or "dividend" yield on a fund or any investment
tells you the relationship between the investment's current level
of annual income and its price on a particular day. The dividend
yield reflects the actual income paid to shareholders for a given
period, annualized, and divided by the average price during the
given period. For example, a fund providing $5 of annual income
per share and a price of $50 has a current yield of 10%. Yields
can be calculated for any time period.
The advertised or "SEC" yield is found by determining the net
income per share (as defined by the SEC) earned by a fund during
a 30-day base period and dividing this amount by the per share
price on the last day of the base period. The SEC yield may
differ from the dividend yield.
Investment Policies and Practices
Fund managers have considerable leeway in choosing investment
strategies and selecting securities they believe will help the
fund achieve its objective.
This section takes a detailed look at some of the types of
securities the fund may hold in its portfolio and the various
kinds of investment practices that may be used in day-to-day
portfolio management. The fund's investment program is subject to
further restrictions and risks described in the Statement of
Additional Information.
Shareholder approval is required to substantively change the
fund's objective and certain investment restrictions noted in the
following section as "fundamental policies." The managers also
follow certain "operating policies" which can be changed without
shareholder approval. However, significant changes are discussed
with shareholders in fund reports. The fund adheres to applicable
investment restrictions and policies at the time it makes an
investment. A later change in circumstances will not require the
sale of an investment if it was proper at the time it was made.
The fund's holdings of certain kinds of investments cannot exceed
maximum percentages of total assets, which are set forth herein.
For instance, this fund is not permitted to invest more than 10%
of total assets in residual interest bonds. While these
restrictions provide a useful level of detail about the fund's
investment program, investors should not view them as an accurate
gauge of the potential risk of such investments. For example, in
a given period, a 5% investment in residual interest bonds could
have significantly more of an impact on the fund's share price
than its weighting in the portfolio. The net effect of a
particular investment depends on its volatility and the size of
PAGE 21
its overall return in relation to the performance of all the
fund's other investments.
Changes in the fund's holdings, the fund's performance, and the
contribution of various investments are discussed in the
shareholder reports sent to you.
Types of Portfolio Securities
In seeking to meet its investment objective, the fund may
invest in any type of municipal security or instrument (including
certain potentially high-risk derivatives) whose investment
characteristics are consistent with the fund's investment
program. The following pages describe the principal types of
portfolio securities and investment management practices of the
fund.
Fundamental policy:
The fund is registered as a nondiversified mutual fund. This
means that the fund may invest a greater portion of its assets in
a single issuer than a diversified fund which may subject the
fund to greater risk with respect to its portfolio securities.
However, because the fund intends to qualify as a "regulated
investment company" under the Internal Revenue Code, it must
invest so that, at the end of each quarter, with respect to 50%
of its total assets, not more than 5% of its assets are invested
in the securities of a single issuer, and with respect to the
remaining 50%, no more than 25% of fund assets are invested in a
single issuer.
Municipal Securities.
In purchasing municipals, the fund relies on the opinion of the
issuer's bond counsel regarding the tax-exempt status of the
investment.
The fund's assets are invested primarily in various tax-free
municipal debt securities. The issuers have a contractual
obligation to pay interest at a stated rate on specific dates and
to repay principal (the bond's face value) on a specified date or
dates. An issuer may have the right to redeem or "call" a bond
before maturity, and the investor may have to reinvest the
proceeds at lower rates.
There are two broad categories of municipal bonds. General
obligation bonds are backed by the issuer's "full faith and
credit," that is, its full taxing and revenue raising power.
Revenue bonds usually rely exclusively on a specific revenue
source, such as charges for water and sewer service, to generate
money for debt service.
Private Activity Bonds.
While income from most municipals is exempt from federal income
taxes, the income from certain types of so-called private
activity bonds (a type of revenue bond) may be subject to the
alternative minimum tax (AMT). However, only persons subject to
the AMT pay this tax. Private activity bonds may be issued for
purposes such as housing or airports or to benefit a private
company. (Being subject to the AMT does not mean the investor
necessarily pays this tax. For further information, please see
PAGE 22
"Distributions and Taxes.")
Fundamental policy:
Under normal market conditions, the fund will not purchase any
security if, as a result, less than 80% of the fund's income
would be exempt from federal and Georgia state income taxes. The
income included under the 80% test does not include income from
securities subject to the alternative minimum tax.
Operating policy:
During periods of abnormal market conditions, for temporary
defensive purposes, the fund may invest without limit in high-
quality, short-term securities whose income is subject to federal
and Georgia state income tax.
In addition to general obligation and revenue bonds, the fund's
investments may include, but are not limited to, the following
types of securities:
Municipal Lease Obligations.
A lease is not a full faith and credit obligation of the
issuer and is usually backed only by the borrowing government's
unsecured pledge to make annual appropriation for lease payments.
There have been challenges to the legality of lease financing in
numerous states and, from time to time, certain municipalities
have considered not appropriating money for lease payments. In
deciding whether to purchase a lease obligation, the fund would
assess the financial condition of the borrower, the merits of the
project, the level of public support for the project, and the
legislative history of lease financing in the state. These
securities may be less readily marketable than other municipals.
The fund may also purchase unrated lease obligations.
Municipal Warrants.
Municipal warrants are essentially call options on municipal
bonds. In exchange for a premium, they give the purchaser the
right, but not the obligation, to purchase a municipal bond in
the future. The fund might purchase a warrant to lock in forward
supply in an environment where the current issuance of bonds is
sharply reduced. Like options, warrants may expire worthless and
they may have reduced liquidity.
Operating policy:
The fund will not invest more than 2% of its total assets in
municipal warrants.
Securities With "Puts" or Other Demand Features.
Some longer-term municipals give the investor the right to "put"
or sell the security at par (face value) within a specified
number of days following the investor's request--usually one to
seven days. This demand feature enhances a security's liquidity
by dramatically shortening its effective maturity and enables it
to trade at a price equal to or very close to par. If the demand
feature were terminated prior to being exercised, the fund would
hold the longer-term security.
Securities With Credit Enhancements.
o
Letters of Credit.
PAGE 23
Letters of credit are issued by a third party, usually a bank, to
enhance liquidity and ensure repayment of principal and any
accrued interest if the underlying municipal security should
default.
o
Municipal Bond Insurance.
T. Rowe Price periodically reviews the credit-quality of the
insurer.
This insurance, which is usually purchased by the bond issuer
from a private, nongovernmental insurance company, provides an
unconditional and irrevocable guarantee that the insured bond's
principal and interest will be paid when due. Insurance does not
guarantee the price of the bond or the share price of any fund.
The credit rating of an insured bond reflects the credit rating
of the insurer, based on its claims-paying ability.
The obligation of a municipal bond insurance company to pay a
claim extends over the life of each insured bond. Although
defaults on insured municipal bonds have been low to date and
municipal bond insurers have met their claims, there is no
assurance this will continue. A higher than expected default rate
could strain the insurer's loss reserves and adversely affect its
ability to pay claims to bondholders, such as the funds. The
number of municipal bond insurers is relatively small, and not
all of them have the highest rating.
o
Standby Purchase Agreements.
A Standby Bond Purchase Agreement (SBPA) is a liquidity
facility provided to pay the purchase price of bonds that cannot
be remarketed. The obligation of the liquidity provider (usually
a bank) is only to advance funds to purchase tendered bonds that
cannot be remarketed and does not cover principal or interest
under any other circumstances. The liquidity provider's
obligations under the SBPA are usually subject to numerous
conditions, including the continued creditworthiness of the
underlying borrower.
Synthetic or Derivative Securities.
These securities are created from existing municipal bonds:
o
Residual Interest Bonds (a potentially high-risk derivative).
The income stream provided by an underlying bond is divided to
create two securities, one short-term and one long-term. The
interest rate on the short-term component is reset by an index or
auction process normally every 7 to 35 days. After income is paid
on the short-term securities at current rates, the residual
income goes to the long-term securities. Therefore, rising short-
term interest rates result in lower income for the longer-term
portion, and vice versa. The longer-term bonds can be very
volatile and may be less liquid than other municipals of
comparable maturity.
Operating policy:
The fund will not invest more than 10% of its total assets in
residual interest bonds.
PAGE 24
o
Participation Interests.
This term covers various types of securities created by
converting fixed rate bonds into short-term, variable rate
certificates. These securities have been developed in the
secondary market to meet the demand for short-term, tax-exempt
securities. The fund will invest only in securities deemed tax-
exempt by a nationally recognized bond counsel, but there is no
guarantee the interest will be exempt because the IRS has not
issued a definitive ruling on the matter.
o
Embedded Interest Rate Swaps and Caps.
Embedded interest rate swaps enhance yields, but also increase
interest rate risk.
In a fixed rate, long-term municipal bond with an interest rate
swap attached to it, the bondholder usually receives the bond's
fixed coupon payment as well as a variable rate payment that
represents the difference between a fixed rate for the term of
the swap (which is typically shorter than the bond it is attached
to) and a variable rate short-term municipal index. The
bondholder receives excess income when short-term rates remain
below the fixed interest rate swap rate. If short-term rates rise
above the fixed income swap rate, the bondholder's income is
reduced. At the end of the interest rate swap term, the bond
reverts to a single fixed coupon payment.
An embedded interest rate cap allows the bondholder to receive
payments whenever short-term rates rise above a level established
at the time of purchase. They normally are used to hedge against
rising short-term interest rates.
Both instruments may be volatile and of limited liquidity and
their use may adversely affect a fund's total return.
Operating policy:
The fund will not invest more than 10% of its total assets in
embedded interest rate swaps and caps.
Private Placements.
The fund may seek to enhance its yield through the purchase of
private placements. These securities are sold through private
negotiations, usually to institutions or mutual funds, and may
have resale restrictions. Their yields are usually higher than
comparable public securities to compensate the investor for their
limited marketability.
Operating policy:
The fund may not invest more than 15% of its net assets in
illiquid securities, including unmarketable private placements.
Types of Management Practices
Cash reserves provide flexibility and serve as a short-term
defense during periods of unusual market volatility.
Cash Position.
The fund will hold a portion of its assets in short-term, tax-
exempt money market securities maturing in one year or less. The
reserve position accomplishes the following: provides flexibility
PAGE 25
in meeting redemptions, expenses, and the timing of new
investments; can help in structuring a fund's weighted average
maturity; and serves as a short-term defense during periods of
unusual market volatility. The fund's cash reserve position will
be comprised of short-term, investment-grade securities including
tax-exempt commercial paper, municipal notes, and short-term
maturity bonds. Some of these securities may have adjustable,
variable, or floating rates.
When-Issued Securities and Forwards.
New issues of municipals are often sold on a "when-issued"
basis, that is, delivery and payment take place 15-45 days after
the buyer has agreed to the purchase. Some bonds, called
"forwards," have longer than standard settlement dates, typically
six to 24 months. When buying these securities, the fund will
maintain cash or high-grade marketable securities held by its
custodian equal in value to its commitment for these securities.
The fund does not earn interest on when-issued and forward
securities until settlement, and the value of the securities may
fluctuate between purchase and settlement. Municipal "forwards"
typically carry a substantial yield premium to compensate the
buyer for their greater interest rate, credit, and liquidity
risks.
Interest Rate Futures.
Futures (a type of potentially high-risk derivative) are often
used to manage risk, because they enable the investor to buy or
sell an asset in the future at an agreed-upon price.
Specifically, the fund may use futures (and options on futures)
for any number of reasons, including: to hedge against a
potentially unfavorable change in interest rates and to adjust
its exposure to the municipal bond market; to protect portfolio
value; in an effort to enhance income; and to adjust the
portfolio s duration. The use of futures for hedging and non-
hedging purposes may not always be successful. Their prices can
be highly volatile, using them could lower the fund's total
return, and the potential loss from their use could exceed the
fund's initial exposure to such contracts.
Operating policy:
Initial margin deposits on futures and premiums on options used
for non-hedging purposes will not equal more than 5% of the
fund's net asset value.
Borrowing Money and Transferring Assets.
The fund can borrow money from banks as a temporary measure for
emergency purposes, to facilitate redemption requests, or for
other purposes consistent with the fund's investment objective
and program. Such borrowings may be collateralized with fund
assets, subject to restrictions.
Fundamental policy:
Borrowings may not exceed 33 1/3% of total fund assets.
Operating policy:
The fund may not transfer as collateral any portfolio securities
except as necessary in connection with permissible borrowings or
investments, and then such transfers may not exceed 33 1/3% of
the fund's total assets. The fund may not purchase additional
PAGE 26
securities when borrowings exceed 5% of total assets.
Portfolio Turnover.
The fund generally purchases securities with the intention of
holding them for investment; however, when market conditions or
other circumstances warrant, securities may be purchased and sold
without regard to the length of time held. Although the fund does
not expect to generate any taxable income, a high turnover rate
may increase transaction costs and may affect taxes paid by
shareholders to the extent short-term gains are distributed. The
fund's portfolio turnover rates for the fiscal years ended
February 29, 1996, February 28, 1995, and February 28, 1994 were
71.5%, 170.2%, and 154.8%, respectively.
Sector Concentration.
It is possible that the fund could have a considerable amount of
assets (25% or more) in securities that would tend to respond
similarly to particular economic or political developments. An
example would be securities of issuers related to a single
industry, such as health care or nuclear energy.
Operating policy:
The fund will not invest more than 25% of total assets in
industrial development bonds of projects in the same industry
(such as solid waste, nuclear utility, or airlines). Bonds which
are refunded with escrowed U.S. government securities are not
subject to the 25% limitation.
Credit-Quality Considerations.
The credit-quality of most bond issues is evaluated by rating
agencies such as Moody's and Standard & Poor's. Credit-quality
refers to the issuer's ability to meet all required interest and
principal payments. The highest ratings are assigned to issuers
perceived to be the best credit risks. T. Rowe Price research
analysts also evaluate all portfolio holdings of the fund,
including those rated by outside agencies. The lower the rating
on a bond, the higher the yield, other things being equal.
Table 5 shows the rating scale used by the major rating agencies.
T. Rowe Price considers publicly available ratings, but
emphasizes its own credit analysis when selecting investments.
Ratings of Municipal Debt Securities
Moody's Standard Fitch Defin-
Investors & Poor's Investors ition
Service, Inc. Corporation Service, Inc.
Long-Term Aaa AAA AAA Highest
quality
Aa AA AA High
quality
A A A Upper
medium
grade
Baa BBB BBB Medium
grade
Moody's S&P Fitch
Short-Term MIG1/VMIG1 Best quality SP1+ Very F-1+
strong Except-
PAGE 27
quality ionally
strong
quality
SP1 Strong F-1 Very
grade strong
quality
MIG2/VMIG2 High quality SP2 Satisfac- F-2
tory grade Good
credit
quality
Commercial P-1 Superior A-1+ Extremely F-1+
Paper quality strong quality Except-
ionally
strong
quality
A-1 Strong F-1 Very
quality strong
quality
P-2 Strong A-2 Satisfac- F-2
quality tory quality Good
credit
quality
Table 5
Explanation of Quality Ratings
Bond Rating Explanation
Moody's Investors
Service, Inc. Aaa Highest quality, smallest
degree of investment risk.
Aa High quality; together with
Aaa bonds, they compose the
high-grade bond group.
A Upper-medium-grade
obligations; many favorable
investment attributes.
Baa Medium-grade obligations;
neither highly protected nor
poorly secured. Interest and
principal appear adequate for
the present but certain
protective elements may be
lacking or may be unreliable
over any great length of time.
Ba More uncertain, with
speculative elements.
Protection of interest and
principal payments not well
safeguarded during good and
bad times.
B Lack characteristics of
desirable investment;
potentially low assurance of
timely interest and principal
payments or maintenance of
PAGE 28
other contract terms over
time.
Caa Poor standing, may be in
default; elements of danger
with respect to principal or
interest payments.
Ca Speculative in a high degree;
could be in default or have
other marked shortcomings.
C Lowest rated; extremely poor
prospects of ever attaining
investment standing.
Standard & Poor's
Corporation AAA Highest rating; extremely
strong capacity to pay
principal and interest.
AA High quality; very strong
capacity to pay principal and
interest.
A Strong capacity to pay
principal and interest;
somewhat more susceptible to
the adverse effects of
changing circumstances and
economic conditions.
BBB Adequate capacity to pay
principal and interest;
normally exhibit adequate
protection parameters, but
adverse economic conditions or
changing circumstances more
likely to lead to a weakened
capacity to pay principal and
interest than for higher-rated
bonds.
BB, B, CCC, CC Predominantly speculative with
respect to the issuer's
capacity to meet required
interest and principal
payments. BB-lowest degree of
speculation; CC-the highest
degree of speculation. Quality
and protective characteristics
outweighedby large
uncertainties or major risk
exposure to adverse
conditions.
D In default.
Fitch Investors
Service, Inc. AAA Highest quality; obligor has
exceptionally strong ability
to pay interest and repay
principal, which is unlikely
PAGE 29
to be affected by reasonably
foreseeable events.
AA Very high quality; obligor's
ability to pay interest and
repay principal is very
strong. Because bonds rated
in the AAA and AA categories
are not significantly
vulnerable to foreseeable
future developments, short-
term debt of these issuers is
generally rated F-1+.
A High quality; obligor's
ability to pay interest and
repay principal is considered
to be strong, but may be more
vulnerable to adverse changes
in economic conditions and
circumstances than higher-
rated bonds.
BBB Satisfactory credit quality;
obligor's ability to pay
interest and repay principal
is considered adequate.
Unfavorable changes in
economic conditions and
circumstances are more likely
to adversely affect these
bonds and impair timely
payment. The likelihood that
the ratings of these bonds
will fall below investment
grade is higher than for
higher-rated bonds.
BB, CCC, CC, C Not investment grade;
predominantly speculative with
respect to the issuer's
capacity to repay interest and
repay principal in accordance
with the terms of the
obligation for bond issues not
in default. BB is the least
speculative. C is the most
speculative.
Table 6
PAGE 1
4 Investing with T. Rowe Price
Account Requirements and Transaction Information
Always verify your transactions by carefully reviewing the
confirmation we send you. Please report any discrepancies to
Shareholder Services promptly.
Tax Identification Number
We must have your correct social security or corporate tax
identification number on a signed New Account Form or W-9 Form.
Otherwise, federal law requires the funds to withhold a
percentage (currently 31%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS
fine. If this information is not received within 60 days after
your account is established, your account may be redeemed, priced
at the NAV on the date of redemption.
Unless you request otherwise, one shareholder report will be
mailed to multiple account owners with the same tax
identification number and same ZIP code and to shareholders who
have requested that their account be combined with someone
else's for financial reporting.
Institutional Accounts
Transaction procedures in the following sections may not apply to
institutional accounts. For institutional account procedures,
please call your designated account manager or service
representative.
Opening a New Account: $2,500 minimum initial investment; $1,000
for gifts or transfers to minors (UGMA/UTMA) accounts
Account Registration
If you own other T. Rowe Price funds, be sure to register any new
account just like your existing accounts so you can exchange
among them easily. (The name and account type would have to be
identical.)
Regular Mail
T. Rowe Price
Account Services
P.O. Box 17300
Baltimore, MD
21298-9353
Mailgram, Express,
Registered, or Certified
Mail
T. Rowe Price
Account Services
10090 Red Run Blvd.
PAGE 2
Owings Mills, MD 21117
By Mail
Please make your check payable to T. Rowe Price Funds
(otherwise it will be returned) and send your check together
with the New Account Form to the address at left. We do not
accept third party checks to open new accounts.
By Wire
o Call Investor Services for an account number and give the
following wire address to your bank:
Morgan Guaranty Trust Co. of New York
ABA# 021000238
T. Rowe Price [fund name]
AC-00153938
account name(s), and account number
o Complete a New Account Form and mail it to one of the
appropriate addresses listed on the previous page.
Note: No services will be established and IRS penalty
withholding may occur until a signed New Account Form is
received.
By Exchange
Call Shareholder Services or use Tele*Access or your personal
computer (see "Automated Services" under "Shareholder Services").
The new account will have the same registration as the account
from which you are exchanging. Services for the new account may
be carried over by telephone request if preauthorized on the
existing account. (See explanation of "Excessive Trading" under
"Transaction Procedures.")
In Person
Drop off your New Account Form at any of the locations listed on
the cover and obtain a receipt.
Purchasing Additional Shares: $100 minimum purchase; $50 minimum
for Automatic Asset Builder and gifts or transfers to minors
(UGMA/UTMA) accounts
By ACH Transfer
Use Tele*Access, your personal computer, or call Investor
Services if you have established electronic transfers using the
ACH network.
By Wire
Call Shareholder Services or use the wire address in "Opening a
New Account."
Regular Mail
T. Rowe Price Funds
PAGE 3
Account Services
P.O. Box 89000
Baltimore, MD
21289-1500
(For mailgrams,
express, registered,
or certified mail,
see previous section.)
By Mail
o Make your check payable to T. Rowe Price Funds (otherwise
it may be returned).
o Mail the check to us at the address shown at left with
either a fund reinvestment slip or a note indicating the
fund you want to buy and your fund account number.
o Remember to provide your account number and the fund name on
your check.
By Automatic Asset Builder
Fill out the Automatic Asset Builder
section on the New Account or Shareholder Services Form.
Exchanging and Redeeming Shares
By Phone
Call Shareholder Services. If you find our phones busy during
unusually volatile markets, please consider placing your order by
your personal computer, Tele*Access (if you have previously
authorized telephone services), mailgram or by express mail. For
exchange policies, please see "Transaction Procedures and Special
Requirements--Excessive Trading."
Redemption proceeds can be mailed to your account address, sent
by ACH transfer, or wired to your bank (provided your bank
information is already on file). For charges, see "Electronic
Transfers--By Wire" under "Shareholder Services".
By Mail
For each account involved, provide the account name, number, fund
name, and exchange or redemption amount. For exchanges, be sure
to indicate any fund you are exchanging out of and the fund or
funds you are exchanging into. Please mail to the appropriate
address below or as indicated at left. T. Rowe Price requires the
signatures of all owners exactly as registered, and possibly a
signature guarantee (see "Transaction Procedures and Special
Requirements--Signature Guarantees").
Mailgram, Express, Registered Regular Mail:
or Certified mail:
PAGE 4
T. Rowe Price T. Rowe Price
Account Services Account Services
10090 Red Run Boulevard P.O. Box 89000
Owings Mills, MD 21117 Baltimore, MD 21289-0220
Rights Reserved by the Fund
The fund and its agents reserve the right to waive or lower
investment minimums; to accept initial purchases by telephone or
mailgram; to cancel or rescind any purchase or exchange (for
example, if an account has been restricted due to excessive
trading or fraud) upon notice to the shareholder within five
business days of the trade or if the written confirmation has not
been received by the shareholder, whichever is sooner; to freeze
any account and suspend account services when notice has been
received of a dispute between the registered or beneficial
account owners or there is reason to believe a fraudulent
transaction may occur; to otherwise modify the conditions of
purchase and any services at any time; or to act on instructions
believed to be genuine.
Shareholder Services
1-800-225-5132
1-410-625-6500
Shareholder Services
Many services are available to you as a T. Rowe Price
shareholder; some you receive automatically and others you must
authorize on the New Account Form. By signing up for services on
the New Account Form rather than later, you avoid having to
complete a separate form and obtain a signature guarantee. This
section reviews some of the principal services currently offered.
Our Services Guide contains detailed descriptions of these and
other services.
If you are a new T. Rowe Price investor, you will receive a
Services Guide with our Welcome Kit.
Investor Services
1-800-638-5660
1-410-547-2308
Note: Corporate and other entity accounts require an original or
certified resolution to establish services and to redeem by mail.
For more information, call Investor Services.
Retirement Plans
We offer a wide range of plans for individuals and
institutions, including large and small businesses: IRAs,
SEP-IRAs, Keoghs (profit sharing and money purchase pension),
401(k), and 403(b)(7). For information on IRAs, call Investor
Services. For information on all other retirement plans, please
PAGE 5
call our Trust Company at 1-800-492-7670.
Exchange Service
You can move money from one account to an existing identically
registered account, or open a new identically registered account.
Remember, exchanges are purchases and sales for tax purposes.
(Exchanges into a state tax-free fund are limited to investors
living in states where the funds are registered.) Some of the T.
Rowe Price funds may impose a redemption fee of .50% to 2%,
payable to such funds, on shares held for less than one year, or
in some funds, six months.
Automated Services
Tele*Access
1-800-638-2587
1-410-625-7676
Tele*Access. 24-hour service via toll-free number provides
information on fund yields and prices, dividends, account
balances, and your latest transaction, as well as the ability to
request prospectuses, account and tax forms, duplicate
statements, and checks, and to initiate purchase, redemption and
exchange orders in your accounts (see "Electronic Transfers"
below).
Personal Computer Access. 24-hour service via dial-up modem
provides the same information as Tele*Access, but on a personal
computer. Please call Investor Services to order.
Telephone and Walk-In Services
Buy, sell, or exchange shares by calling one of our service
representatives or by visiting one of our investor center
locations whose addresses are listed on the cover.
Electronic Transfers
By ACH. With no charges to pay, you can initiate a purchase or
redemption for as little as $100 or as much as $100,000 between
your bank account and fund account using the ACH network. Enter
instructions via Tele*Access or your personal computer or call
Shareholder Services.
By Wire. Electronic transfers can also be conducted via bank
wire. There is currently a $5 fee for wire redemptions under
$5,000, and your bank may charge for incoming or outgoing wire
transfers regardless of size.
Checkwriting (not available for equity funds, or the High Yield
Fund or Emerging Markets Bond Fund)
You may write an unlimited number of free checks on any money
market fund, and most bond funds, with a minimum of $500 per
check. Keep in mind, however that a check results in a
redemption; a check written on a bond fund will create a taxable
PAGE 6
event which you and we must report to the IRS.
Automatic Investing ($50 minimum)
You can invest automatically in several different ways,
including:
Automatic Asset Builder. You instruct us to move $50 or more
from your bank account, or you can instruct your employer to send
all or a portion of your paycheck to the fund or funds you
designate.
Note: If you are moving money from your bank account, and if
the date you select for your transactions falls on a Sunday or a
Monday which is a holiday, your order will be priced on the
second business day following this date.
Automatic Exchange. You can set up systematic investments from
one fund account into another, such as from a money fund into a
stock fund.
Discount Brokerage
Discount Brokerage is a division of T. Rowe Price Investment
Services, Inc., Member NASD/SIPC.
This additional service gives you the opportunity to easily
consolidate all your investments with one company. Through our
discount brokerage, you can buy and sell individual securities--
stocks, bonds, options, and others--at considerable commission
savings. We also provide a wide range of services, including:
Automated telephone and on-line services - You can enter trades,
access quotes, and review account information 24 hours a day,
seven days a week. Any trades executed through these programs
save you an additional 10% on commissions.
Note: Discount applies to our current commission schedule,
subject to our $35 minimum commission.
To open an account:
1-800-638-5660
For existing discount brokerage investors:
1-800-225-7720
Investor Information - A variety of informative reports, such as
our Brokerage Insights series, S&P Market Month Newsletter, and
optional Stock Reports can help you better evaluate economic
trends and investment opportunities.
Dividend Reinvestment Service - Virtually all stock held in
customer accounts are eligible for this service--free of
charge.
PAGE 1
Facts at a Glance
Investment Goals
The highest level of income exempt from federal and Maryland
state and local income taxes consistent with each fund's
prescribed investment program.
As with all mutual funds, these funds may not meet their goals.
Strategy and Risk/Reward
Maryland Short-Term Tax-Free Bond Fund.
Invests primarily in short-term, investment-grade Maryland
municipal bonds. Dollar-weighted average maturity will not exceed
three years. There is no maturity limit on individual securities.
Risk/Reward:
Higher income than a municipal money market fund and less
potential share price fluctuation than the Maryland Tax-Free Bond
Fund.
Maryland Tax-Free Bond Fund.
Invests primarily in investment-grade Maryland municipal
bonds. Dollar-weighted average maturity is expected to exceed 15
years.
Risk/Reward:
Higher income than the Maryland Short-Term Bond Fund but also
greater potential price fluctuation.
Investor Profile
Maryland taxpayers who, because of their tax bracket, can benefit
from income that is exempt from federal and Maryland state and
local income taxes. Not appropriate for tax-deferred retirement
plans, such as IRAs.
Fees and Charges
100% no load. No fees or charges to buy or sell shares or to
reinvest dividends; no 12b-1 marketing fees; free telephone
exchange.
Investment Manager
Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe
Price Associates, Inc. ("T. Rowe Price") and its affiliates
managed over $82 billion, including over $5.7 billion in
municipal bond assets, for over four million individual and
institutional investor accounts as of March 31, 1996.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION, OR
ANY STATE SECURITIES COMMISSION, PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
T. Rowe Price
State Tax-Free
Income Trust
July 1, 1996
Prospectus
Contents
1
About the Funds
Transaction and Fund Expenses
PAGE 2
Financial Highlights
Fund, Market, and Risk
Characteristics
2
About Your Account
Pricing Shares and Receiving Sale Proceeds
Distributions and Taxes
Transaction Procedures and Special Requirements
3
More About the Funds
Organization and Management
Understanding Performance Information
Investment Policies and Practices
4
Investing With T. Rowe Price
Account Requirements and Transaction Information
Opening a New Account
Purchasing Additional Shares
Exchanging and Redeeming
Shareholder Services
This prospectus contains information you should know before
investing. Please keep it for future reference. A Statement of
Additional Information about the funds, dated July 1, 1996, has
been filed with the Securities and Exchange Commission and is
incorporated by reference in this prospectus. To obtain a free
copy, call 1-800-638-5660.
To Open an Account
Investor Services
1-800-638-5660
1-410-547-2308
For Existing Accounts
Shareholder Services
1-800-225-5132
1-410-625-6500
For Yields and Prices
Tele*AccessR
1-800-638-2587
1-410-625-7676
24 hours, 7 days
Investor Centers
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
ARCO Tower
31st Floor
515 South Flower St.
PAGE 3
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
Internet Address
http://www.troweprice.com
To help you achieve your financial goals, T. Rowe Price offers a
wide range of stock, bond, and money market investments, as well
as convenient services and timely, informative reports.
Prospectus
T. Rowe Price
Maryland Tax-Free Funds
T. Rowe Price
State Tax-Free
Income Trust
July 1, 1996
Short- and long-term bond funds for investors seeking income that
is exempt from federal and Maryland state and local income taxes.
Invest With ConfidenceR
1
About the Funds
Transaction and Fund Expenses
Like all T. Rowe Price funds, these funds are 100% no load.
For the fiscal year ended February 29, 1996, the Short-Term
Bond Fund and Tax-Free Bond Fund paid $67,000 and $423,000,
respectively, to T. Rowe Price Services, Inc. for transfer and
dividend disbursing functions and shareholder services, and
$61,000 and $81,000, respectively, to T. Rowe Price for
accounting services.
These tables should help you understand the kinds of expenses you
will bear directly or indirectly as a fund shareholder.
In Table 1 below, "Shareholder Transaction Expenses," shows
that you pay no sales charges. All the money you invest in a fund
goes to work for you, subject to the fees explained below.
"Annual Fund Expenses" shows how much it will cost to operate
each fund for a year, based on 1996 fiscal year expenses. These
are costs you pay indirectly, because they are deducted from each
fund's total assets before the daily share price is calculated
and before dividends and other distributions are made. In other
words, you will not see these expenses on your account statement.
Shareholder Transaction Expenses
Short-Term Bond Tax-Free Bond
Sales charge "load" on
purchases None None
Sales charge "load" on
reinvested dividends None None
Redemption fees None None
Exchange fees None None
Annual Fund Expenses
Percentage of Fiscal 1996 Average
PAGE 4
Net Assets
Short-Term Bond Tax-Free Bond
Management fee (after
reduction) 0.40%a 0.44%
Marketing fees (12b-1) None None
Total other (shareholder
servicing, custodial,
auditing, etc.) 0.25% 0.10%
Total fund expenses 0.65%a 0.54%
a The Short-Term Bond Fund's management fee and its total
expense ratio would have been 0.44% and 0.69%, respectively, had
T. Rowe Price not agreed to reduce management fees in accordance
with the expense limitation described below. To limit the fund's
expenses during its initial period of operations, T. Rowe Price
agreed to waive its fees and bear any expenses through February
28, 1995, which would cause the fund's ratio of expenses to
average net assets to exceed 0.65%. Effective March 1, 1995, T.
Rowe Price agreed to extend the existing expense limitation of
0.65% for a period of two years through February 28, 1997. Fees
waived or expenses paid or assumed under these agreements are
subject to reimbursement to T. Rowe Price by the fund whenever
the fund's expense ratio is below 0.65%; however, no
reimbursement will be made after February 28, 1997 (for the first
agreement), or February 28, 1999 (for the second agreement), or
if it would result in the expense ratio exceeding 0.65%. Any
amounts reimbursed will have the effect of increasing fees
otherwise paid by the fund.
Note: A $5 fee is charged for wire redemptions under $5,000,
subject to change without notice, and a $10 fee is charged for
small accounts when applicable (see "Small Account Fee" under
"Transaction Procedures and Special Requirements").
Table 1
The main types of expenses, which all mutual funds may charge
against fund assets, are:
o
A management fee:
the percent of fund assets paid to the fund's investment manager.
Each fund's fee comprises a group fee, 0.33% as of March 31,
1996, and an individual fund fee of 0.10%.
o
"Other" administrative expenses:
primarily the servicing of shareholder accounts, such as
providing statements, reports, disbursing dividends, as well as
custodial services.
o
Marketing or distribution fees:
an annual charge ("12b-1") to existing shareholders to defray the
cost of selling shares to new shareholders. T. Rowe Price funds
do not levy 12b-1 fees.
For further details on fund expenses, please see "Organization
PAGE 5
and Management."
o
Hypothetical example:
The table at right is just an example; actual expenses can be
higher or lower than those shown.
Assume you invest $1,000, the fund returns 5% annually, expense
ratios remain as listed previously, and you close your account at
the end of the time periods shown. Your expenses would be:
Fund 1 year 3 years 5 years 10 years
Short-Term Bond $7 $21 $36 $81
Tax-Free Bond $6 $17 $30 $68
Table 2
Financial Highlights
The following table provides information about each fund's
financial history. It is based on a single share outstanding
throughout each fiscal year. The respective table is part of each
fund's financial statements, which are included in the funds'
annual report and incorporated by reference into the Statement of
Additional Information. This document is available to
shareholders upon request. The financial statements in the annual
report have been audited by Coopers & Lybrand L.L.P., independent
accountants, whose unqualified report covers the periods shown.
Investment Activities Distributions
Net Real-
ized and
Net Unreal- Total
Asset Net ized Gain from Net Net
Value, Invest-(Loss) Invest-Invest- Real-
Year Begin- ment on ment ment ized Total
Ended ning of Income Invest- Activi-Income Gain Distri-
February 28 Period (Loss) ments ties (Loss) (Loss) butions
_________________________________________________________________
Short-Term Bond
1993a $ 5.00 $0.01b $0.07 $0.08 $(0.01) -- $(0.01)
1994 5.07 0.15b 0.02 0.17 (0.15) -- (0.15)
1995 5.09 0.18b (0.05) 0.13 (0.18) -- (0.18)
1996f 5.04 0.21b 0.11 0.32 (0.21) -- (0.21)
Tax-Free Bond
1988df $10.00 $0.51 $(0.60) $(0.09)$(0.51) -- $(0.51)
1989 9.40 0.57 (0.10) 0.47 (0.57) -- (0.57)
1990 9.30 0.60 0.18 0.78 (0.60)$(0.03) (0.63)
1991 9.45 0.60 0.16 0.76 (0.60) -- (0.60)
1992f 9.61 0.59 0.26 0.85 (0.59) (0.05) (0.64)
1993 9.82 0.57 0.73 1.30 (0.57) (0.05) (0.62)
1994 10.50 0.56 0.05 0.61 (0.56) (0.10) (0.66)
1995 10.45 0.56 (0.44) 0.12 (0.56) (0.02) (0.58)
1996f 9.99 0.57 0.41 0.98 (0.57) -- (0.57)
_________________________________________________________________
End of Period
PAGE 6
Ratio
of
Ratio Net
of Invest-
Net Total Expenses ment Port-
Asset Return to Income folio
Year Value, (Includes Net Average to Aver- Turn-
Ended End of Reinvested Assets ($ Net age Net over
February 28 Period Dividends) Thousands) Assets Assets Rate
_________________________________________________________________
Short-Term Bond
1993a $ 5.07 1.67% $ 10,094 0.65%bc 2.96%c 96.9%c
1994 5.09 3.49% 76,049 0.65%b 3.09% 20.5%
1995 5.04 2.64% 74,808 0.65%b 3.59% 105.3%
1996f 5.15 6.49% 85,784 0.65%b 4.14% 39.3%
Tax-Free Bond
1988df $9.40 (0.60)% $ 63,240 0.85%ce 6.15%c177.8%c
1989 9.30 5.24% 113,528 0.92% 6.23% 63.8%
1990 9.45 8.54% 193,771 0.85% 6.29% 57.5%
1991 9.61 8.37% 300,974 0.68% 6.38% 52.2%
1992f 9.82 9.13% 475,188 0.64% 6.04% 21.9%
1993 10.50 13.75% 724,469 0.61% 5.72% 22.3%
1994 10.45 5.93% 821,402 0.57% 5.31% 24.3%
1995 9.99 1.43% 724,823 0.57% 5.73% 28.9%
1996f 10.40 10.00% 798,589 0.54% 5.53% 23.9%
_________________________________________________________________
a For the period January 29, 1993 (commencement of operations)
to February 28, 1993.
b Excludes expenses in excess of a 0.65% voluntary expense
limitation in effect through February 28, 1997.
c Annualized
d For the period March 31, 1987 (commencement of operations) to
February 29, 1988.
e Excludes expenses in excess of a 0.85% voluntary expense
limitation in effect through February 29, 1988.
f Year ended February 29.
_________________________________________________________________
Table 3
Table 3
Fund, Market, and Risk Characteristics: What to Expect
To help you decide which of the T. Rowe Price Maryland bond
funds may be appropriate for you, this section takes a closer
look at their investment objectives and approaches.
What are the funds' objectives and investment programs?
Income from Maryland municipal securities is exempt from federal
and Maryland state and local income taxes.
The Maryland Short-Term Tax-Free Bond Fund's objective is to
provide the highest level of income exempt from federal and
Maryland state and local income taxes consistent with modest
fluctuation in principal value. The fund will invest primarily
(at least 65% of its total assets) in investment-grade Maryland
municipal bonds. While the portfolio's dollar-weighted average
PAGE 7
maturity will not exceed three years, there is no maturity limit
on individual securities. The fund is expected to provide a
higher level of after-tax income than a money market fund and
less share price volatility than the Maryland Tax-Free Bond Fund.
Unlike a money market fund, the fund's share price will
fluctuate.
The Maryland Tax-Free Bond Fund's investment objective is to
provide, consistent with prudent portfolio management, the
highest level of income exempt from federal and Maryland state
and local income taxes by investing primarily in investment-grade
Maryland municipal bonds. The fund will invest at least 65% of
its total assets in investment-grade Maryland municipal bonds.
The fund's dollar-weighted average maturity is expected to exceed
15 years. The fund is expected to provide higher income and also
experience greater share price fluctuation than the Maryland
Short-Term Tax-Free Bond Fund.
Due to seasonal variations or shortages in the supply of suitable
short-term Maryland securities, each fund may invest periodically
in municipals whose interest is exempt from federal but not
Maryland state and local income taxes. Every effort will be made
to minimize such investments, but they could compose up to 10% of
each fund's annual income.
What are the funds' credit-quality guidelines?
At their discretion, each fund may retain a security whose
credit-quality is downgraded after purchase.
The funds will generally purchase investment-grade securities--
securities whose ratings are within the four highest credit
categories (e.g., AAA, AA, A, BBB) as determined by a national
rating organization or, if unrated, by T. Rowe Price. The funds
may occasionally purchase below-investment-grade securities
(including those with the lowest or no rating), but no such
purchase will be made if it would cause a fund's noninvestment-
grade bonds to exceed 5% of its net assets. Unrated bonds may be
less liquid than rated bonds.
Investment-grade securities include a range from the highest
rated to medium quality (BBB). Securities in the BBB category may
be more susceptible to adverse economic conditions or changing
circumstances, and the securities at the lower end of the BBB
category have certain speculative characteristics.
What are the main risks of investing in municipal bond funds?
A more detailed discussion of these and other risk considerations
is contained in the funds' Statement of Additional Information.
The potential for realizing a loss of principal in a bond fund
could derive from:
o
Interest rate or market risk:
the decline in fixed income securities and funds that may
accompany a rise in the overall level of interest rates (please
see Table 4).
o
Credit risk:
the chance that any of the fund's holdings will have its credit
PAGE 8
rating downgraded or will default (fail to make scheduled
interest and principal payments), potentially reducing the fund's
income level and share price.
o
Political risk:
the chance that a significant restructuring of federal income tax
rates, or even serious discussion on the topic in Congress, could
cause municipal bond prices to fall. The demand for municipal
bonds is strongly influenced by the value of tax-exempt income to
investors. Broadly lower tax rates could reduce the advantage of
owning municipal bonds.
o
Geographical risk:
the chance of price declines resulting from developments in a
single state.
What are the particular risks associated with single-state funds
versus those that invest nationally?
Significant political and economic developments within a state
may have repercussions, direct and indirect, on virtually all
municipal bonds issued in the state.
A fund investing within a single state is, by definition, less
diversified geographically than one investing across many states.
The risk arises from the fund's greater exposure to that state's
economy and politics, factors that loom large in establishing the
credit quality of bonds issued by the state and its political
subdivisions. For example, general obligation bonds of a state or
locality that has a high income level, reasonable debt levels,
and a positive long-term outlook should have a higher credit
rating than those of a state without those attributes.
Of course, many municipal bonds are not general obligations
backed by the state's "full faith and credit" (its full taxing
and revenue raising resources) and may not rely on any government
for money to service their debt. Bonds issued by governmental
authorities may depend wholly on revenues generated by the
project they financed or on other dedicated revenue streams. The
credit quality of these "revenue" bonds may vary significantly
from that of the state's general obligations.
How does the portfolio manager try to reduce risk?
Consistent with each fund's objective, the portfolio manager
actively seeks to reduce risk and increase total return. Risk
management tools include:
o
Diversification of assets to reduce the impact of a single
holding on the funds' net asset value.
o
Thorough credit research by our own analysts.
o
Adjustment of fund duration to try to reduce the negative impact
of rising interest rates or take advantage of the benefits of
falling rates.
What is the credit quality of Maryland general obligations?
PAGE 9
Credit ratings and the financial and economic conditions of the
state, local governments, public authorities, and others in which
the funds may invest are subject to change at any time.
The major rating agencies (Moody's, Standard & Poor's, and Fitch)
have assigned a triple-A rating to Maryland general obligations
as of June 1, 1996. For more than a century, the state has not
issued short-term tax anticipation notes or other similar short-
term debt for its own needs. There is no general debt limit on
general obligation bonds imposed under the state constitution or
public general laws. The constitution imposes a maturity limit
of 15 years on state general obligation bonds. The state's
Capital Debt Affordability Committee annually recommends to the
State General Assembly a yearly limit on the issuance of new
general obligation bonds.
What about the quality of the funds' other holdings?
The share price and yield of the funds will fluctuate with
changing market conditions and interest rate levels. When you
sell your shares, you may lose money.
In addition to the state's general obligations, the funds will
invest a substantial portion of their assets in bonds that are
rated according to the issuer's individual creditworthiness, such
as bonds of local governments and public authorities. While
local governments in Maryland depend principally on their own
revenue sources, they could experience budget shortfalls due to
cutbacks in state aid.
The funds may invest in certain sectors with special risks, for
example health care, which could be affected by federal or state
legislation, electric utilities with exposure to nuclear power
plants, and private activity bonds without governmental backing.
The funds sometimes invest in general obligations of the
Commonwealth of Puerto Rico and its public corporations (as well
as the U.S. territories of Guam and the Virgin Islands) that are
exempt from federal and Maryland state and local income taxes.
These investments require careful assessment of certain risk
factors, including reliance on substantial federal assistance and
favorable tax programs which have recently come under scrutiny by
Congress. As of June 1, 1996, Puerto Rico's general obligations
were rated Baa1 by Moody's and A (with a negative outlook) by
Standard & Poor's.
What are derivatives and can the funds invest in them?
The term derivative is used to describe financial instruments
whose value is derived from an underlying security (e.g., a stock
or bond) or a market benchmark (e.g., an interest rate index).
Many types of investments representing a wide range of potential
risks and rewards fall under the "derivatives" umbrella--from
conventional instruments such as callable bonds, futures, and
options, to more exotic investments such as stripped mortgage
securities and structured notes. While the term "derivative" has
only recently become widely known among the investing public,
derivatives have in fact been employed by investment managers for
many years.
PAGE 10
Each fund will invest in derivatives only if the expected
risks and rewards are consistent with its objective, policies,
and overall risk profile as described in this prospectus. The
funds limit their use of derivatives to situations in which they
may enable the fund to accomplish the following: increase yield;
hedge against a decline in principal value; invest in eligible
asset classes with greater efficiency and lower cost than is
possible through direct investment; or, adjust the fund's
duration.
These funds will not invest in any high-risk, highly leveraged
derivative instrument that is expected to cause the price
volatility of the portfolio to be meaningfully different than
that of 1) a three-year investment-grade bond for the Short-Term
Tax-Free Bond Fund; or 2) a long-term investment-grade bond for
the Tax-Free Bond Fund.
Who issues municipal securities?
Before choosing a fund, you may wish to review these
characteristics of municipal securities.
State and local governments and governmental authorities sell
notes and bonds (usually called "municipals") to pay for public
projects and services.
Who buys municipal securities?
Individuals are the primary investors, and a principal way they
invest is through mutual funds. Prices of municipals may be
affected by major changes in cash flows of money into or out of
municipal funds. For example, substantial and sustained
redemptions from municipal bond funds could result in lower
prices for these securities.
Is interest income from municipal issues always exempt from
federal taxes?
Municipal securities are also called "tax-exempts" because the
interest income they provide is usually exempt from federal
income taxes.
No. For example, since 1986, income from so-called "private
activity" municipals has been subject to the federal alternative
minimum tax (AMT). For instance, some bonds financing airports,
stadiums, and student loan programs fall into this category.
Shareholders subject to the AMT must include income derived from
private activity bonds in their AMT calculation. Relatively few
taxpayers are required to pay the tax. Normally, the funds will
not purchase any security if, as a result, more than 20% of the
fund's income would be subject to the AMT. The funds will report
annually to shareholders the portion of income, if any, subject
to the AMT. (Please see "Distributions and Taxes--Taxes on Fund
Distributions.")
Why are yields on municipals usually below those on otherwise
comparable taxable securities?
Since the income provided by most municipals is exempt from
federal taxation, investors are willing to accept lower yields on
a municipal bond than on an otherwise similar (in quality and
maturity) taxable bond.
Why are yields on Maryland bonds often below those of comparable
PAGE 11
issues from other states?
Strong demand for Maryland securities, due to a relatively high
state income tax rate and an often limited supply, tends to push
their prices up and yields down.
Is there an easy way to compare after-tax yields on a Maryland
fund with a similar tax-exempt fund that invests nationally?
Subtract your state tax rate from 1 and multiply this number
times the yield on the national fund. The result is the yield to
you on the national fund after paying Maryland income tax.
Compare this with the Maryland fund's yield.
Is a fund's yield fixed or will it vary?
You may want to review some fundamentals that apply to all fixed
income investments.
It will vary. The yield is calculated every day by dividing the
fund's net income per share, expressed at annual rates, by the
share price. Since both income and share price will fluctuate,
the fund's yield will also vary.
Is a fund's "yield" the same thing as the "total return"?
Not for bond funds. Your total return is the result of
reinvested income and the change in share price for a given time
period. Income is always a positive contributor to total return
and can enhance a rise in share price or serve as an offset to a
drop in share price.
What is "credit quality" and how does it affect a fund's yield?
Credit quality refers to a bond issuer's expected ability to make
all required interest and principal payments in a timely manner.
Because highly rated issuers represent less risk, they can borrow
at lower interest rates than less creditworthy issuers.
Therefore, a fund investing in high credit-quality securities
should have a lower yield than an otherwise comparable fund
investing in lower credit-quality securities.
What is meant by a bond fund's "maturity"?
Every bond has a stated maturity date when the issuer must
repay the security's entire principal value to the investor.
However, many bonds are "callable," meaning their principal can
be repaid before their stated maturity dates on (or after)
specified call dates. Bonds are most likely to be called when
interest rates are falling, because the issuer wants to refinance
at a lower rate. In such an environment, a bond's "effective
maturity" is calculated using its nearest call date.
A bond mutual fund has no maturity in the strict sense of the
word, but it does have an average maturity and an average
effective maturity. This number is an average of the stated or
effective maturities of the underlying bonds, with each bond's
maturity "weighted" by the percentage of fund assets it
represents. Funds that target effective maturities would use the
effective (rather than stated) maturities of the underlying
instruments when computing the average. Targeting effective
maturity provides additional flexibility in portfolio management
but, all else being equal, could result in higher volatility than
a fund targeting a stated maturity or maturity range.
What is meant by a bond fund's "duration"?
Duration is a calculation that seeks to measure the price
PAGE 12
sensitivity of a bond or a bond fund to changes in interest
rates. It measures bond price sensitivity to interest rate
changes more accurately than maturity because it takes into
account the time value of cash flows generated over the bond's
life. Future interest and principal payments are discounted to
reflect their present value and then are multiplied by the number
of years they will be received to produce a value that is
expressed in years, i.e., the duration. Effective duration takes
into account call features and sinking fund payments that may
shorten a bond's life.
Since duration can also be computed for bond funds, you can
estimate the effect of interest rates on a fund's share price.
Simply multiply the fund's duration (available for T. Rowe Price
bond funds in our shareholder reports) by an expected change in
interest rates. For example, the price of a bond fund with a
duration of five years would be expected to fall approximately 5%
if rates rose by one percentage point.
How is a municipal's price affected by changes in interest rates?
When interest rates rise, a bond's price usually falls, and vice
versa.
In general, the longer a bond's maturity, the greater the price
increase or decrease in response to a given change in interest
rates, as shown in the table at right.
How Interest Rates Affect Bond Prices
Bond Maturity Coupon Price Per $1,000 of a Municipal Bond
if Interest Rates:
Increase Decrease
1% 2% 1% 2%
1 year 3.65% $990 $981 $1,010 $1,020
5 years 4.55 957 916 1,045 1,093
10 years 5.05 926 858 1,082 1,171
20 years 5.75 891 798 1,128 1,280
30 years 5.80 873 769 1,158 1,356
Table 4
Coupons reflect yields on AAA-rated municipals as of April 30,
1996. This is an illustration and does not represent expected
yields or share price changes of any T. Rowe Price fund.
How can I decide which Maryland fund is most appropriate for me?
Neither fund should be relied upon as a complete investment
program, nor be used for short-term trading purposes.
Review your own financial objectives, time horizon, and risk
tolerance. Use Table 5, which summarizes each funds' main
characteristics, to help choose a fund (or funds) suitable for
your particular needs. If you will need your principal in a
relatively short time, and/or want to minimize share price
volatility, the Short-Term Bond Fund may be a good choice.
However, if you are investing for higher tax-free income and can
tolerate some price volatility, you should consider the longer-
term bond fund.
Differences Between Funds
PAGE 13
Fund Credit-Quality Risk of Share Expected
Categories Income Share Price Average
Fluctuation Maturity
Short-Term
Bond Primarily four
highest Low to Low to Generally
moderate moderate one to
three
years
Tax-Free
Bond Primarily four
highest High High 15+ Years
Tabe 5
Is there other information I need to review before making a
decision?
You should review "Investment Policies and Practices" in
Section 3, which discusses the following: Types of Portfolio
Securities (municipal securities, private activity bonds,
municipal lease obligations, municipal warrants, securities with
"puts" or other demand features, securities with credit
enhancements, synthetic or derivative securities, and private
placements); and Types of Management Practices (cash position,
when-issued securities and forwards, interest rate futures,
borrowing money and transferring assets, portfolio turnover,
sector concentration, and credit-quality considerations).
2
About Your Account
Pricing Shares and Receiving Sale Proceeds
Here are some procedures you should know when investing in a
T. Rowe Price tax-free fund.
How and when shares are priced
The various ways you can buy, sell, and exchange shares are
explained at the end of this prospectus and on the New Account
Form. These procedures may differ for institutional accounts.
Bond funds.
The share price (also called "net asset value" or NAV per share)
for each fund is calculated at 4 p.m. ET each day the New York
Stock Exchange is open for business. To calculate the NAV, a
fund's assets are valued and totaled, liabilities are subtracted,
and the balance, called net assets, is divided by the number of
shares outstanding.
How your purchase, sale, or exchange price is determined
If we receive your request in correct form by 4 p.m. ET, your
transaction will be priced at that day's NAV. If we receive it
after 4 p.m., it will be priced at the next business day's NAV.
We cannot accept orders that request a particular day or price
for your transaction or any other special conditions.
When filling out the New Account Form, you may wish to give
yourself the widest range of options for receiving proceeds from
a sale.
Note:
The time at which transactions and shares are priced and the
time until which orders are accepted may be changed in case of an
PAGE 14
emergency or if the New York Stock Exchange closes at a time
other than 4 p.m. ET.
How you can receive the proceeds from a sale
If your request is received by 4 p.m. ET in correct form,
proceeds are usually sent on the next business day. Proceeds can
be sent to you by mail or to your bank account by ACH transfer or
bank wire. Proceeds sent by ACH transfer should be credited the
second day after the sale. ACH (Automated Clearing House) is an
automated method of initiating payments from and receiving
payments in your financial institution account. ACH is a payment
system supported by over 20,000 banks, savings banks, and credit
unions, which electronically exchanges the transactions primarily
through the Federal Reserve Banks. Proceeds sent by bank wire
should be credited to your account the next business day.
If for some reason we cannot accept your request to sell shares,
we will contact you.
Exception:
o
Under certain circumstances and when deemed to be in the fund's
best interests, your proceeds may not be sent for up to five
business days after receiving your sale or exchange request. If
you were exchanging into a bond or money fund, your new
investment would not begin to earn dividends until the sixth
business day.
Useful Information on Distributions and Taxes
Dividends and Other Distributions
All net investment income and realized capital gains are
distributed to shareholders.
Dividend and capital gain distributions are reinvested in
additional fund shares in your account unless you select another
option on your New Account Form. The advantage of reinvesting
distributions arises from compounding; that is, you receive
income dividends and capital gain distributions on a rising
number of shares.
Distributions not reinvested are paid by check or transmitted to
your bank account via ACH. If the Post Office cannot deliver your
check, or if your check remains uncashed for six months, the fund
reserves the right to reinvest your distribution check in your
account at the NAV on the business day of the reinvestment and to
reinvest all subsequent distributions in shares of the fund.
Income dividends
o
Bond funds declare income dividends daily at 4 p.m. ET to
shareholders of record at that time provided payment has been
received on the previous business day.
o
Bond funds pay dividends on the first business day of each
month.
o
Bond fund shares will earn dividends through the date of
redemption; also, shares redeemed on a Friday or prior to a
holiday will continue to earn dividends until the next business
PAGE 15
day. Generally, if you redeem all of your shares at any time
during the month, you will also receive all dividends earned
through the date of redemption in the same check. When you redeem
only a portion of your shares, all dividends accrued on those
shares will be reinvested, or paid in cash, on the next dividend
payment date.
Capital gains
o
A capital gain or loss is the difference between the purchase and
sale price of a security.
o
If a fund has net capital gains for the year (after subtracting
any capital losses), they are usually declared and paid in
December to shareholders of record on a specified date that
month. If a second distribution is necessary, it is usually
declared and paid during the first quarter of the following year.
Tax Information
You will be sent timely information for your tax filing needs.
Although the regular monthly income dividends you receive from
the funds are expected to be exempt from federal and state and
local (if any) income taxes, you need to be aware of the possible
tax consequences when:
o
You sell fund shares, including an exchange from one fund to
another.
o
The fund makes a distribution to your account.
Due to 1993 tax legislation, a portion of the capital gains
realized on the sale of market discount bonds with maturities
beyond one year may be treated as ordinary income and cannot be
offset by other capital losses. Therefore, to the extent the
funds invest in these securities, the likelihood of a taxable
gain distribution will be increased.
Note:
You must report your total tax-exempt income on IRS Form 1040.
The IRS uses this information to help determine the tax status of
any Social Security payments you may have received during the
year.
Taxes on fund redemptions.
When you sell shares in any fund, you may realize a gain or loss.
An exchange from one fund to another is still a sale for tax
purposes. If you realize a loss on the sale or exchange of fund
shares held six months or less, your capital loss is reduced by
the tax-exempt dividends received on those shares.
In January, you will be sent Form 1099-B, indicating the date
and amount of each sale you made in the fund during the prior
year. This information will also be reported to the IRS. For
accounts opened new or by exchange in 1983 or later, we will
provide you with the gain or loss of the shares you sold during
the year, based on the "average cost" method. This information is
not reported to the IRS, and you do not have to use it. You may
calculate the cost basis using other methods acceptable to the
IRS, such as "specific identification."
PAGE 16
To help you maintain accurate records, we send you a confirmation
immediately following each transaction (except for systematic
purchases and redemptions) you make and a year-end statement
detailing all your transactions in each fund account during the
year.
Taxes on fund distributions.
Distributions are taxable whether reinvested in additional shares
or received in cash.
In January, the funds will send you Form 1099-DIV indicating the
tax status of any capital gain distribution made to you. This
information will also be reported to the IRS. All capital gain
distributions are taxable to you for the year in which they are
paid. The only exception is that dividends declared during the
last three months of the year and paid in January are taxed as
though they were paid by December 31. Dividends are expected to
be tax-exempt.
Short-term capital gains are taxable as ordinary income and long-
term gains are taxable at the applicable long-term gain rate. The
gain is long- or short-term depending on how long the fund held
the securities, not how long you held shares in the fund. If you
realize a loss on the sale or exchange of fund shares held six
months or less, your short-term loss recognized is reclassified
to long-term to the extent of any long-term capital gain
distribution received.
If the funds invest in certain "private activity" bonds,
shareholders who are subject to the alternative minimum tax (AMT)
must include income generated by these bonds in their AMT
computation. The portion of your fund's income which should be
included in your AMT calculation, if any, will be reported to you
in January.
Tax effect of buying shares before a capital gain distribution.
If you buy shares shortly before or on the "record date"--the
date that establishes you as the person to receive the upcoming
distribution--you will receive, in the form of a taxable
distribution, a portion of the money you just invested.
Therefore, you may also wish to find out the fund's record date
before investing. Of course, the fund's share price may, at any
time, reflect undistributed capital gains or income and
unrealized appreciation. When these amounts are eventually
distributed, they are taxable.
Note:
For shareholders who receive Social Security benefits, the
receipt of tax-exempt interest may increase the portion of
benefits that are subject to tax.
Transaction Procedures and Special Requirements
Purchase Conditions
Following these procedures helps assure timely and accurate
transactions.
Nonpayment.
If your payment is not received or you pay with a check or ACH
transfer that does not clear, your purchase will be canceled. You
will be responsible for any losses or expenses incurred by the
fund or transfer agent, and the fund can redeem shares you own in
PAGE 17
this or another identically registered T. Rowe Price fund as
reimbursement. The fund and its agents have the right to reject
or cancel any purchase, exchange, or redemption due to
nonpayment.
U.S. dollars.
All purchases must be paid for in U.S. dollars; checks must be
drawn on U.S. banks.
Sale (Redemption) Conditions
10-day hold.
If you sell shares that you just purchased and paid for by check
or ACH transfer, a fund will process your redemption but, will
generally delay sending you the proceeds for up to 10 calendar
days to allow the check or transfer to clear. If your redemption
request was sent by mail or mailgram, proceeds will be mailed no
later than the seventh calendar day following receipt unless the
check or ACH transfer has not cleared. If during the clearing
period, we receive a check drawn against your bond or money
market account, it will be returned marked "uncollected." (The
10-day hold does not apply to the following: purchases paid for
by bank wire; cashier's, certified, or treasurer's checks; or
automatic purchases through your paycheck.)
Telephone, Tele*AccessR, and personal computer transactions.
These exchange and redemption services are established
automatically when you sign the New Account Form unless you check
the box which states that you do not want these services. Each
fund uses reasonable procedures (including shareholder identity
verification) to confirm that instructions given by telephone are
genuine and is not liable for acting on these instructions. If
these procedures are not followed, it is the opinion of certain
regulatory agencies that a fund may be liable for any losses that
may result from acting on the instructions given. A confirmation
is sent promptly after the telephone transaction. All
conversations are recorded.
Redemptions over $250,000.
Large sales can adversely affect a portfolio manager's ability to
implement a fund's investment strategy by causing the premature
sale of securities that would otherwise be held. If, in any 90-
day period, you redeem (sell) more than $250,000, or your sale
amounts to more than 1% of the fund's net assets, the fund has
the right to delay sending your proceeds for up to five business
days after receiving your request, or to pay the difference
between the redemption amount and the lesser of the two
previously mentioned figures with securities from the fund.
Excessive Trading
T. Rowe Price may bar excessive traders from purchasing shares.
Frequent trades, involving either substantial fund assets or a
substantial portion of your account or accounts controlled by
you, can disrupt management of the fund and raise its expenses.
We define "excessive trading" as exceeding one purchase and sale
involving the same fund within any 120-day period.
For example, you are in fund A. You can move substantial assets
from fund A to fund B and, within the next 120 days, sell your
PAGE 18
shares in fund B to return to fund A or move to fund C.
If you exceed the number of trades described above, you may be
barred indefinitely from further purchases of T. Rowe Price
funds.
Three types of transactions are exempt from excessive trading
guidelines: 1) trades solely between money market funds; 2)
redemptions that are not part of exchanges; and 3) systematic
purchases or redemptions (see "Shareholder Services").
Keeping Your Account Open
Due to the relatively high cost to a fund of maintaining small
accounts, we ask you to maintain an account balance of at least
$1,000. If your balance is below $1,000 for three months or
longer, we have the right to close your account after giving you
60 days in which to increase your balance.
Small Account Fee
Because of the disproportionately high costs of servicing
accounts with low balances, a $10 fee, paid to T. Rowe Price
Services, the fund's transfer agent, will automatically be
deducted from nonretirement accounts with balances falling below
a minimum level. The valuation of accounts and the deduction are
expected to take place during the last five business days of
September. The fee will be deducted from accounts with balances
below $2,000, except for UGMA/UTMA accounts, for which the limit
is $500. The fee will be waived for any investor whose aggregate
T. Rowe Price mutual fund investments total $25,000 or more.
Accounts employing automatic investing (e.g., payroll deduction,
automatic purchase from a bank account, etc.) are also exempt
from the charge. The fee will not apply to IRAs and other
retirement plan accounts. (A separate custodial fee may apply to
IRAs and other retirement plan accounts.)
Signature Guarantees
A signature guarantee is designed to protect you and the T. Rowe
Price funds from fraud by verifying your signature.
You may need to have your signature guaranteed in certain
situations, such as:
o
Written requests 1) to redeem over $50,000, or 2) to wire
redemption proceeds.
o
Remitting redemption proceeds to any person, address, or bank
account not on record.
o
Transferring redemption proceeds to a T. Rowe Price fund
account with a different registration (name/ownership) from
yours.
o
Establishing certain services after the account is opened.
You can obtain a signature guarantee from most banks, savings
institutions, broker-dealers, and other guarantors acceptable to
T. Rowe Price. We cannot accept guarantees from notaries public
or organizations that do not provide reimbursement in the case of
PAGE 19
fraud.
3
More About the Funds
Organization and Management
Shareholders benefit from T. Rowe Price's 59 years of
investment management experience.
How are the funds organized?
The T. Rowe Price State Tax-Free Income Trust was organized in
1986 as a Massachusetts business trust and is a "nondiversified,
open-end investment company," or mutual fund. The Short-Term
Bond Fund was organized in 1993 and the Tax-Free Bond Fund was
organized in 1987. Mutual funds pool money received from
shareholders and invest it to try to achieve specified
objectives.
What is meant by "shares"?
As with all mutual funds, investors purchase shares when they put
money in a fund. These shares are part of a fund's authorized
capital stock, but share certificates are not issued.
Each share and fractional share entitles the shareholder to:
o
Receive a proportional interest in a fund's income and capital
gain distributions.
o
Cast one vote per share on certain fund matters, including the
election of fund directors, changes in fundamental policies, or
approval of changes in the fund's management contract.
Do T. Rowe Price funds have annual shareholder meetings?
The funds are not required to hold annual meetings and in
order to avoid unnecessary costs to fund shareholders, do not
intend to do so except when certain matters, such as a change in
a fund's fundamental policies, are to be decided. In addition,
shareholders representing at least 10% of all eligible votes may
call a special meeting if they wish for the purpose of voting on
the removal of any fund director or trustee. If a meeting is held
and you cannot attend, you can vote by proxy. Before the meeting,
the fund will send you proxy materials that explain the issues to
be decided and include a voting card for you to mail back.
Who runs the funds?
All decisions regarding the purchase and sale of fund investments
are made by T. Rowe Price--specifically by the funds' portfolio
managers.
General Oversight.
The funds are governed by a Board of Trustees that elects the
funds' officers and meets regularly to review the funds'
investments, performance, expenses, and other business affairs.
The policy of each fund is that a majority of Board members will
be independent of T. Rowe Price.
Portfolio Management.
Each fund has an Investment Advisory Committee whose chairman
has day-to-day responsibility for managing the portfolio and
works with the committee in developing and executing the funds'
investment programs. The Investment Advisory Committees are
PAGE 20
composed of the following members:
Short-Term Bond Fund.
Charles B. Hill, Chairman, Paul W. Boltz, Patricia S. Deford,
Laura L. McAree, Hugh D. McGuirk, Mary J. Miller, William T.
Reynolds, and Alan P. Richman. Mr. Hill was appointed chairman of
the fund's committee in 1996. He joined T. Rowe Price in 1991 and
has been managing investments since 1986.
Tax-Free Bond Fund.
Mary J. Miller, Chairman, Paul W. Boltz, Patricia S. Deford,
Konstantine B. Mallas, Hugh D. McGuirk, William T. Reynolds, and
Alan P. Richman. Mrs. Miller has been chairman of the fund's
committee since its inception in 1993. She joined T. Rowe Price
in 1983 and has been managing investments since 1987.
Marketing.
T. Rowe Price Investment Services, Inc., a wholly owned
subsidiary of T. Rowe Price, distributes (sells) shares of these
and all other T. Rowe Price funds.
Shareholder Services.
T. Rowe Price Services, Inc., another wholly owned subsidiary,
acts as the funds' transfer and dividend disbursing agent and
provides shareholder and administrative services. The address for
T. Rowe Price Investment Services, Inc. and T. Rowe Price
Services, Inc. is 100 East Pratt St., Baltimore, MD 21202.
How are fund expenses determined?
The management agreement spells out the expenses to be paid by
each fund.
In addition to the management fee, each fund pays for the
following: shareholder service expenses; custodial, accounting,
legal, and audit fees; costs of preparing and printing
prospectuses and reports sent to shareholders; registration fees
and expenses; proxy and annual meeting expenses (if any); and
director/trustee fees and expenses.
The Management Fee.
This fee has two parts--an "individual fund fee" (discussed under
"Transaction and Fund Expenses"), which reflects a fund's
particular investment management costs, and a "group fee." The
group fee, which is designed to reflect the benefits of the
shared resources of the T. Rowe Price investment management
complex, is calculated daily based on the combined net assets of
all T. Rowe Price funds (except Equity Index and the Spectrum
Funds and any institutional or private label mutual funds). The
group fee schedule (shown below) is graduated, declining as the
asset total rises, so shareholders benefit from the overall
growth in mutual fund assets.
0.480% First $1 billion 0.350% Next $2 billion
0.450% Next $1 billion 0.340% Next $5 billion
0.420% Next $1 billion 0.330% Next $10 billion
0.390% Next $1 billion 0.320% Next $10 billion
0.370% Next $1 billion 0.310% Next $16 billion
0.360% Next $2 billion 0.305% Thereafter
PAGE 21
Each fund's portion of the group fee is determined by the ratio
of its daily net assets to the daily net assets of all the Price
funds described previously. Based on combined Price funds' assets
of approximately $53.5 billion at March 31, 1996, the group fee
was 0.33%.
Understanding Performance Information
This section should help you understand the terms used to
describe fund performance. You will come across them in
shareholder reports you receive from us, in our newsletter, The
Price Report, in Insights articles, in T. Rowe Price
advertisements, and in the media.
Total Return
Total return is the most widely used performance measure.
Detailed performance information is included in the funds' annual
and semiannual shareholder reports, and in the quarterly
Performance Update, which are all available without charge.
This tells you how much an investment in a fund has changed in
value over a given time period. It reflects any net increase or
decrease in the share price and assumes that all dividends and
capital gains (if any) paid during the period were reinvested in
additional shares. Including reinvested distributions means that
total return numbers include the effect of compounding, i.e., you
receive income and capital gain distributions on a rising number
of shares.
Advertisements for a fund may include cumulative or compound
average annual total return figures, which may be compared with
various indices, other performance measures, or other mutual
funds.
Cumulative Total Return
This is the actual rate of return on an investment for a
specified period. A cumulative return does not indicate how much
the value of the investment may have fluctuated between the
beginning and the end of the period specified.
Average Annual Total Return
This is always hypothetical. Working backward from the actual
cumulative return, it tells you what constant year-by-year return
would have produced the actual, cumulative return. By smoothing
out all the variations in annual performance, it gives you an
idea of the investment's annual contribution to your portfolio
provided you held it for the entire period in question.
Yield
You will see frequent references to a fund's yield in our
reports, in advertisements, in media stories, and so on.
The current or "dividend" yield on a fund or any investment
tells you the relationship between the investment's current level
of annual income and its price on a particular day. The dividend
yield reflects the actual income paid to shareholders for a given
period, annualized, and divided by the average price during the
given period. For example, a fund providing $5 of annual income
per share and a price of $50 has a current yield of 10%. Yields
can be calculated for any time period.
PAGE 22
The advertised or "SEC" yield is found by determining the net
income per share (as defined by the SEC) earned by a fund during
a 30-day base period and dividing this amount by the per share
price on the last day of the base period. The SEC yield may
differ from the dividend yield.
Investment Policies and Practices
Fund managers have considerable leeway in choosing investment
strategies and selecting securities they believe will help the
funds achieve their objectives.
This section takes a detailed look at some of the types of
securities the funds may hold in their portfolios and the various
kinds of investment practices that may be used in day-to-day
portfolio management. Each fund's investment program is subject
to further restrictions and risks described in the Statement of
Additional Information.
Shareholder approval is required to substantively change a fund's
objective and certain investment restrictions noted in the
following section as "fundamental policies." The managers also
follow certain "operating policies" which can be changed without
shareholder approval. However, significant changes are discussed
with shareholders in fund reports. Each fund adheres to
applicable investment restrictions and policies at the time it
makes an investment. A later change in circumstances will not
require the sale of an investment if it was proper at the time it
was made.
The funds' holdings of certain kinds of investments cannot exceed
maximum percentages of total assets, which are set forth herein.
For instance, these funds are not permitted to invest more than
10% of total assets in residual interest bonds. While these
restrictions provide a useful level of detail about the funds'
investment programs, investors should not view them as an
accurate gauge of the potential risk of such investments. For
example, in a given period, a 5% investment in residual interest
bonds could have significantly more of an impact on a fund's
share price than its weighting in the portfolio. The net effect
of a particular investment depends on its volatility and the size
of its overall return in relation to the performance of all the
funds' other investments.
Changes in the funds' holdings, the funds' performance, and the
contribution of various investments are discussed in the
shareholder reports sent to you.
Types of Portfolio Securities
In seeking to meet their investment objectives, the funds may
invest in any type of municipal security or instrument (including
certain potentially high-risk derivatives) whose investment
characteristics are consistent with the funds' investment
programs. The following pages describe the principal types of
portfolio securities and investment management practices of the
funds.
Fundamental policy:
PAGE 23
Each fund is registered as a nondiversified mutual fund. This
means that each fund may invest a greater portion of its assets
in a single issuer than a diversified fund which may subject the
funds to greater risk with respect to their portfolio securities.
However, because each fund intends to qualify as a "regulated
investment company" under the Internal Revenue Code, it must
invest so that, at the end of each quarter, with respect to 50%
of its total assets, not more than 5% of its assets are invested
in the securities of a single issuer, and with respect to the
remaining 50%, no more than 25% of fund assets are invested in a
single issuer.
Municipal Securities.
In purchasing municipals, the funds rely on the opinion of the
issuer's bond counsel regarding the tax-exempt status of the
investment.
Each fund's assets are invested primarily in various tax-free
municipal debt securities. The issuers have a contractual
obligation to pay interest at a stated rate on specific dates and
to repay principal (the bond's face value) on a specified date or
dates. An issuer may have the right to redeem or "call" a bond
before maturity, and the fund may have to reinvest the proceeds
at lower rates.
There are two broad categories of municipal bonds. General
obligation bonds are backed by the issuer's "full faith and
credit," that is, its full taxing and revenue raising power.
Revenue bonds usually rely exclusively on a specific revenue
source, such as charges for water and sewer service, to generate
money for debt service.
Private Activity Bonds.
While income from most municipals is exempt from federal income
taxes, the income from certain types of so-called private
activity bonds (a type of revenue bond) may be subject to the
alternative minimum tax (AMT). However, only persons subject to
the AMT pay this tax. Private activity bonds may be issued for
purposes such as housing or airports or to benefit a private
company. (Being subject to the AMT does not mean the investor
necessarily pays this tax. For further information, please see
"Distributions and Taxes.")
Fundamental policy:
Under normal market conditions, each fund will not purchase any
security if, as a result, less than 80% of the funds income
would be exempt from federal and Maryland state and local income
taxes. The income included under the 80% test does not include
income from securities subject to the alternative minimum tax.
Operating policy:
During periods of abnormal market conditions, for temporary
defensive purposes, the funds may invest without limit in high-
quality, short-term securities whose income is subject to federal
and Maryland state and local income tax.
In addition to general obligation and revenue bonds, the funds'
investments may include, but are not limited to, the following
PAGE 24
types of securities:
Municipal Lease Obligations.
A lease is not a full faith and credit obligation of the
issuer and is usually backed only by the borrowing government's
unsecured pledge to make annual appropriations for lease
payments. There have been challenges to the legality of lease
financing in numerous states and, from time to time, certain
municipalities have considered not appropriating money for lease
payments. In deciding whether to purchase a lease obligation, the
funds would assess the financial condition of the borrower, the
merits of the project, the level of public support for the
project, and the legislative history of lease financing in the
state. These securities may be less readily marketable than other
municipals. The funds may also purchase unrated lease
obligations.
Municipal Warrants.
Municipal warrants are essentially call options on municipal
bonds. In exchange for a premium, they give the purchaser the
right, but not the obligation, to purchase a municipal bond in
the future. The funds might purchase a warrant to lock in forward
supply in an environment where the current issuance of bonds is
sharply reduced. Like options, warrants may expire worthless and
they may have reduced liquidity.
Operating policy:
Neither fund may invest more than 2% of its total assets in
municipal warrants.
Securities With "Puts" or Other Demand Features.
Some longer-term municipals give the investor the right to "put"
or sell the security at par (face value) within a specified
number of days following the investor's request--usually one to
seven days. This demand feature enhances a security's liquidity
by shortening its effective maturity and enables it to trade at a
price equal to or very close to par. If the demand feature were
terminated prior to being exercised, the funds would hold the
longer-term security.
Securities With Credit Enhancements.
o
Letters of Credit.
Letters of credit are issued by a third party, usually a bank, to
enhance liquidity and ensure repayment of principal and any
accrued interest if the underlying municipal security should
default.
o
Municipal Bond Insurance.
T. Rowe Price periodically reviews the credit quality of the
insurer.
This insurance, which is usually purchased by the bond issuer
from a private, nongovernmental insurance company, provides an
unconditional and irrevocable guarantee that the insured bond's
principal and interest will be paid when due. Insurance does not
guarantee the price of the bond or the share price of any fund.
The credit rating of an insured bond reflects the credit rating
PAGE 25
of the insurer, based on its claims-paying ability.
The obligation of a municipal bond insurance company to pay a
claim extends over the life of each insured bond. Although
defaults on insured municipal bonds have been low to date and
municipal bond insurers have met their claims, there is no
assurance this will continue. A higher than expected default rate
could strain the insurer's loss reserves and adversely affect its
ability to pay claims to bondholders, such as the funds. The
number of municipal bond insurers is relatively small, and not
all of them have the highest rating.
o
Standby Purchase Agreements.
A Standby Bond Purchase Agreement (SBPA) is a liquidity
facility provided to pay the purchase price of bonds that cannot
be remarketed. The obligation of the liquidity provider (usually
a bank) is only to advance funds to purchase tendered bonds that
cannot be remarketed and does not cover principal or interest
under any other circumstances. The liquidity provider's
obligations under the SBPA are usually subject to numerous
conditions, including the continued creditworthiness of the
underlying borrower.
Synthetic or Derivative Securities.
These securities are created from existing municipal bonds:
o
Residual Interest Bonds (a potentially high-risk derivative).
The income stream provided by an underlying bond is divided to
create two securities, one short-term and one long-term. The
interest rate on the short-term component is reset by an index or
auction process normally every 7 to 35 days. After income is paid
on the short-term securities at current rates, the residual
income goes to the long-term securities. Therefore, rising short-
term interest rates result in lower income for the longer-term
portion, and vice versa. The longer-term bonds can be very
volatile and may be less liquid than other municipals of
comparable maturity.
Operating policy:
Each fund will not invest more than 10% of its total assets in
residual interest bonds.
o
Participation Interests.
This term covers various types of securities created by
converting fixed rate bonds into short-term, variable rate
certificates. These securities have been developed in the
secondary market to meet demand for short-term, tax-exempt
securities. The funds will invest only in securities deemed tax-
exempt by a nationally recognized bond counsel, but there is no
guarantee the interest will be exempt because the IRS has not
issued a definitive ruling.
o
Embedded Interest Rate Swaps and Caps.
Embedded interest rate swaps enhance yields, but also increase
interest rate risk.
PAGE 26
In a fixed rate, long-term municipal bond with an interest rate
swap attached to it, the bondholder usually receives the bond's
fixed coupon payment as well as a variable rate payment that
represents the difference between a fixed rate for the term of
the swap (which is typically shorter than the bond it is attached
to) and a variable rate short-term municipal index. The
bondholder receives excess income when short-term rates remain
below the fixed interest rate swap rate. If short-term rates rise
above the fixed income swap rate, the bondholder's income is
reduced. At the end of the interest rate swap term, the bond
reverts to a single fixed coupon payment.
An embedded interest rate cap allows the bondholder to receive
payments whenever short-term rates rise above a level established
at the time of purchase. They normally are used to hedge against
rising short-term interest rates.
Both instruments may be volatile and of limited liquidity and
their use may adversely affect a fund's total return.
Operating policy:
Neither fund may invest more than 10% of its total assets in
embedded interest rate swaps and caps.
Private Placements.
The funds may seek to enhance their yield through the purchase of
private placements. These securities are sold through private
negotiations, usually to institutions or mutual funds, and may
have resale restrictions. Their yields are usually higher than
comparable public securities to compensate the investor for their
limited marketability.
Operating policy:
The funds may not invest more than 15% of its net assets in
illiquid securities, including unmarketable private placements.
Types of Management Practices
Cash reserves provide flexibility and serve as a short-term
defense during periods of unusual market volatility.
Cash Position.
Each fund will hold a certain portion of its assets in short-
term, tax-exempt money market securities maturing in one year or
less. The reserve position accomplishes the following: provides
flexibility in meeting redemptions, expenses, and the timing of
new investments; can help in structuring a fund's weighted
average maturity; and serves as a short-term defense during
periods of unusual market volatility. Each fund's cash reserve
position will be composed of short-term, investment-grade
securities including tax-exempt commercial paper, municipal
notes, and short-term maturity bonds. Some of these securities
may have adjustable, variable, or floating rates.
When-Issued Securities and Forwards.
New issues of municipals are often sold on a "when-issued"
basis, that is, delivery and payment take place 15-45 days after
the buyer has agreed to the purchase. Some bonds, called
"forwards," have longer-than-standard settlement dates, typically
6 to 24 months. When buying these securities, each fund will
PAGE 27
maintain cash or high-grade marketable securities held by its
custodian equal in value to its commitment for these securities.
The funds do not earn interest on when-issued and forward
securities until settlement, and the value of the securities may
fluctuate between purchase and settlement. Municipal "forwards"
typically carry a substantial yield premium to compensate the
buyer for their greater interest rate, credit, and liquidity
risks.
Interest Rate Futures.
Futures (a type of potentially high-risk derivative) are often
used to manage risk, because they enable the investor to buy or
sell an asset in the future at an agreed-upon price.
Specifically, the funds may use futures (and options on futures)
for any number of reasons, including: to hedge against a
potentially unfavorable change in interest rates and to adjust
their exposure to the municipal bond market; to protect portfolio
value; in an effort to enhance income; and to adjust the
portfolios' duration. The use of futures for hedging and non-
hedging purposes may not always be successful. Their prices can
be highly volatile, using them could lower a fund's total return,
and the potential loss from their use could exceed a fund's
initial exposure to such contracts.
Operating policy:
Initial margin deposits on futures and premiums on options used
for non-hedging purposes will not equal more than 5% of a fund's
net asset value.
Borrowing Money and Transferring Assets.
Each fund can borrow money from banks as a temporary measure for
emergency purposes, to facilitate redemption requests, or for
other proper purposes consistent with each fund's investment
objective and program. Such borrowings may be collateralized with
fund assets, subject to restrictions.
Fundamental policy:
Borrowings may not exceed 33 1/3% of total fund assets.
Operating policy:
Each fund may not transfer as collateral any portfolio securities
except as necessary in connection with permissible borrowings or
investments, and then such transfers may not exceed 33 1/3% of
fund's total assets. A fund may not purchase additional
securities when borrowings exceed 5% of total assets.
Portfolio Turnover.
The funds generally purchase securities with the intention of
holding them for investment; however, when market conditions or
other circumstances warrant, securities may be purchased and sold
without regard to the length of time held. Although the funds do
not expect to generate any taxable income, a high turnover rate
may increase transaction costs and may affect taxes paid by
shareholders to the extent short-term gains are distributed. The
Short-Term Bond Fund's portfolio turnover rates for the fiscal
years ended February 29, 1996, February 28, 1995, and February
28, 1994, were 39.3%, 105.3%, and 20.5%, respectively. The Tax-
Free Bond Fund's portfolio turnover rates for the fiscal years
ended February 29, 1996, February 28, 1995, and February 28,
PAGE 28
1994, were 23.9%, 28.9%, and 24.3%, respectively.
Sector Concentration.
It is possible that each fund could have a considerable amount of
assets (25% or more) in securities that would tend to respond
similarly to particular economic or political developments. An
example would be securities of issuers related to a single
industry, such as health care or nuclear energy.
Operating policy:
Each fund will not invest more than 25% of total assets in
industrial development bonds of projects in the same industry
(such as solid waste, nuclear utility, or airlines). Bonds which
are refunded with escrowed U.S. government securities are not
subject to the 25% limitation.
Credit-Quality Considerations.
The credit quality of most bond issues is evaluated by rating
agencies such as Moody's and Standard & Poor's. Credit-quality
refers to the issuer's ability to meet all required interest and
principal payments. The highest ratings are assigned to issuers
perceived to be the best credit risks. T. Rowe Price research
analysts also evaluate all portfolio holdings of each fund,
including those rated by outside agencies. The lower the rating
on a bond, the higher the yield, other things being equal.
Table 6 shows the rating scale used by the major rating agencies.
T. Rowe Price considers publicly available ratings, but
emphasizes its own credit analysis when selecting investments.
Ratings of Municipal Debt Securities
Moody's Standard Fitch Defin-
Investors & Poor's Investors ition
Service, Inc. Corporation Service, Inc.
Long-Term Aaa AAA AAA Highest
quality
Aa AA AA High
quality
A A A Upper
medium
grade
Baa BBB BBB Medium
grade
Moody's S&P Fitch
Short-Term MIG1/VMIG1 Best quality SP1+ Very F-1+
strong Except-
quality ionally
strong
quality
SP1 Strong F-1 Very
grade strong
quality
MIG2/VMIG2 High quality SP2 Satisfac- F-2
tory grade Good
credit
quality
Commercial P-1 Superior A-1+ Extremely F-1+
PAGE 29
Paper quality strong quality Except-
ionally
strong
quality
A-1 Strong F-1 Very
quality strong
quality
P-2 Strong A-2 Satisfac- F-2
quality tory quality Good
credit
quality
Table 6
Explanation of Quality Ratings
Bond Rating Explanation
Moody's Investors
Service, Inc. Aaa Highest quality, smallest
degree of investment risk.
Aa High quality; together with
Aaa bonds, they compose the
high-grade bond group.
A Upper-medium-grade
obligations; many favorable
investment attributes.
Baa Medium-grade obligations;
neither highly protected nor
poorly secured. Interest and
principal appear adequate for
the present but certain
protective elements may be
lacking or may be unreliable
over any great length of time.
Ba More uncertain, with
speculative elements.
Protection of interest and
principal payments not well
safeguarded during good and
bad times.
B Lack characteristics of
desirable investment;
potentially low assurance of
timely interest and principal
payments or maintenance of
other contract terms over
time.
Caa Poor standing, may be in
default; elements of danger
with respect to principal or
interest payments.
Ca Speculative in a high degree;
could be in default or have
other marked shortcomings.
C Lowest rated; extremely poor
prospects of ever attaining
PAGE 30
investment standing.
Standard & Poor's
Corporation AAA Highest rating; extremely
strong capacity to pay
principal and interest.
AA High quality; very strong
capacity to pay principal and
interest.
A Strong capacity to pay
principal and interest;
somewhat more susceptible to
the adverse effects of
changing circumstances and
economic conditions.
BBB Adequate capacity to pay
principal and interest;
normally exhibit adequate
protection parameters, but
adverse economic conditions or
changing circumstances more
likely to lead to a weakened
capacity to pay principal and
interest than for higher-rated
bonds.
BB, B, CCC, CC Predominantly speculative with
respect to the issuer's
capacity to meet required
interest and principal
payments. BB-lowest degree of
speculation; CC-the highest
degree of speculation. Quality
and protective characteristics
outweighedby large
uncertainties or major risk
exposure to adverse
conditions.
D In default.
Fitch Investors
Service, Inc. AAA Highest quality; obligor has
exceptionally strong ability
to pay interest and repay
principal, which is unlikely
to be affected by reasonably
foreseeable events.
AA Very high quality; obligor's
ability to pay interest and
repay principal is very
strong. Because bonds rated
in the AAA and AA categories
are not significantly
vulnerable to foreseeable
future developments, short-
term debt of these issuers is
PAGE 31
generally rated F-1+.
A High quality; obligor's
ability to pay interest and
repay principal is considered
to be strong, but may be more
vulnerable to adverse changes
in economic conditions and
circumstances than higher-
rated bonds.
BBB Satisfactory credit quality;
obligor's ability to pay
interest and repay principal
is considered adequate.
Unfavorable changes in
economic conditions and
circumstances are more likely
to adversely affect these
bonds and impair timely
payment. The likelihood that
the ratings of these bonds
will fall below investment
grade is higher than for
higher-rated bonds.
BB, CCC, CC, C Not investment grade;
predominantly speculative with
respect to the issuer's
capacity to repay interest and
repay principal in accordance
with the terms of the
obligation for bond issues not
in default. BB is the least
speculative. C is the most
speculative.
Table 7
PAGE 1
4 Investing with T. Rowe Price
Account Requirements and Transaction Information
Always verify your transactions by carefully reviewing the
confirmation we send you. Please report any discrepancies to
Shareholder Services promptly.
Tax Identification Number
We must have your correct social security or corporate tax
identification number on a signed New Account Form or W-9 Form.
Otherwise, federal law requires the funds to withhold a
percentage (currently 31%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS
fine. If this information is not received within 60 days after
your account is established, your account may be redeemed, priced
at the NAV on the date of redemption.
Unless you request otherwise, one shareholder report will be
mailed to multiple account owners with the same tax
identification number and same ZIP code and to shareholders who
have requested that their account be combined with someone
else's for financial reporting.
Institutional Accounts
Transaction procedures in the following sections may not apply to
institutional accounts. For institutional account procedures,
please call your designated account manager or service
representative.
Opening a New Account: $2,500 minimum initial investment; $1,000
for gifts or transfers to minors (UGMA/UTMA) accounts
Account Registration
If you own other T. Rowe Price funds, be sure to register any new
account just like your existing accounts so you can exchange
among them easily. (The name and account type would have to be
identical.)
Regular Mail
T. Rowe Price
Account Services
P.O. Box 17300
Baltimore, MD
21298-9353
Mailgram, Express,
Registered, or Certified
Mail
T. Rowe Price
Account Services
10090 Red Run Blvd.
PAGE 2
Owings Mills, MD 21117
By Mail
Please make your check payable to T. Rowe Price Funds
(otherwise it will be returned) and send your check together
with the New Account Form to the address at left. We do not
accept third party checks to open new accounts.
By Wire
o Call Investor Services for an account number and give the
following wire address to your bank:
Morgan Guaranty Trust Co. of New York
ABA# 021000238
T. Rowe Price [fund name]
AC-00153938
account name(s), and account number
o Complete a New Account Form and mail it to one of the
appropriate addresses listed on the previous page.
Note: No services will be established and IRS penalty
withholding may occur until a signed New Account Form is
received.
By Exchange
Call Shareholder Services or use Tele*Access or your personal
computer (see "Automated Services" under "Shareholder Services").
The new account will have the same registration as the account
from which you are exchanging. Services for the new account may
be carried over by telephone request if preauthorized on the
existing account. (See explanation of "Excessive Trading" under
"Transaction Procedures.")
In Person
Drop off your New Account Form at any of the locations listed on
the cover and obtain a receipt.
Purchasing Additional Shares: $100 minimum purchase; $50 minimum
for Automatic Asset Builder and gifts or transfers to minors
(UGMA/UTMA) accounts
By ACH Transfer
Use Tele*Access, your personal computer, or call Investor
Services if you have established electronic transfers using the
ACH network.
By Wire
Call Shareholder Services or use the wire address in "Opening a
New Account."
Regular Mail
T. Rowe Price Funds
PAGE 3
Account Services
P.O. Box 89000
Baltimore, MD
21289-1500
(For mailgrams,
express, registered,
or certified mail,
see previous section.)
By Mail
o Make your check payable to T. Rowe Price Funds (otherwise
it may be returned).
o Mail the check to us at the address shown at left with
either a fund reinvestment slip or a note indicating the
fund you want to buy and your fund account number.
o Remember to provide your account number and the fund name on
your check.
By Automatic Asset Builder
Fill out the Automatic Asset Builder
section on the New Account or Shareholder Services Form.
Exchanging and Redeeming Shares
By Phone
Call Shareholder Services. If you find our phones busy during
unusually volatile markets, please consider placing your order by
your personal computer, Tele*Access (if you have previously
authorized telephone services), mailgram or by express mail. For
exchange policies, please see "Transaction Procedures and Special
Requirements--Excessive Trading."
Redemption proceeds can be mailed to your account address, sent
by ACH transfer, or wired to your bank (provided your bank
information is already on file). For charges, see "Electronic
Transfers--By Wire" under "Shareholder Services".
By Mail
For each account involved, provide the account name, number, fund
name, and exchange or redemption amount. For exchanges, be sure
to indicate any fund you are exchanging out of and the fund or
funds you are exchanging into. Please mail to the appropriate
address below or as indicated at left. T. Rowe Price requires the
signatures of all owners exactly as registered, and possibly a
signature guarantee (see "Transaction Procedures and Special
Requirements--Signature Guarantees").
Mailgram, Express, Registered Regular Mail:
or Certified mail:
PAGE 4
T. Rowe Price T. Rowe Price
Account Services Account Services
10090 Red Run Boulevard P.O. Box 89000
Owings Mills, MD 21117 Baltimore, MD 21289-0220
Rights Reserved by the Fund
The fund and its agents reserve the right to waive or lower
investment minimums; to accept initial purchases by telephone or
mailgram; to cancel or rescind any purchase or exchange (for
example, if an account has been restricted due to excessive
trading or fraud) upon notice to the shareholder within five
business days of the trade or if the written confirmation has not
been received by the shareholder, whichever is sooner; to freeze
any account and suspend account services when notice has been
received of a dispute between the registered or beneficial
account owners or there is reason to believe a fraudulent
transaction may occur; to otherwise modify the conditions of
purchase and any services at any time; or to act on instructions
believed to be genuine.
Shareholder Services
1-800-225-5132
1-410-625-6500
Shareholder Services
Many services are available to you as a T. Rowe Price
shareholder; some you receive automatically and others you must
authorize on the New Account Form. By signing up for services on
the New Account Form rather than later, you avoid having to
complete a separate form and obtain a signature guarantee. This
section reviews some of the principal services currently offered.
Our Services Guide contains detailed descriptions of these and
other services.
If you are a new T. Rowe Price investor, you will receive a
Services Guide with our Welcome Kit.
Investor Services
1-800-638-5660
1-410-547-2308
Note: Corporate and other entity accounts require an original or
certified resolution to establish services and to redeem by mail.
For more information, call Investor Services.
Retirement Plans
We offer a wide range of plans for individuals and
institutions, including large and small businesses: IRAs,
SEP-IRAs, Keoghs (profit sharing and money purchase pension),
401(k), and 403(b)(7). For information on IRAs, call Investor
Services. For information on all other retirement plans, please
PAGE 5
call our Trust Company at 1-800-492-7670.
Exchange Service
You can move money from one account to an existing identically
registered account, or open a new identically registered account.
Remember, exchanges are purchases and sales for tax purposes.
(Exchanges into a state tax-free fund are limited to investors
living in states where the funds are registered.) Some of the T.
Rowe Price funds may impose a redemption fee of .50% to 2%,
payable to such funds, on shares held for less than one year, or
in some funds, six months.
Automated Services
Tele*Access
1-800-638-2587
1-410-625-7676
Tele*Access. 24-hour service via toll-free number provides
information on fund yields and prices, dividends, account
balances, and your latest transaction, as well as the ability to
request prospectuses, account and tax forms, duplicate
statements, and checks, and to initiate purchase, redemption and
exchange orders in your accounts (see "Electronic Transfers"
below).
Personal Computer Access. 24-hour service via dial-up modem
provides the same information as Tele*Access, but on a personal
computer. Please call Investor Services to order.
Telephone and Walk-In Services
Buy, sell, or exchange shares by calling one of our service
representatives or by visiting one of our investor center
locations whose addresses are listed on the cover.
Electronic Transfers
By ACH. With no charges to pay, you can initiate a purchase or
redemption for as little as $100 or as much as $100,000 between
your bank account and fund account using the ACH network. Enter
instructions via Tele*Access or your personal computer or call
Shareholder Services.
By Wire. Electronic transfers can also be conducted via bank
wire. There is currently a $5 fee for wire redemptions under
$5,000, and your bank may charge for incoming or outgoing wire
transfers regardless of size.
Checkwriting (not available for equity funds, or the High Yield
Fund or Emerging Markets Bond Fund)
You may write an unlimited number of free checks on any money
market fund, and most bond funds, with a minimum of $500 per
check. Keep in mind, however that a check results in a
redemption; a check written on a bond fund will create a taxable
PAGE 6
event which you and we must report to the IRS.
Automatic Investing ($50 minimum)
You can invest automatically in several different ways,
including:
Automatic Asset Builder. You instruct us to move $50 or more
from your bank account, or you can instruct your employer to send
all or a portion of your paycheck to the fund or funds you
designate.
Note: If you are moving money from your bank account, and if
the date you select for your transactions falls on a Sunday or a
Monday which is a holiday, your order will be priced on the
second business day following this date.
Automatic Exchange. You can set up systematic investments from
one fund account into another, such as from a money fund into a
stock fund.
Discount Brokerage
Discount Brokerage is a division of T. Rowe Price Investment
Services, Inc., Member NASD/SIPC.
This additional service gives you the opportunity to easily
consolidate all your investments with one company. Through our
discount brokerage, you can buy and sell individual securities--
stocks, bonds, options, and others--at considerable commission
savings. We also provide a wide range of services, including:
Automated telephone and on-line services - You can enter trades,
access quotes, and review account information 24 hours a day,
seven days a week. Any trades executed through these programs
save you an additional 10% on commissions.
Note: Discount applies to our current commission schedule,
subject to our $35 minimum commission.
To open an account:
1-800-638-5660
For existing discount brokerage investors:
1-800-225-7720
Investor Information - A variety of informative reports, such as
our Brokerage Insights series, S&P Market Month Newsletter, and
optional Stock Reports can help you better evaluate economic
trends and investment opportunities.
Dividend Reinvestment Service - Virtually all stock held in
customer accounts are eligible for this service--free of
charge.
PAGE 1
Facts at a Glance
Investment Goal
The highest level of income exempt from federal and New Jersey
income taxes consistent with the fund's prescribed investment
program.
As with all mutual funds, this fund may not meet its goal.
Strategy
Invests primarily in investment-grade New Jersey municipal bonds
whose income is exempt from federal and New Jersey income taxes.
Dollar-weighted average maturity is expected to exceed 15 years.
Risk/Reward
Higher income but also greater potential price fluctuation than
shorter-term municipal bond funds.
Investor Profile
New Jersey taxpayers who, because of their tax bracket, can
benefit from income that is exempt from federal and New Jersey
income taxes. Not appropriate for tax-deferred retirement plans,
such as IRAs.
Fees and Charges
100% no load. No fees or charges to buy or sell shares or to
reinvest dividends; no 12b-1 marketing fees; free telephone
exchange.
Investment Manager
Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe
Price Associates, Inc. ("T. Rowe Price") and its affiliates
managed over $82 billion, including over $5.7 billion in
municipal bond assets, for over four million individual and
institutional investor accounts as of March 31, 1996.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION, OR
ANY STATE SECURITIES COMMISSION, PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
T. Rowe Price
State Tax-Free
Income Trust
July 1, 1996
Prospectus
Contents
1
About the Fund
Transaction and Fund Expenses
Financial Highlights
Fund, Market, and Risk
Characteristics
2
About Your Account
Pricing Shares and Receiving Sale Proceeds
Distributions and Taxes
Transaction Procedures and Special Requirements
3
PAGE 2
More About the Fund
Organization and Management
Understanding Performance Information
Investment Policies and Practices
4
Investing With T. Rowe Price
Account Requirements and Transaction Information
Opening a New Account
Purchasing Additional Shares
Exchanging and Redeeming
Shareholder Services
This prospectus contains information you should know before
investing. Please keep it for future reference. A Statement of
Additional Information about the fund, dated July 1, 1996, has
been filed with the Securities and Exchange Commission and is
incorporated by reference in this prospectus. To obtain a free
copy, call 1-800-638-5660.
To Open an Account
Investor Services
1-800-638-5660
1-410-547-2308
For Existing Accounts
Shareholder Services
1-800-225-5132
1-410-625-6500
For Yields and Prices
Tele*AccessR
1-800-638-2587
1-410-625-7676
24 hours, 7 days
Investor Centers
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
Internet Address
http://www.troweprice.com
To help you achieve your financial goals, T. Rowe Price offers a
wide range of stock, bond, and money market investments, as well
PAGE 3
as convenient services and timely, informative reports.
Prospectus
T. Rowe Price
New Jersey
Tax-Free Bond Fund
T. Rowe Price
State Tax-Free
Income Trust
July 1, 1996
A long-term bond fund for investors seeking income that is exempt
from federal and New Jersey income taxes.
Invest With ConfidenceR
1
About the Fund
Transaction and Fund Expenses
Like all T. Rowe Price funds, this fund is 100% no load.
For the fiscal year ended February 29, 1996, the fund paid
$67,000 to T. Rowe Price Services, Inc., for transfer and
dividend disbursing functions and shareholder services, and
$61,000 to T. Rowe Price for accounting services.
These tables should help you understand the kinds of expenses you
will bear directly or indirectly as a fund shareholder.
In Table 1 below, "Shareholder Transaction Expenses," shows
that you pay no sales charges. All the money you invest in the
fund goes to work for you, subject to the fees explained below.
"Annual Fund Expenses" provides an estimate of how much it will
cost to operate the fund for a year, based on 1996 fiscal year
expenses (and any applicable expense limitations). These are
costs you pay indirectly, because they are deducted from the
fund's total assets before the daily share price is calculated
and before dividends and other distributions are made. In other
words, you will not see these expenses on your account
statement.
Shareholder Transaction Expenses
Sales charge "load" on purchases None
Sales charge "load" on reinvested
dividends None
Redemption fees None
Exchange fees None
Annual Fund Expenses Percentage of Fiscal 1996
Average Net Assets
Management fee (after reduction) 0.32%a
Marketing fees (12b-1) None
Total other (shareholder servicing,
custodial, auditing, etc.) 0.33%
Total fund expenses (after reduction) 0.65%a
a The fund's management fee and its total expense ratio would
have been 0.44% and 0.77%, respectively, had T. Rowe Price not
agreed to reduce management fees in accordance with the expense
limitation described below. To limit the fund's expenses, T. Rowe
PAGE 4
Price agreed to waive its fees and bear any expenses through
February 28, 1995, which would cause the fund's ratio of expenses
to average net assets to exceed 0.65%. Effective March 1, 1995,
T. Rowe Price agreed to extend the fund's 0.65% expense
limitation for a period of two years through February 28, 1997.
Fees waived or expenses paid or assumed under these agreements
are subject to reimbursement to T. Rowe Price by the fund
whenever the fund's expense ratio is below 0.65%; however, no
reimbursement will be made after February 28, 1997 (for the first
agreement) or February 28, 1999 (for the second agreement), or if
it would result in the expense ratio exceeding 0.65%. Any amounts
reimbursed will have the effect of increasing fees otherwise paid
by the fund. Organizational expenses will be charged to the fund
over a period not to exceed 60 months.
Note: A $5 fee is charged for wire redemptions under $5,000,
subject to change without notice, and a $10 fee is charged for
small accounts when applicable (see "Small Account Fee" under
"Transaction Procedures and Special Requirements").
Table 1
The main types of expenses, which all mutual funds may charge
against fund assets, are:
o
A management fee:
the percent of fund assets paid to the fund's investment manager.
The fund's fee comprises a group fee, 0.33% as of March 31, 1996,
and an individual fund fee of 0.10%.
o
"Other" administrative expenses:
primarily the servicing of shareholder accounts, such as
providing statements, reports, disbursing dividends, as well as
custodial services.
o
Marketing or distribution fees:
an annual charge ("12b-1") to existing shareholders to defray the
cost of selling shares to new shareholders. T. Rowe Price funds
do not levy 12b-1 fees.
For further details on fund expenses, please see "Organization
and Management."
o
Hypothetical example:
The table at right is just an example; actual expenses can be
higher or lower than those shown.
Assume you invest $1,000, the fund returns 5% annually, expense
ratios remain as listed previously, and you close your account at
the end of the time periods shown. Your expenses would be:
1 year 3 years 5 years 10 years
$7 $21 $36 $81
Table 2
Financial Highlights
The following table provides information about the fund's
financial history. It is based on a single share outstanding
PAGE 5
throughout each fiscal year. The table is part of the fund's
financial statements which are included in the fund's annual
report and incorporated by reference into the Statement of
Additional Information. This document is available to
shareholders upon request. The financial statements in the annual
report have been audited by Coopers & Lybrand L.L.P., independent
accountants, whose unqualified report covers the periods shown.
Investment Activities Distributions
Net Real-
ized and
Net Unreal- Total
Asset Net ized Gain from Net Net
Value, Invest-(Loss) Invest-Invest- Real-
Year Begin- ment on ment ment ized Total
Ended ning of Income Invest- Activi-Income Gain Distri-
February 28 Period (Loss) ments ties (Loss) (Loss) butions
_________________________________________________________________
1992ad $10.00 $0.50b $0.34 $0.84 $(0.50)$(0.04)$(0.54)
1993 10.30 0.58b 1.00 1.58 (0.58) (0.07) (0.65)
1994 11.23 0.56b 0.10 0.66 (0.56) (0.14) (0.70)
1995 11.19 0.57b (0.55) 0.02 (0.57) (0.01) (0.58)
1996d 10.63 0.58b 0.53 1.11 (0.58) - (0.58)
_________________________________________________________________
End of Period
Ratio
of
Ratio Net
of Invest-
Net Total Expenses ment Port-
Asset Return to Income folio
Year Value, (Includes Net Average to Aver- Turn-
Ended End of Reinvested Assets ($ Net age Net over
February 28 Period Dividends) Thousands) Assets Assets Rate
_________________________________________________________________
1992ad $10.30 10.26% $14,303 0.65%bc 5.86%c 152.2%c
1993 11.23 15.90% 38,347 0.65%b 5.47% 103.3%
1994 11.19 5.97% 63,160 0.65%b 4.90% 68.8%
1995 10.63 0.37% 58,074 0.65%b 5.41% 139.1%
1996d 11.16 10.67% 70,304 0.65%b 5.28% 98.4%
a For the period April 30, 1991 (commencement of operations) to
February 29, 1992.
b Excludes expenses in excess of a 0.65% voluntary expense ratio
limitation in effect through February 28, 1997.
c Annualized.
d Year ended February 29.
Table 3
Fund, Market, and Risk Characteristics: What to Expect
To help you decide whether this fund is appropriate for you,
this section takes a closer look at its investment objective and
PAGE 6
approach.
What is the fund's objective and investment program?
Income from New Jersey municipal securities is exempt from
federal and New Jersey income taxes.
The fund's investment objective is to provide, consistent with
prudent portfolio management, the highest level of income exempt
from federal and New Jersey income taxes by investing primarily
in investment-grade New Jersey municipal bonds.
The fund will invest at least 65% of its total assets in New
Jersey municipal bonds. The fund's dollar-weighted average
maturity is expected to exceed 15 years. Due to seasonal
variations or shortages in the supply of suitable short-term New
Jersey securities, the fund may invest periodically in municipals
whose interest is exempt from federal but not New Jersey income
taxes. Every effort will be made to minimize such investments,
but they could compose up to 10% of the fund's annual income.
What are the fund's credit-quality guidelines?
At its discretion, the fund may retain a security whose credit
quality is downgraded after purchase.
The fund will generally purchase investment-grade securities,
which means their ratings are within the four highest credit
categories (e.g., AAA, AA, A, BBB) as determined by a national
rating organization or, if unrated, by T. Rowe Price. The fund
may occasionally purchase below-investment-grade securities
(including those with the lowest or no rating), but no such
purchase will be made if it would cause the fund's noninvestment-
grade bonds to exceed 5% of its net assets. Unrated bonds may be
less liquid than rated bonds.
Investment-grade securities include a range from the highest
rated to medium quality (BBB). Securities in the BBB category may
be more susceptible to adverse economic conditions or changing
circumstances and the securities at the lower end of the BBB
category have certain speculative characteristics.
What are the main risks of investing in municipal bond funds?
A more detailed discussion of these and other risk considerations
is contained in the fund's Statement of Additional Information.
The potential for realizing a loss of principal in a bond fund
could derive from:
o
Interest rate or market risk:
the decline in fixed income securities and funds that may
accompany a rise in the overall level of interest rates (please
see Table 4).
o
Credit risk:
the chance that any of the fund's holdings will have its credit
rating downgraded or will default (fail to make scheduled
interest and principal payments), potentially reducing the fund's
income level and share price.
o
Political risk:
PAGE 7
the chance that a significant restructuring of federal income tax
rates, or even serious discussion on the topic in Congress, could
cause municipal bond prices to fall. The demand for municipal
bonds is strongly influenced by the value of tax-exempt income to
investors. Broadly lower tax rates could reduce the advantage of
owning municipal bonds.
o
Geographical risk:
the chance of price declines resulting from developments in a
single state.
What are the particular risks associated with single-state funds
versus those that invest nationally?
Significant political and economic developments within a state
may have repercussions, direct and indirect, on virtually all
municipal bonds issued in the state.
A fund investing within a single state is, by definition, less
diversified geographically than one investing across many states.
The risk arises from the fund's greater exposure to that state's
economy and politics, factors that loom large in establishing the
credit quality of bonds issued by the state and its political
subdivisions. For example, general obligation bonds of a state or
locality that has a high income level, reasonable debt levels,
and a positive long-term outlook should have a higher credit
rating than those of a state without those attributes.
Of course, many municipal bonds are not general obligations
backed by the state's "full faith and credit" (its full taxing
and revenue raising resources) and may not rely on any government
for money to service their debt. Bonds issued by governmental
authorities may depend wholly on revenues generated by the
project they financed or on other dedicated revenue streams. The
credit quality of these "revenue" bonds may vary significantly
from that of the state's general obligations.
How does the portfolio manager try to reduce risk?
Consistent with the fund's objective, the portfolio manager
actively manages the fund in an effort to manage risk and
increase total return. Risk management tools include:
o
Diversification of assets to reduce the impact of a single
holding on the fund's net asset value.
o
Thorough credit research by our own analysts.
o
Adjustment of fund duration to try to reduce the negative impact
of rising interest rates or take advantage of the benefits of
falling rates.
What is the credit quality of New Jersey general obligations?
Credit ratings and the financial and economic conditions of
the state, local governments, public authorities, and others in
which the fund may invest are subject to change at any time.
The state's general obligations were rated Aa1 by Moody's, and
AA+ by Standard & Poor's and by Fitch as of June 1, 1996. For
PAGE 8
more than a century, the state has paid the principal and
interest on its general obligation bonds when due. The New Jersey
state constitution imposes legal debt limits equal to 1% of total
appropriations for the fiscal year unless the debt has been
approved by a majority of voters at a general election.
What about the quality of the fund's other holdings?
The share price and yield of the fund will fluctuate with
changing market conditions and interest rate levels. When you
sell your shares, you may lose money.
In addition to the state's general obligations, the fund will
invest a significant portion of its assets in bonds that are
rated according to the issuer's individual creditworthiness, such
as bonds of local governments and public authorities. While local
governments in New Jersey depend principally on their own revenue
sources, they could experience budget shortfalls due to cutbacks
in state aid.
The fund may invest in certain sectors with special risks, such
as health care, which could be affected by federal or state
legislation; electric utilities with exposure to nuclear power
plants; and private activity bonds without governmental backing.
The fund sometimes invests in obligations of the Commonwealth of
Puerto Rico and its public corporations (as well as the U.S.
territories of Guam and the Virgin Islands) that are exempt from
federal and New Jersey income taxes. These investments require
careful assessment of certain risk factors, including reliance on
substantial federal assistance and favorable tax programs which
have recently come under scrutiny by Congress. As of June 1,
1996, Puerto Rico's general obligations were rated Baa1 by
Moody's and A (with a negative outlook) by Standard & Poor's.
What are derivatives and can the fund invest in them?
The term derivative is used to describe financial instruments
whose value is derived from an underlying security (e.g., a stock
or bond) or a market benchmark (e.g., an interest rate index).
Many types of investments representing a wide range of potential
risks and rewards fall under the "derivatives" umbrella--from
conventional instruments such as callable bonds, futures, and
options, to more exotic investments such as stripped mortgage
securities and structured notes. While the term "derivative" has
only recently become widely known among the investing public,
derivatives have in fact been employed by investment managers for
many years.
The fund will invest in derivatives only if the expected risks
and rewards are consistent with its objective, policies, and
overall risk profile as described in this prospectus. The fund
limits its use of derivatives to situations in which they may
enable the fund to accomplish the following: increase yield;
hedge against a decline in principal value; invest in eligible
asset classes with greater efficiency and lower cost than is
possible through direct investment; or adjust the fund's
duration.
PAGE 9
The fund will not invest in any high-risk, highly leveraged
derivative instrument that is expected to cause the price
volatility of the portfolio to be meaningfully different than
that of a long-term investment-grade bond.
Who issues municipal securities?
These are some characteristics of municipal securities.
State and local governments and governmental authorities sell
notes and bonds (usually called "municipals") to pay for public
projects and services.
Who buys municipal securities?
Individuals are the primary investors, and a principal way they
invest is through mutual funds. Prices of municipals may be
affected by major changes in cash flows of money into or out of
municipal funds. For example, substantial and sustained
redemptions from municipal bond funds could result in lower
prices for these securities.
Is interest income from municipal issues always exempt from
federal taxes?
Municipal securities are also called "tax-exempts" because the
interest income they provide is usually exempt from federal
income taxes.
No. For example, since 1986, income from so-called "private
activity" municipals has been subject to the federal alternative
minimum tax (AMT). For instance, some bonds financing airports,
stadiums, and student loan programs fall into this category.
Shareholders subject to the AMT must include income derived from
private activity bonds in their AMT calculation. Relatively few
taxpayers are required to pay the tax. Normally, the fund will
not purchase any security if, as a result, more than 20% of the
fund's income would be subject to the AMT. The fund will report
annually to shareholders the portion of income, if any, subject
to the AMT. (Please see "Distributions and Taxes--Taxes on Fund
Distributions.")
Why are yields on municipals usually below those on otherwise
comparable taxable securities?
Since the income provided by most municipals is exempt from
federal taxation, investors are willing to accept lower yields on
a municipal bond than on an otherwise similar (in quality and
maturity) taxable bond.
Why are yields on New Jersey bonds below those of comparable
issues from other states?
Strong demand for New Jersey securities, due to a relatively high
state income tax rate and an often limited supply, tends to push
their prices up and yields down.
Is there an easy way to compare after-tax yields on a New Jersey
fund with a similar tax-exempt fund that invests nationally?
Subtract your state tax rate from 1 and multiply this number
times the yield on the national fund. The result is the yield to
you on the national fund after paying New Jersey income tax.
Compare this with the New Jersey Tax-Free Bond Fund's yield.
Is a fund's yield fixed or will it vary?
You may want to review some fundamentals that apply to all fixed
income investments.
PAGE 10
It will vary. The yield is calculated every day by dividing the
fund's net income per share, expressed at annual rates, by the
share price. Since both income and share price will fluctuate,
the fund's yield will also vary.
Is a fund's "yield" the same thing as the "total return"?
Not for bond funds. The total return reported for a fund is the
result of reinvested distributions (income and capital gains) and
the change in share price for a given time period. Income is
always a positive contributor to total return and can enhance a
rise in share price or serve as an offset to a drop in share
price.
What is "credit quality" and how does it affect a fund's yield?
Credit quality refers to a bond issuer's expected ability to make
all required interest and principal payments in a timely manner.
Because highly rated issuers represent less risk, they can borrow
at lower interest rates than less creditworthy issuers.
Therefore, a fund investing in high credit-quality securities
should have a lower yield than an otherwise comparable fund
investing in lower credit-quality securities.
What is meant by a bond fund's "maturity"?
Every bond has a stated maturity date when the issuer must
repay the security's entire principal value to the investor.
However, many bonds are "callable," meaning their principal can
be repaid before their stated maturity dates on (or after)
specified call dates. Bonds are most likely to be called when
interest rates are falling, because the issuer wants to refinance
at a lower rate. In such an environment, a bond's "effective
maturity" is calculated using its nearest call date.
A bond mutual fund has no maturity in the strict sense of the
word, but it does have an average maturity and an average
effective maturity. This number is an average of the stated or
effective maturities of the underlying bonds, with each bond's
maturity "weighted" by the percentage of fund assets it
represents. Funds that target effective maturities would use the
effective (rather than stated) maturities of the underlying
instruments when computing the average. Targeting effective
maturity provides additional flexibility in portfolio management
but, all else being equal, could result in higher volatility than
a fund targeting a stated maturity or maturity range.
What is meant by a bond fund's "duration"?
Duration is a calculation that seeks to measure the price
sensitivity of a bond or a bond fund to changes in interest
rates. It measures bond price sensitivity to interest rate
changes more accurately than maturity because it takes into
account the time value of cash flows generated over the bond's
life. Future interest and principal payments are discounted to
reflect their present value and then are multiplied by the number
of years they will be received to produce a value that is
expressed in years, i.e., the duration. Effective duration takes
into account call features and sinking fund payments that may
shorten a bond's life.
Since duration can also be computed for bond funds, you can
PAGE 11
estimate the effect of interest rates on a fund's share price.
Simply multiply the fund's duration (available for T. Rowe Price
bond funds in our shareholder reports) by an expected change in
interest rates. For example, the price of a bond fund with a
duration of five years would be expected to fall approximately 5%
if rates rose by one percentage point.
How is a municipal's price affected by changes in interest rates?
When interest rates rise, a bond's price usually falls, and vice
versa.
In general, the longer a bond's maturity, the greater the price
increase or decrease in response to a given change in interest
rates, as shown in the table at right.
How Interest Rates Affect Bond Prices
Bond Maturity Coupon Price Per $1,000 of a Municipal Bond
if Interest Rates:
Increase Decrease
1% 2% 1% 2%
1 year 3.65% $990 $981 $1,010 $1,020
5 years 4.55 957 916 1,045 1,093
10 years 5.05 926 858 1,082 1,171
20 years 5.75 891 798 1,128 1,280
30 years 5.80 873 769 1,158 1,356
Table 4
Coupons reflect yields on AAA-rated municipals as of April 30,
1996. This is an illustration and does not represent expected
yields or share price changes of any T. Rowe Price fund.
Is there other information I need to review before making a
decision?
The fund should not represent your complete investment program,
nor be used for short-term trading purposes.
You should review "Investment Policies and Practices" in
Section 3, which discusses the following: Types of Portfolio
Securities (municipal securities, private activity bonds,
municipal lease obligations, municipal warrants, securities with
"puts" or other demand features, securities with credit
enhancements, synthetic or derivative securities, and private
placements); and Types of Management Practices (cash position,
when-issued securities and forwards, interest rate futures,
borrowing money and transferring assets, portfolio turnover,
sector concentration, and credit-quality considerations).
2
About Your Account
Pricing Shares and Receiving Sale Proceeds
Here are some procedures you should know when investing in a
T. Rowe Price tax-free fund.
How and when shares are priced
The various ways you can buy, sell, and exchange shares are
explained at the end of this prospectus and on the New Account
Form. These procedures may differ for institutional accounts.
Bond funds.
The share price (also called "net asset value" or NAV per share)
for the fund is calculated at 4 p.m. ET each day the New York
PAGE 12
Stock Exchange is open for business. To calculate the NAV, the
fund's assets are valued and totaled, liabilities are subtracted,
and the balance, called net assets, is divided by the number of
shares outstanding.
How your purchase, sale, or exchange price is determined
If we receive your request in correct form by 4 p.m. ET, your
transaction will be priced at that day's NAV. If we receive it
after 4 p.m., it will be priced at the next business day's NAV.
We cannot accept orders that request a particular day or price
for your transaction or any other special conditions.
Note:
The time at which transactions and shares are priced and the
time until which orders are accepted may be changed in case of an
emergency or if the New York Stock Exchange closes at a time
other than 4 p.m. ET.
How you can receive the proceeds from a sale
When filling out the New Account Form, you may wish to give
yourself the widest range of options for receiving proceeds from
a sale.
If your request is received by 4 p.m. ET in correct form,
proceeds are usually sent on the next business day. Proceeds can
be sent to you by mail or to your bank account by ACH transfer or
bank wire. Proceeds sent by ACH transfer should be credited the
second day after the sale. ACH (Automated Clearing House) is an
automated method of initiating payments from and receiving
payments in your financial institution account. ACH is a payment
system supported by over 20,000 banks, savings banks, and credit
unions, which electronically exchanges the transactions primarily
through the Federal Reserve Banks. Proceeds sent by bank wire
should be credited to your account the next business day.
Exception:
If for some reason we cannot accept your request to sell shares,
we will contact you.
o
Under certain circumstances and when deemed to be in the fund's
best interests, your proceeds may not be sent for up to five
business days after receiving your sale or exchange request. If
you were exchanging into a bond or money fund, your new
investment would not begin to earn dividends until the sixth
business day.
Useful Information on Distributions and Taxes
Dividends and Other Distributions
All net investment income and realized capital gains are
distributed to shareholders.
Dividend and capital gain distributions are reinvested in
additional fund shares in your account unless you select another
option on your New Account Form. The advantage of reinvesting
distributions arises from compounding; that is, you receive
income dividends and capital gain distributions on a rising
number of shares.
Distributions not reinvested are paid by check or transmitted to
your bank account via ACH. If the Post Office cannot deliver your
PAGE 13
check, or if your check remains uncashed for six months, the fund
reserves the right to reinvest your distribution check in your
account at the NAV on the business day of the reinvestment and to
reinvest all subsequent distributions in shares of the fund.
Income dividends
o
Bond funds declare income dividends daily at 4 p.m. ET to
shareholders of record at that time provided payment has been
received on the previous business day.
o
Bond funds pay dividends on the first business day of each
month.
o
Bond fund shares will earn dividends through the date of
redemption; also, shares redeemed on a Friday or prior to a
holiday will continue to earn dividends until the next business
day. Generally, if you redeem all of your shares at any time
during the month, you will also receive all dividends earned
through the date of redemption in the same check. When you redeem
only a portion of your shares, all dividends accrued on those
shares will be reinvested, or paid in cash, on the next dividend
payment date.
Capital gains
o
A capital gain or loss is the difference between the purchase and
sale price of a security.
o
If the fund has net capital gains for the year (after subtracting
any capital losses), they are usually declared and paid in
December to shareholders of record on a specified date that
month. If a second distribution is necessary, it is usually
declared and paid during the first quarter of the following year.
Tax Information
You will be sent timely information for your tax filing needs.
Although the regular monthly income dividends you receive from
the fund are expected to be exempt from federal and state and
local (if any) income taxes, you need to be aware of the possible
tax consequences when:
o
You sell fund shares, including an exchange from one fund to
another.
o
The fund makes a distribution to your account.
Due to 1993 tax legislation, a portion of the capital gains
realized on the sale of market discount bonds with maturities
beyond one year may be treated as ordinary income and cannot be
offset by other capital losses. Therefore, to the extent the fund
invests in these securities, the likelihood of a taxable gain
distribution will be increased.
Note:
You must report your total tax-exempt income on IRS Form 1040.
The IRS uses this information to help determine the tax status of
any Social Security payments you may have received during the
PAGE 14
year.
Taxes on fund redemptions.
When you sell shares in any fund, you may realize a gain or loss.
An exchange from one fund to another is still a sale for tax
purposes. If you realize a loss on the sale or exchange of fund
shares held six months or less, your capital loss is reduced by
the tax-exempt dividends received on those shares.
In January, you will be sent Form 1099-B, indicating the date
and amount of each sale you made in the fund during the prior
year. This information will also be reported to the IRS. For
accounts opened new or by exchange in 1983 or later, we will
provide you with the gain or loss of the shares you sold during
the year, based on the "average cost" method. This information is
not reported to the IRS, and you do not have to use it. You may
calculate the cost basis using other methods acceptable to the
IRS, such as "specific identification."
To help you maintain accurate records, we send you a confirmation
immediately following each transaction (except for systematic
purchases and redemptions) you make and a year-end statement
detailing all your transactions in each fund account during the
year.
Taxes on fund distributions.
Distributions are taxable whether reinvested in additional shares
or received in cash.
In January, the fund will send you Form 1099-DIV indicating the
tax status of any capital gain distribution made to you. This
information will also be reported to the IRS. All capital gain
distributions are taxable to you for the year in which they were
paid. The only exception is that distributions declared during
the last three months of the year and paid in January are taxed
as though they were paid by December 31. Dividends are expected
to be tax-exempt.
Short-term capital gain distributions are taxable as ordinary
income and long-term gain distributions are taxable at the
applicable long-term gain rate. The gain is long- or short-term
depending on how long the fund held the securities, not how long
you held shares in the fund. If you realize a loss on the sale
or exchange of fund shares held six months or less, your short-
term loss recognized is reclassified to long-term to the extent
of any capital gain distribution received.
If the fund invests in certain "private activity" bonds,
shareholders who are subject to the alternative minimum tax (AMT)
must include income generated by these bonds in their AMT
computation. The portion of your fund's income which should be
included in your AMT calculation, if any, will be reported to you
in January.
Tax effect of buying shares before a capital gain distribution.
If you buy shares shortly before or on the "record date"--the
date that establishes you as the person to receive the upcoming
distribution--you will receive, in the form of a taxable
PAGE 15
distribution, a portion of the money you just invested.
Therefore, you may also wish to find out the fund's record date
before investing. Of course, the fund's share price may, at any
time, reflect undistributed capital gains or income and
unrealized appreciation. When these amounts are eventually
distributed, they are taxable.
Note:
For shareholders who receive Social Security benefits, the
receipt of tax-exempt interest may increase the portion of
benefits that are subject to tax.
Transaction Procedures and Special Requirements
Purchase Conditions
Following these procedures helps assure timely and accurate
transactions.
Nonpayment.
If your payment is not received or you pay with a check or ACH
transfer that does not clear, your purchase will be canceled. You
will be responsible for any losses or expenses incurred by the
fund or transfer agent, and the fund can redeem shares you own in
this or another identically registered T. Rowe Price fund as
reimbursement. The fund and its agents have the right to reject
or cancel any purchase, exchange, or redemption due to
nonpayment.
U.S. dollars.
All purchases must be paid for in U.S. dollars; checks must be
drawn on U.S. banks.
Sale (Redemption) Conditions
10-day hold.
If you sell shares that you just purchased and paid for by check
or ACH transfer, a fund will process your redemption but, will
generally delay sending you the proceeds for up to 10 calendar
days to allow the check or transfer to clear. If your redemption
request was sent by mail or mailgram, proceeds will be mailed no
later than the seventh calendar day following receipt unless the
check or ACH transfer has not cleared. If during the clearing
period, we receive a check drawn against your bond or money
market account, it will be returned marked "uncollected." (The
10-day hold does not apply to the following: purchases paid for
by bank wire; cashier's, certified, or treasurer's checks; or
automatic purchases through your paycheck.)
Telephone, Tele*AccessR, and personal computer transactions.
These exchange and redemption services are established
automatically when you sign the New Account Form unless you check
the box which states that you do not want these services. The
fund uses reasonable procedures (including shareholder identity
verification) to confirm that instructions given by telephone are
genuine and is not liable for acting on these instructions. If
these procedures are not followed, it is the opinion of certain
regulatory agencies that the fund may be liable for any losses
that may result from acting on the instructions given. A
confirmation is sent promptly after the telephone transaction.
All conversations are recorded.
Redemptions over $250,000.
PAGE 16
Large sales can adversely affect a portfolio manager's ability to
implement a fund's investment strategy by causing the premature
sale of securities that would otherwise be held. If, in any 90-
day period, you redeem (sell) more than $250,000, or your sale
amounts to more than 1% of the fund's net assets, the fund has
the right to delay sending your proceeds for up to five business
days after receiving your request, or to pay the difference
between the redemption amount and the lesser of the two
previously mentioned figures with securities from the fund.
Excessive Trading
T. Rowe Price may bar excessive traders from purchasing shares.
Frequent trades, involving either substantial fund assets or a
substantial portion of your account or accounts controlled by
you, can disrupt management of the fund and raise its expenses.
We define "excessive trading" as exceeding one purchase and sale
involving the same fund within any 120-day period.
For example, you are in fund A. You can move substantial assets
from fund A to fund B and, within the next 120 days, sell your
shares in fund B to return to fund A or move to fund C.
If you exceed the number of trades described above, you may be
barred indefinitely from further purchases of T. Rowe Price
funds.
Three types of transactions are exempt from excessive trading
guidelines: 1) trades solely between money market funds; 2)
redemptions that are not part of exchanges; and 3) systematic
purchases or redemptions (see "Shareholder Services").
Keeping Your Account Open
Due to the relatively high cost to the fund of maintaining small
accounts, we ask you to maintain an account balance of at least
$1,000. If your balance is below $1,000 for three months or
longer, we have the right to close your account after giving you
60 days in which to increase your balance.
Small Account Fee
Because of the disproportionately high costs of servicing
accounts with low balances, a $10 fee, paid to T. Rowe Price
Services, the fund's transfer agent, will automatically be
deducted from nonretirement accounts with balances falling below
a minimum level. The valuation of accounts and the deduction are
expected to take place during the last five business days of
September. The fee will be deducted from accounts with balances
below $2,000, except for UGMA/UTMA accounts, for which the limit
is $500. The fee will be waived for any investor whose aggregate
T. Rowe Price mutual fund investments total $25,000 or more.
Accounts employing automatic investing (e.g., payroll deduction,
automatic purchase from a bank account, etc.) are also exempt
from the charge. The fee will not apply to IRAs and other
retirement plan accounts. (A separate custodial fee may apply to
IRAs and other retirement plan accounts.)
Signature Guarantees
A signature guarantee is designed to protect you and the T. Rowe
PAGE 17
Price funds from fraud by verifying your signature.
You may need to have your signature guaranteed in certain
situations, such as:
o
Written requests 1) to redeem over $50,000, or 2) to wire
redemption proceeds.
o
Remitting redemption proceeds to any person, address, or bank
account not on record.
o
Transferring redemption proceeds to a T. Rowe Price fund
account with a different registration (name/ownership) from
yours.
o
Establishing certain services after the account is opened.
You can obtain a signature guarantee from most banks, savings
institutions, broker-dealers, and other guarantors acceptable to
T. Rowe Price. We cannot accept guarantees from notaries public
or organizations that do not provide reimbursement in the case of
fraud.
3
More About the Fund
Organization and Management
How is the fund organized?
Shareholders benefit from T. Rowe Price's 59 years of
investment management experience.
The T. Rowe Price State Tax-Free Income Trust was organized in
1986 as a Massachusetts business trust and is a "nondiversified,
open-end investment company," or mutual fund. This fund was
organized in 1991. Mutual funds pool money received from
shareholders and invest it to try to achieve specified
objectives.
What is meant by "shares"?
As with all mutual funds, investors purchase shares when they put
money in a fund. These shares are part of a fund's authorized
capital stock, but share certificates are not issued.
Each share and fractional share entitles the shareholder to:
o
Receive a proportional interest in a fund's income and capital
gain distributions.
o
Cast one vote per share on certain fund matters, including the
election of fund directors, changes in fundamental policies, or
approval of changes in the fund's management contract.
Do T. Rowe Price funds have annual shareholder meetings?
The funds are not required to hold annual meetings and in
order to avoid unnecessary costs to fund shareholders, do not
intend to do so except when certain matters, such as a change in
a fund's fundamental policies, are to be decided. In addition,
shareholders representing at least 10% of all eligible votes may
call a special meeting if they wish for the purpose of voting on
the removal of any fund director or trustee. If a meeting is held
PAGE 18
and you cannot attend, you can vote by proxy. Before the meeting,
the fund will send you proxy materials that explain the issues to
be decided and include a voting card for you to mail back.
Who runs the fund?
All decisions regarding the purchase and sale of fund investments
are made by T. Rowe Price--specifically by the fund's portfolio
managers.
General Oversight.
The fund is governed by a Board of Trustees that elects the
fund's officers and meets regularly to review the fund's
investments, performance, expenses, and other business affairs.
The policy of the fund is that a majority of Board members will
be independent of T. Rowe Price.
Portfolio Management.
The fund has an Investment Advisory Committee, composed of the
following members: William T. Reynolds, Chairman, Paul W. Boltz,
Patricia S. Deford, Konstantine B. Mallas, Mary J. Miller, Alan
P. Richman, and William F. Snider, Jr. The committee chairman has
day-to-day responsibility for managing the portfolio and works
with the committee in developing and executing the fund's
investment program. Mr. Reynolds has been chairman of the fund's
committee since 1991. He joined T. Rowe Price in 1981, and has
been managing investments since 1978.
Marketing.
T. Rowe Price Investment Services, Inc., a wholly owned
subsidiary of T. Rowe Price, distributes (sells) shares of these
and all other T. Rowe Price funds.
Shareholder Services.
T. Rowe Price Services, Inc., another wholly owned subsidiary,
acts as the fund's transfer and dividend disbursing agent and
provides shareholder and administrative services. Services for
certain types of retirement plans are provided by T. Rowe Price
Retirement Plan Services, Inc., also a wholly owned subsidiary.
The address for each is 100 East Pratt St., Baltimore, MD 21202.
How are fund expenses determined?
The management agreement spells out the expenses to be paid by
the fund.
In addition to the management fee, the fund pays for the
following: shareholder service expenses; custodial, accounting,
legal, and audit fees; costs of preparing and printing
prospectuses and reports sent to shareholders; registration fees
and expenses; proxy and annual meeting expenses (if any); and
director/trustee fees and expenses.
The Management Fee.
This fee has two parts--an "individual fund fee" (discussed under
"Transaction and Fund Expenses"), which reflects a fund's
particular investment management costs, and a "group fee." The
group fee, which is designed to reflect the benefits of the
shared resources of the T. Rowe Price investment management
complex, is calculated daily based on the combined net assets of
all T. Rowe Price funds (except Equity Index and the Spectrum
Funds and any institutional or private label mutual funds). The
group fee schedule (shown below) is graduated, declining as the
PAGE 19
asset total rises, so shareholders benefit from the overall
growth in mutual fund assets.
0.480% First $1 billion 0.350% Next $2 billion
0.450% Next $1 billion 0.340% Next $5 billion
0.420% Next $1 billion 0.330% Next $10 billion
0.390% Next $1 billion 0.320% Next $10 billion
0.370% Next $1 billion 0.310% Next $16 billion
0.360% Next $2 billion 0.305% Thereafter
The fund's portion of the group fee is determined by the ratio of
its daily net assets to the daily net assets of all the Price
funds described previously. Based on combined Price funds' assets
of approximately $53.5 billion at March 31, 1996, the group fee
was 0.33%.
Understanding Performance Information
This section should help you understand the terms used to
describe fund performance. You will come across them in
shareholder reports you receive from us, in our newsletter, The
Price Report, in Insights articles, in T. Rowe Price
advertisements, and in the media.
Total Return
Total return is the most widely used performance measure.
Detailed performance information is included in the fund's annual
and semiannual shareholder reports, and in the quarterly
Performance Update, which are all available without charge.
This tells you how much an investment in a fund has changed in
value over a given time period. It reflects any net increase or
decrease in the share price and assumes that all dividends and
capital gains (if any) paid during the period were reinvested in
additional shares. Including reinvested distributions means that
total return numbers include the effect of compounding, i.e., you
receive income and capital gain distributions on a rising number
of shares.
Advertisements for a fund may include cumulative or compound
average annual total return figures, which may be compared with
various indices, other performance measures, or other mutual
funds.
Cumulative Total Return
This is the actual rate of return on an investment for a
specified period. A cumulative return does not indicate how much
the value of the investment may have fluctuated between the
beginning and the end of the period specified.
Average Annual Total Return
This is always hypothetical. Working backward from the actual
cumulative return, it tells you what constant year-by-year return
would have produced the actual, cumulative return. By smoothing
out all the variations in annual performance, it gives you an
idea of the investment's annual contribution to your portfolio
provided you held it for the entire period in question.
Yield
You will see frequent references to a fund's yield in our
PAGE 20
reports, in advertisements, in media stories, and so on.
The current or "dividend" yield on a fund or any investment
tells you the relationship between the investment's current level
of annual income and its price on a particular day. The dividend
yield reflects the actual income paid to shareholders for a given
period, annualized, and divided by the average price during the
given period. For example, a fund providing $5 of annual income
per share and a price of $50 has a current yield of 10%. Yields
can be calculated for any time period.
The advertised or "SEC" yield is found by determining the net
income per share (as defined by the SEC) earned by the fund
during a 30-day base period and dividing this amount by the per
share price on the last day of the base period. The SEC yield may
differ from the dividend yield.
Investment Policies and Practices
Fund managers have considerable leeway in choosing investment
strategies and selecting securities they believe will help the
fund achieve its objective.
This section takes a detailed look at some of the types of
securities the fund may hold in its portfolio and the various
kinds of investment practices that may be used in day-to-day
portfolio management. The fund's investment program is subject to
further restrictions and risks described in the Statement of
Additional Information.
Shareholder approval is required to substantively change the
fund's objective and certain investment restrictions noted in the
following section as "fundamental policies." The managers also
follow certain "operating policies" which can be changed without
shareholder approval. However, significant changes are discussed
with shareholders in fund reports. The fund adheres to applicable
investment restrictions and policies at the time it makes an
investment. A later change in circumstances will not require the
sale of an investment if it was proper at the time it was made.
The fund's holdings of certain kinds of investments cannot exceed
maximum percentages of total assets, which are set forth herein.
For instance, this fund is not permitted to invest more than 10%
of total assets in residual interest bonds. While these
restrictions provide a useful level of detail about the fund's
investment program, investors should not view them as an accurate
gauge of the potential risk of such investments. For example, in
a given period, a 5% investment in residual interest bonds could
have significantly more of an impact on the fund's share price
than its weighting in the portfolio. The net effect of a
particular investment depends on its volatility and the size of
its overall return in relation to the performance of all the
fund's other investments.
Changes in the fund's holdings, the fund's performance, and the
contribution of various investments are discussed in the
shareholder reports sent to you.
PAGE 21
Types of Portfolio Securities
In seeking to meet its investment objective, the fund may
invest in any type of municipal security or instrument (including
certain potentially high-risk derivatives) whose investment
characteristics are consistent with the fund's investment
program. The following pages describe the principal types of
portfolio securities and investment management practices of the
fund.
Fundamental policy:
The fund is registered as a nondiversified mutual fund. This
means that the fund may invest a greater portion of its assets in
a single issuer than a diversified fund which may subject the
fund to greater risk with respect to its portfolio securities.
However, because the fund intends to qualify as a "regulated
investment company" under the Internal Revenue Code, it must
invest so that, at the end of each quarter, with respect to 50%
of its total assets, not more than 5% of its assets are invested
in the securities of a single issuer, and with respect to the
remaining 50%, no more than 25% of fund assets are invested in a
single issuer.
Municipal Securities.
In purchasing municipals, the fund relies on the opinion of the
issuer's bond counsel regarding the tax-exempt status of the
investment.
The fund's assets are invested primarily in various tax-free
municipal debt securities. The issuers have a contractual
obligation to pay interest at a stated rate on specific dates and
to repay principal (the bond's face value) on a specified date or
dates. An issuer may have the right to redeem or "call" a bond
before maturity, and the investor may have to reinvest the
proceeds at lower rates.
There are two broad categories of municipal bonds. General
obligation bonds are backed by the issuer's "full faith and
credit," that is, its full taxing and revenue raising power.
Revenue bonds usually rely exclusively on a specific revenue
source, such as charges for water and sewer service, to generate
money for debt service.
Private Activity Bonds.
While income from most municipals is exempt from federal income
taxes, the income from certain types of so-called private
activity bonds (a type of revenue bond) may be subject to the
alternative minimum tax (AMT). However, only persons subject to
the AMT pay this tax. Private activity bonds may be issued for
purposes such as housing or airports or to benefit a private
company. (Being subject to the AMT does not mean the investor
necessarily pays this tax. For further information, please see
"Distributions and Taxes.")
Fundamental policy:
Under normal market conditions, the fund will not purchase any
security if, as a result, less than 80% of the fund's income
would be exempt from federal and New Jersey income taxes. The
income included under the 80% test does not include income from
PAGE 22
securities subject to the alternative minimum tax.
Operating policy:
During periods of abnormal market conditions, for temporary
defensive purposes, the fund may invest without limit in high-
quality, short-term securities whose income is subject to federal
and New Jersey income tax.
In addition to general obligation and revenue bonds, the fund's
investments may include, but are not limited to, the following
types of securities:
Municipal Lease Obligations.
A lease is not a full faith and credit obligation of the
issuer and is usually backed only by the borrowing government's
unsecured pledge to make annual appropriation for lease payments.
There have been challenges to the legality of lease financing in
numerous states and, from time to time, certain municipalities
have considered not appropriating money for lease payments. In
deciding whether to purchase a lease obligation, the fund would
assess the financial condition of the borrower, the merits of the
project, the level of public support for the project, and the
legislative history of lease financing in the state. These
securities may be less readily marketable than other municipals.
The fund may also purchase unrated lease obligations.
Municipal Warrants.
Municipal warrants are essentially call options on municipal
bonds. In exchange for a premium, they give the purchaser the
right, but not the obligation, to purchase a municipal bond in
the future. The fund might purchase a warrant to lock in forward
supply in an environment where the current issuance of bonds is
sharply reduced. Like options, warrants may expire worthless and
they may have reduced liquidity.
Operating policy:
The fund will not invest more than 2% of its total assets in
municipal warrants.
Securities With "Puts" or Other Demand Features.
Some longer-term municipals give the investor the right to "put"
or sell the security at par (face value) within a specified
number of days following the investor's request--usually one to
seven days. This demand feature enhances a security's liquidity
by dramatically shortening its effective maturity and enables it
to trade at a price equal to or very close to par. If the demand
feature were terminated prior to being exercised, the fund would
hold the longer-term security.
Securities With Credit Enhancements.
o
Letters of Credit.
Letters of credit are issued by a third party, usually a bank, to
enhance liquidity and ensure repayment of principal and any
accrued interest if the underlying municipal security should
default.
o
Municipal Bond Insurance.
PAGE 23
T. Rowe Price periodically reviews the credit quality of the
insurer.
This insurance, which is usually purchased by the bond issuer
from a private, nongovernmental insurance company, provides an
unconditional and irrevocable guarantee that the insured bond's
principal and interest will be paid when due. Insurance does not
guarantee the price of the bond or the share price of any fund.
The credit rating of an insured bond reflects the credit rating
of the insurer, based on its claims-paying ability.
The obligation of a municipal bond insurance company to pay a
claim extends over the life of each insured bond. Although
defaults on insured municipal bonds have been low to date and
municipal bond insurers have met their claims, there is no
assurance this will continue. A higher than expected default rate
could strain the insurer's loss reserves and adversely affect its
ability to pay claims to bondholders, such as the funds. The
number of municipal bond insurers is relatively small, and not
all of them have the highest rating.
o
Standby Purchase Agreements.
A Standby Bond Purchase Agreement (SBPA) is a liquidity
facility provided to pay the purchase price of bonds that cannot
be remarketed. The obligation of the liquidity provider (usually
a bank) is only to advance funds to purchase tendered bonds that
cannot be remarketed and does not cover principal or interest
under any other circumstances. The liquidity provider's
obligations under the SBPA are usually subject to numerous
conditions, including the continued creditworthiness of the
underlying borrower.
Synthetic or Derivative Securities.
These securities are created from existing municipal bonds:
o
Residual Interest Bonds (a potentially high-risk derivative).
The income stream provided by an underlying bond is divided to
create two securities, one short-term and one long-term. The
interest rate on the short-term component is reset by an index or
auction process normally every 7 to 35 days. After income is paid
on the short-term securities at current rates, the residual
income goes to the long-term securities. Therefore, rising short-
term interest rates result in lower income for the longer-term
portion, and vice versa. The longer-term bonds can be very
volatile and may be less liquid than other municipals of
comparable maturity.
Operating policy:
The fund will not invest more than 10% of its total assets in
residual interest bonds.
o
Participation Interests.
This term covers various types of securities created by
converting fixed rate bonds into short-term, variable rate
certificates. These securities have been developed in the
secondary market to meet the demand for short-term, tax-exempt
PAGE 24
securities. The fund will invest only in securities deemed tax-
exempt by a nationally recognized bond counsel, but there is no
guarantee the interest will be exempt because the IRS has not
issued a definitive ruling on the matter.
o
Embedded Interest Rate Swaps and Caps.
Embedded interest rate swaps enhance yields, but also increase
interest rate risk.
In a fixed rate, long-term municipal bond with an interest rate
swap attached to it, the bondholder usually receives the bond's
fixed coupon payment as well as a variable rate payment that
represents the difference between a fixed rate for the term of
the swap (which is typically shorter than the bond it is attached
to) and a variable rate short-term municipal index. The
bondholder receives excess income when short-term rates remain
below the fixed interest rate swap rate. If short-term rates rise
above the fixed income swap rate, the bondholder's income is
reduced. At the end of the interest rate swap term, the bond
reverts to a single fixed coupon payment.
An embedded interest rate cap allows the bondholder to receive
payments whenever short-term rates rise above a level established
at the time of purchase. They normally are used to hedge against
rising short-term interest rates.
Both instruments may be volatile and of limited liquidity and
their use may adversely affect a fund's total return.
Operating policy:
The fund will not invest more than 10% of its total assets in
embedded interest rate swaps and caps.
Private Placements.
The fund may seek to enhance its yield through the purchase of
private placements. These securities are sold through private
negotiations, usually to institutions or mutual funds, and may
have resale restrictions. Their yields are usually higher than
comparable public securities to compensate the investor for their
limited marketability.
Operating policy:
The fund may not invest more than 15% of its net assets in
illiquid securities, including unmarketable private placements.
Types of Management Practices
Cash reserves provide flexibility and serve as a short-term
defense during periods of unusual market volatility.
Cash Position.
The fund will hold a portion of its assets in short-term, tax-
exempt money market securities maturing in one year or less. The
reserve position accomplishes the following: provides flexibility
in meeting redemptions, expenses, and the timing of new
investments; can help in structuring a fund's weighted average
maturity; and serves as a short-term defense during periods of
unusual market volatility. The fund's cash reserve position will
be comprised of short-term, investment-grade securities including
tax-exempt commercial paper, municipal notes, and short-term
PAGE 25
maturity bonds. Some of these securities may have adjustable,
variable, or floating rates.
When-Issued Securities and Forwards.
New issues of municipals are often sold on a "when-issued"
basis, that is, delivery and payment take place 15-45 days after
the buyer has agreed to the purchase. Some bonds, called
"forwards," have longer than standard settlement dates, typically
6 to 24 months. When buying these securities, the fund will
maintain cash or high-grade marketable securities held by its
custodian equal in value to its commitment for these securities.
The fund does not earn interest on when-issued and forward
securities until settlement, and the value of the securities may
fluctuate between purchase and settlement. Municipal "forwards"
typically carry a substantial yield premium to compensate the
buyer for their greater interest rate, credit, and liquidity
risks.
Interest Rate Futures.
Futures (a type of potentially high-risk derivative) are often
used to manage risk, because they enable the investor to buy or
sell an asset in the future at an agreed-upon price.
Specifically, the fund may use futures (and options on futures)
for any number of reasons, including: to hedge against a
potentially unfavorable change in interest rates and to adjust
its exposure to the municipal bond market; to protect portfolio
value; in an effort to enhance income; and to adjust the
portfolio's duration. The use of futures for hedging and non-
hedging purposes may not always be successful. Their prices can
be highly volatile, using them could lower the fund's total
return, and the potential loss from their use could exceed the
fund's initial exposure to such contracts.
Operating policy:
Initial margin deposits on futures and premiums on options used
for non-hedging purposes will not equal more than 5% of the
fund's net asset value.
Borrowing Money and Transferring Assets.
The fund can borrow money from banks as a temporary measure for
emergency purposes, to facilitate redemption requests, or for
other purposes consistent with the fund's investment objective
and program. Such borrowings may be collateralized with fund
assets, subject to restrictions.
Fundamental policy:
Borrowings may not exceed 33 1/3% of total fund assets.
Operating policy:
The fund may not transfer as collateral any portfolio securities
except as necessary in connection with permissible borrowings or
investments, and then such transfers may not exceed 33 1/3% of
the fund's total assets. The fund may not purchase additional
securities when borrowings exceed 5% of total assets.
Portfolio Turnover.
The fund generally purchases securities with the intention of
holding them for investment; however when market conditions or
other circumstances warrant, securities may be purchased and sold
without regard to the length of time held. Although the fund does
PAGE 26
not expect to generate any taxable income, a high turnover rate
may increase transaction costs and may affect taxes paid by
shareholders to the extent short-term gains are distributed. The
fund's portfolio turnover rates for the fiscal years ended
February 29, 1996, February 28, 1995, and February 28, 1994 were
98.4%, 139.1%, and 68.8%, respectively.
Sector Concentration.
It is possible that the fund could have a considerable amount of
assets (25% or more) in securities that would tend to respond
similarly to particular economic or political developments. An
example would be securities of issuers related to a single
industry, such as health care or nuclear energy.
Operating policy:
The fund will not invest more than 25% of total assets in
industrial development bonds of projects in the same industry
(such as solid waste, nuclear utility, or airlines). Bonds which
are refunded with escrowed U.S. government securities are not
subject to the 25% limitation.
Credit-Quality Considerations.
The credit quality of most bond issues is evaluated by rating
agencies such as Moody's and Standard & Poor's. Credit quality
refers to the issuer's ability to meet all required interest and
principal payments. The highest ratings are assigned to issuers
perceived to be the best credit risks. T. Rowe Price research
analysts also evaluate all portfolio holdings of the fund,
including those rated by outside agencies. The lower the rating
on a bond, the higher the yield, other things being equal.
Table 5 shows the rating scale used by the major rating agencies.
T. Rowe Price considers publicly available ratings, but
emphasizes its own credit analysis when selecting investments.
Ratings of Municipal Debt Securities
Moody's Standard Fitch Defin-
Investors & Poor's Investors ition
Service, Inc. Corporation Service, Inc.
Long-Term Aaa AAA AAA Highest
quality
Aa AA AA High
quality
A A A Upper
medium
grade
Baa BBB BBB Medium
grade
Moody's S&P Fitch
Short-Term MIG1/VMIG1 Best quality SP1+ Very F-1+
strong Except-
quality ionally
strong
quality
SP1 Strong F-1 Very
grade strong
quality
PAGE 27
MIG2/VMIG2 High quality SP2 Satisfac- F-2
tory grade Good
credit
quality
Commercial P-1 Superior A-1+ Extremely F-1+
Paper quality strong quality Except-
ionally
strong
quality
A-1 Strong F-1 Very
quality strong
quality
P-2 Strong A-2 Satisfac- F-2
quality tory quality Good
credit
quality
Table 5
Explanation of Quality Ratings
Bond Rating Explanation
Moody's Investors
Service, Inc. Aaa Highest quality, smallest
degree of investment risk.
Aa High quality; together with
Aaa bonds, they compose the
high-grade bond group.
A Upper-medium-grade
obligations; many favorable
investment attributes.
Baa Medium-grade obligations;
neither highly protected nor
poorly secured. Interest and
principal appear adequate for
the present but certain
protective elements may be
lacking or may be unreliable
over any great length of time.
Ba More uncertain, with
speculative elements.
Protection of interest and
principal payments not well
safeguarded during good and
bad times.
B Lack characteristics of
desirable investment;
potentially low assurance of
timely interest and principal
payments or maintenance of
other contract terms over
time.
Caa Poor standing, may be in
default; elements of danger
with respect to principal or
interest payments.
PAGE 28
Ca Speculative in a high degree;
could be in default or have
other marked shortcomings.
C Lowest rated; extremely poor
prospects of ever attaining
investment standing.
Standard & Poor's
Corporation AAA Highest rating; extremely
strong capacity to pay
principal and interest.
AA High quality; very strong
capacity to pay principal and
interest.
A Strong capacity to pay
principal and interest;
somewhat more susceptible to
the adverse effects of
changing circumstances and
economic conditions.
BBB Adequate capacity to pay
principal and interest;
normally exhibit adequate
protection parameters, but
adverse economic conditions or
changing circumstances more
likely to lead to a weakened
capacity to pay principal and
interest than for higher-rated
bonds.
BB, B, CCC, CC Predominantly speculative with
respect to the issuer's
capacity to meet required
interest and principal
payments. BB-lowest degree of
speculation; CC-the highest
degree of speculation. Quality
and protective characteristics
outweighedby large
uncertainties or major risk
exposure to adverse
conditions.
D In default.
Fitch Investors
Service, Inc. AAA Highest quality; obligor has
exceptionally strong ability
to pay interest and repay
principal, which is unlikely
to be affected by reasonably
foreseeable events.
AA Very high quality; obligor's
ability to pay interest and
repay principal is very
strong. Because bonds rated
PAGE 29
in the AAA and AA categories
are not significantly
vulnerable to foreseeable
future developments, short-
term debt of these issuers is
generally rated F-1+.
A High quality; obligor's
ability to pay interest and
repay principal is considered
to be strong, but may be more
vulnerable to adverse changes
in economic conditions and
circumstances than higher-
rated bonds.
BBB Satisfactory credit quality;
obligor's ability to pay
interest and repay principal
is considered adequate.
Unfavorable changes in
economic conditions and
circumstances are more likely
to adversely affect these
bonds and impair timely
payment. The likelihood that
the ratings of these bonds
will fall below investment
grade is higher than for
higher-rated bonds.
BB, CCC, CC, C Not investment grade;
predominantly speculative with
respect to the issuer's
capacity to repay interest and
repay principal in accordance
with the terms of the
obligation for bond issues not
in default. BB is the least
speculative. C is the most
speculative.
Table 6
PAGE 1
4 Investing with T. Rowe Price
Account Requirements and Transaction Information
Always verify your transactions by carefully reviewing the
confirmation we send you. Please report any discrepancies to
Shareholder Services promptly.
Tax Identification Number
We must have your correct social security or corporate tax
identification number on a signed New Account Form or W-9 Form.
Otherwise, federal law requires the funds to withhold a
percentage (currently 31%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS
fine. If this information is not received within 60 days after
your account is established, your account may be redeemed, priced
at the NAV on the date of redemption.
Unless you request otherwise, one shareholder report will be
mailed to multiple account owners with the same tax
identification number and same ZIP code and to shareholders who
have requested that their account be combined with someone
else's for financial reporting.
Institutional Accounts
Transaction procedures in the following sections may not apply to
institutional accounts. For institutional account procedures,
please call your designated account manager or service
representative.
Opening a New Account: $2,500 minimum initial investment; $1,000
for gifts or transfers to minors (UGMA/UTMA) accounts
Account Registration
If you own other T. Rowe Price funds, be sure to register any new
account just like your existing accounts so you can exchange
among them easily. (The name and account type would have to be
identical.)
Regular Mail
T. Rowe Price
Account Services
P.O. Box 17300
Baltimore, MD
21298-9353
Mailgram, Express,
Registered, or Certified
Mail
T. Rowe Price
Account Services
10090 Red Run Blvd.
PAGE 2
Owings Mills, MD 21117
By Mail
Please make your check payable to T. Rowe Price Funds
(otherwise it will be returned) and send your check together
with the New Account Form to the address at left. We do not
accept third party checks to open new accounts.
By Wire
o Call Investor Services for an account number and give the
following wire address to your bank:
Morgan Guaranty Trust Co. of New York
ABA# 021000238
T. Rowe Price [fund name]
AC-00153938
account name(s), and account number
o Complete a New Account Form and mail it to one of the
appropriate addresses listed on the previous page.
Note: No services will be established and IRS penalty
withholding may occur until a signed New Account Form is
received.
By Exchange
Call Shareholder Services or use Tele*Access or your personal
computer (see "Automated Services" under "Shareholder Services").
The new account will have the same registration as the account
from which you are exchanging. Services for the new account may
be carried over by telephone request if preauthorized on the
existing account. (See explanation of "Excessive Trading" under
"Transaction Procedures.")
In Person
Drop off your New Account Form at any of the locations listed on
the cover and obtain a receipt.
Purchasing Additional Shares: $100 minimum purchase; $50 minimum
for Automatic Asset Builder and gifts or transfers to minors
(UGMA/UTMA) accounts
By ACH Transfer
Use Tele*Access, your personal computer, or call Investor
Services if you have established electronic transfers using the
ACH network.
By Wire
Call Shareholder Services or use the wire address in "Opening a
New Account."
Regular Mail
T. Rowe Price Funds
PAGE 3
Account Services
P.O. Box 89000
Baltimore, MD
21289-1500
(For mailgrams,
express, registered,
or certified mail,
see previous section.)
By Mail
o Make your check payable to T. Rowe Price Funds (otherwise
it may be returned).
o Mail the check to us at the address shown at left with
either a fund reinvestment slip or a note indicating the
fund you want to buy and your fund account number.
o Remember to provide your account number and the fund name on
your check.
By Automatic Asset Builder
Fill out the Automatic Asset Builder
section on the New Account or Shareholder Services Form.
Exchanging and Redeeming Shares
By Phone
Call Shareholder Services. If you find our phones busy during
unusually volatile markets, please consider placing your order by
your personal computer, Tele*Access (if you have previously
authorized telephone services), mailgram or by express mail. For
exchange policies, please see "Transaction Procedures and Special
Requirements--Excessive Trading."
Redemption proceeds can be mailed to your account address, sent
by ACH transfer, or wired to your bank (provided your bank
information is already on file). For charges, see "Electronic
Transfers--By Wire" under "Shareholder Services".
By Mail
For each account involved, provide the account name, number, fund
name, and exchange or redemption amount. For exchanges, be sure
to indicate any fund you are exchanging out of and the fund or
funds you are exchanging into. Please mail to the appropriate
address below or as indicated at left. T. Rowe Price requires the
signatures of all owners exactly as registered, and possibly a
signature guarantee (see "Transaction Procedures and Special
Requirements--Signature Guarantees").
Mailgram, Express, Registered Regular Mail:
or Certified mail:
PAGE 4
T. Rowe Price T. Rowe Price
Account Services Account Services
10090 Red Run Boulevard P.O. Box 89000
Owings Mills, MD 21117 Baltimore, MD 21289-0220
Rights Reserved by the Fund
The fund and its agents reserve the right to waive or lower
investment minimums; to accept initial purchases by telephone or
mailgram; to cancel or rescind any purchase or exchange (for
example, if an account has been restricted due to excessive
trading or fraud) upon notice to the shareholder within five
business days of the trade or if the written confirmation has not
been received by the shareholder, whichever is sooner; to freeze
any account and suspend account services when notice has been
received of a dispute between the registered or beneficial
account owners or there is reason to believe a fraudulent
transaction may occur; to otherwise modify the conditions of
purchase and any services at any time; or to act on instructions
believed to be genuine.
Shareholder Services
1-800-225-5132
1-410-625-6500
Shareholder Services
Many services are available to you as a T. Rowe Price
shareholder; some you receive automatically and others you must
authorize on the New Account Form. By signing up for services on
the New Account Form rather than later, you avoid having to
complete a separate form and obtain a signature guarantee. This
section reviews some of the principal services currently offered.
Our Services Guide contains detailed descriptions of these and
other services.
If you are a new T. Rowe Price investor, you will receive a
Services Guide with our Welcome Kit.
Investor Services
1-800-638-5660
1-410-547-2308
Note: Corporate and other entity accounts require an original or
certified resolution to establish services and to redeem by mail.
For more information, call Investor Services.
Retirement Plans
We offer a wide range of plans for individuals and
institutions, including large and small businesses: IRAs,
SEP-IRAs, Keoghs (profit sharing and money purchase pension),
401(k), and 403(b)(7). For information on IRAs, call Investor
Services. For information on all other retirement plans, please
PAGE 5
call our Trust Company at 1-800-492-7670.
Exchange Service
You can move money from one account to an existing identically
registered account, or open a new identically registered account.
Remember, exchanges are purchases and sales for tax purposes.
(Exchanges into a state tax-free fund are limited to investors
living in states where the funds are registered.) Some of the T.
Rowe Price funds may impose a redemption fee of .50% to 2%,
payable to such funds, on shares held for less than one year, or
in some funds, six months.
Automated Services
Tele*Access
1-800-638-2587
1-410-625-7676
Tele*Access. 24-hour service via toll-free number provides
information on fund yields and prices, dividends, account
balances, and your latest transaction, as well as the ability to
request prospectuses, account and tax forms, duplicate
statements, and checks, and to initiate purchase, redemption and
exchange orders in your accounts (see "Electronic Transfers"
below).
Personal Computer Access. 24-hour service via dial-up modem
provides the same information as Tele*Access, but on a personal
computer. Please call Investor Services to order.
Telephone and Walk-In Services
Buy, sell, or exchange shares by calling one of our service
representatives or by visiting one of our investor center
locations whose addresses are listed on the cover.
Electronic Transfers
By ACH. With no charges to pay, you can initiate a purchase or
redemption for as little as $100 or as much as $100,000 between
your bank account and fund account using the ACH network. Enter
instructions via Tele*Access or your personal computer or call
Shareholder Services.
By Wire. Electronic transfers can also be conducted via bank
wire. There is currently a $5 fee for wire redemptions under
$5,000, and your bank may charge for incoming or outgoing wire
transfers regardless of size.
Checkwriting (not available for equity funds, or the High Yield
Fund or Emerging Markets Bond Fund)
You may write an unlimited number of free checks on any money
market fund, and most bond funds, with a minimum of $500 per
check. Keep in mind, however that a check results in a
redemption; a check written on a bond fund will create a taxable
PAGE 6
event which you and we must report to the IRS.
Automatic Investing ($50 minimum)
You can invest automatically in several different ways,
including:
Automatic Asset Builder. You instruct us to move $50 or more
from your bank account, or you can instruct your employer to send
all or a portion of your paycheck to the fund or funds you
designate.
Note: If you are moving money from your bank account, and if
the date you select for your transactions falls on a Sunday or a
Monday which is a holiday, your order will be priced on the
second business day following this date.
Automatic Exchange. You can set up systematic investments from
one fund account into another, such as from a money fund into a
stock fund.
Discount Brokerage
Discount Brokerage is a division of T. Rowe Price Investment
Services, Inc., Member NASD/SIPC.
This additional service gives you the opportunity to easily
consolidate all your investments with one company. Through our
discount brokerage, you can buy and sell individual securities--
stocks, bonds, options, and others--at considerable commission
savings. We also provide a wide range of services, including:
Automated telephone and on-line services - You can enter trades,
access quotes, and review account information 24 hours a day,
seven days a week. Any trades executed through these programs
save you an additional 10% on commissions.
Note: Discount applies to our current commission schedule,
subject to our $35 minimum commission.
To open an account:
1-800-638-5660
For existing discount brokerage investors:
1-800-225-7720
Investor Information - A variety of informative reports, such as
our Brokerage Insights series, S&P Market Month Newsletter, and
optional Stock Reports can help you better evaluate economic
trends and investment opportunities.
Dividend Reinvestment Service - Virtually all stock held in
customer accounts are eligible for this service--free of
charge.
PAGE 20
PAGE 1
Facts at a Glance
Investment Goals
The highest level of income exempt from federal and New York
state and New York city income taxes consistent with each fund's
prescribed investment program.
As with all mutual funds, these funds may not meet their goals.
Strategy and Risk/Reward
New York Tax-Free Money Fund.
Invests in high-quality, short-term municipal securities and
its average maturity will not exceed 90 days.
Your investment in the fund is neither insured nor guaranteed by
the U.S. government, and there is no assurance that the fund will
be able to maintain a stable net asset value of $1.00 per share.
Because the fund concentrates its investments in securities of
New York issuers, an investment in this fund may be riskier than
an investment in more broadly diversified money funds.
Risk/Reward:
Lowest.
New York Tax-Free Bond Fund.
Invests primarily in investment-grade municipal bonds. Dollar-
weighted average maturity is expected to exceed 15 years.
Risk/Reward:
Significantly higher income than the money fund and greater
potential price fluctuation than a shorter-term bond fund.
Investor Profile
New York taxpayers who, because of their tax bracket, can benefit
from income that is exempt from federal, state, and local income
taxes. Not appropriate for tax-deferred retirement plans, such as
IRAs.
Fees and Charges
100% no load. No fees or charges to buy or sell shares or to
reinvest dividends; no 12b-1 marketing fees; free telephone
exchange.
Investment Manager
Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe
Price Associates, Inc. ("T. Rowe Price") and its affiliates
managed over $82 billion, including over $5.7 billion in
municipal bond assets, for over four million individual and
institutional investor accounts as of March 31, 1996.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION, OR
ANY STATE SECURITIES COMMISSION, PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
T. Rowe Price
State Tax-Free
Income Trust
July 1, 1996
Prospectus
Contents
1
PAGE 2
About the Funds
Transaction and Fund Expenses
Financial Highlights
Fund, Market, and Risk
Characteristics
2
About Your Account
Pricing Shares and Receiving Sale Proceeds
Distributions and Taxes
Transaction Procedures and Special Requirements
3
More About the Funds
Organization and Management
Understanding Performance Information
Investment Policies and Practices
4
Investing With T. Rowe Price
Account Requirements and Transaction Information
Opening a New Account
Purchasing Additional Shares
Exchanging and Redeeming
Shareholder Services.
This prospectus contains information you should know before
investing. Please keep it for future reference. A Statement of
Additional Information about the funds, dated July 1, 1996, has
been filed with the Securities and Exchange Commission and is
incorporated by reference in this prospectus. To obtain a free
copy, call 1-800-638-5660.
To Open an Account
Investor Services
1-800-638-5660
1-410-547-2308
For Existing Accounts
Shareholder Services
1-800-225-5132
1-410-625-6500
For Yields and Prices
Tele*AccessR
1-800-638-2587
1-410-625-7676
24 hours, 7 days
Investor Centers
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
ARCO Tower
PAGE 3
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
Internet Address
http:\www.troweprice.com
To help you achieve your financial goals, T. Rowe Price offers a
wide range of stock, bond, and money market investments, as well
as convenient services and timely, informative reports.
Prospectus
T. Rowe Price
New York Tax-Free
Funds
T. Rowe Price
State Tax-Free
Income Trust
July 1, 1996
A bond fund and a money market fund for investors seeking income
that is exempt from federal and New York state and New York city
income taxes.
Invest With ConfidenceR
1
About the Funds
Transaction and Fund Expenses
Like all T. Rowe Price funds, these funds are 100% no load.
These tables should help you understand the kinds of expenses you
will bear directly or indirectly as a fund shareholder.
In Table 1 below, "Shareholder Transaction Expenses," shows
that you pay no sales charges. All the money you invest in a fund
goes to work for you, subject to the fees explained below.
"Annual Fund Expenses" shows how much it will cost to operate
each fund for a year, based on 1996 fiscal year expenses. These
are costs you pay indirectly, because they are deducted from each
fund's total assets before the daily share price is calculated
and before dividends and other distributions are made. In other
words, you will not see these expenses on your account
statement.
For the fiscal year ended February 29, 1996, the money and
bond funds paid: $60,000 and $92,000, respectively, to T. Rowe
Price Services, Inc., for transfer and dividend disbursing
functions and shareholder services; and $67,000 and $72,000,
respectively, to T. Rowe Price for accounting services.
Shareholder Transaction Expenses
Money Fund Bond Fund
Sales charge "load" on
purchases None None
Sales charge "load" on
reinvested dividends None None
Redemption fees None None
PAGE 4
Exchange fees None None
Annual Fund Expenses Percentage of Fiscal 1996 Average
Net Assets
Money Fund (after Bond Fund
reduction)
Management fee 0.25%a 0.44%
Marketing fees (12b-1) None None
Total other (shareholder
servicing, custodial,
auditing, etc.) 0.30% 0.21%
Total fund expenses 0.55%a 0.65%
a The money fund's management fee and its total expense ratio
would have been 0.44% and 0.74%, respectively, had T. Rowe Price
not agreed to reduce management fees in accordance with the
expense limitation described in Table 3.
Note: A $5 fee is charged for wire redemptions under $5,000,
subject to change without notice, and a $10 fee is charged for
small accounts when applicable (see "Small Account Fee" under
"Transaction Procedures and Special Requirements").
Table 1
The main types of expenses, which all mutual funds may charge
against fund assets, are:
o
A management fee:
the percent of fund assets paid to the fund's investment manager.
Each fund's fee comprises a group fee, 0.33% as of March 31,
1996, and an individual fund fee of 0.10%.
o
"Other" administrative expenses:
primarily the servicing of shareholder accounts, such as
providing statements, reports, disbursing dividends, as well as
custodial services.
o
Marketing or distribution fees:
an annual charge ("12b-1") to existing shareholders to defray the
cost of selling shares to new shareholders. T. Rowe Price funds
do not levy 12b-1 fees.
For further details on fund expenses, please see "Organization
and Management."
o
Hypothetical example:
The table at right is just an example; actual expenses can be
higher or lower than those shown.
Assume you invest $1,000, the fund returns 5% annually, expense
ratios remain as listed previously, and you close your account at
the end of the time periods shown. Your expenses would be:
Fund 1 year 3 years 5 years 10 years
Money $6 $18 $31 $69
PAGE 5
Bond $7 $21 $36 $81
Table 2
Table 3 sets forth expense ratio limitations and the periods for
which they are effective. For each, T. Rowe Price has agreed to
waive its fees and bear any expenses to the extent such fees or
expenses would cause the fund's ratio of expenses to average net
assets to exceed the indicated percentage limitations. Fees
waived or expenses paid or assumed are subject to reimbursement
to T. Rowe Price by each fund through the indicated reimbursement
date, but no reimbursement will be made if it would result in the
fund's expense ratio exceeding its specified limit.
Expense Ratio Limitation
Fund Limitation Expense Ratio Reimbursement
Period Limitation Date
Money a March 1, 1995-
February 28, 1997 0.55% February 28, 1999
Bond b March 1, 1995-
February 28, 1997 0.65% February 28, 1999
a The money fund previously operated under a 0.55% limitation
that expired February 28, 1995. Effective March 1, 1995, T. Rowe
Price agreed to extend the existing expense limitation of 0.55%,
for a period of two years from March 1, 1995. Subject to
shareholder approval, fees waived or expenses paid or assumed
under these agreements are subject to reimbursement to T. Rowe
Price by the fund whenever the expense ratio is below 0.55%;
however, no reimbursement will be made after February 28, 1997
(for the first agreement), or February 28, 1999 (for the second
agreement), or if it would result in the expense ratio exceeding
0.55%. Any amounts reimbursed will have the effect of increasing
fees otherwise paid by the fund.
b The bond fund previously operated under a 0.60% limitation that
expired February 28, 1995. Effective March 1, 1995, T. Rowe Price
agreed to increase the existing expense limitation of 0.60% to
0.65%, for a period of two years from March 1, 1995. Subject to
shareholder approval, fees waived or expenses paid or assumed
under these agreements are subject to reimbursement to T. Rowe
Price by the fund whenever the expense ratio is below 0.60% (for
the first agreement), or 0.65% (for the second agreement);
however, no reimbursement will be made after February 28, 1997
(for the first agreement), or February 28, 1999 (for the second
agreement), or if it would result in the expense ratio exceeding
0.60% (for the first agreement) or 0.65% (for the second
agreement). Any amounts reimbursed will have the effect of
increasing fees otherwise paid by the fund.
Table 3
Financial Highlights
The following table provides information about each fund's
financial history. It is based on a single share outstanding
throughout each fiscal year. The respective table is part of each
fund's financial statements, which are included in the funds'
annual report and incorporated by reference into the Statement of
Additional Information. This document is available to
shareholders upon request. The financial statements in the annual
PAGE 6
report have been audited by Coopers & Lybrand L.L.P., independent
accountants, whose unqualified report covers the periods shown.
Investment Activities Distributions
Net Real-
ized and
Net Unreal- Total
Asset Net ized Gain from Net Net
Value, Invest-(Loss) Invest-Invest- Real
Period Begin- ment on ment ment ized Total
Ended ning of Income Invest- Activi-Income Gain Distri-
February 28 Period (Loss) ments ties (Loss) (Loss) butions
_________________________________________________________________
Money Fund
1987a $1.000 $0.017b -- $0.017$(0.017) -- $(0.017)
1988c 1.000 0.037b -- 0.037 (0.037) -- (0.037)
1989 1.000 0.043b -- 0.043 (0.043) -- (0.043)
1990 1.000 0.051b -- 0.051 (0.051) -- (0.051)
1991 1.000 0.047b -- 0.047 (0.047) -- (0.047)
1992c 1.000 0.035b -- 0.035 (0.035) -- (0.035)
1993 1.000 0.022b -- 0.022 (0.022) -- (0.022)
1994 1.000 0.018b -- 0.018 (0.018) -- (0.018)
1995 1.000 0.025b -- 0.025 (0.025) -- (0.025)
1996c
_________________________________________________________________
Bond Fund
1987a $10.00 $0.33b $0.34 $0.67 $(0.33) -- $(0.33)
1988c 10.34 0.60b (0.67) (0.07) (0.60) -- (0.60)
1989 9.67 0.61b (0.07) 0.54 (0.61) -- (0.61)
1990 9.60 0.62b 0.04 0.66 (0.62) -- (0.62)
1991 9.64 0.62b 0.10 0.72 (0.62) -- (0.62)
1992c 9.74 0.63b 0.38 1.01 (0.63) -- (0.63)
1993 10.12 0.62b 0.93 1.55 (0.62) -- (0.62)
1994 11.05 0.59b 0.09 0.68 (0.59)$(0.16) (0.75)
1995 10.98 0.58b (0.53) 0.05 (0.58) (0.08) (0.66)
1996c
_________________________________________________________________
End of Period
Ratio
of
Ratio Net
of Invest-
Net Total Expenses ment Port-
Asset Return to Income folio
Period Value, (Includes Net Average to Aver- Turn-
Ended End of Reinvested Assets ($ Net age Net over
February 28 Period Dividends) Thousands) Assets Assets Rate
_________________________________________________________________
Money Fund
1987a $1.000 1.69% $17,093 0.80%b 3.30% --
1988c 1.000 3.78% 34,361 0.80%b 3.76% --
1989 1.000 4.42% 44,510 0.80%b 4.36% --
PAGE 7
1990 1.000 5.23% 49,941 0.80%b 5.10% --
1991 1.000 4.79% 54,529 0.72%b 4.69% --
1992c 1.000 3.60% 53,429 0.55%b 3.54% --
1993 1.000 2.22% 53,904 0.55%b 2.21% --
1994 1.000 1.84% 57,736 0.55%b 1.82% --
1995 1.000 2.49% 66,154 0.55%b 2.48% --
1996c
_________________________________________________________________
Bond Fund
1987a $10.34 6.78% $24,289 0.85%b 6.16% 125.8%
1988c 9.67 (0.29)% 28,306 1.00%b 6.44% 146.7%
1989 9.60 5.81% 36,387 1.00%b 6.40% 88.5%
1990 9.64 7.03% 47,287 0.96%b 6.40% 71.6%
1991 9.74 7.73% 54,834 0.73%b 6.43% 61.5%
1992c 10.12 10.67% 74,243 0.60%b 6.33% 48.7%
1993 11.05 15.79% 112,026 0.60%b 5.91% 41.5%
1994 10.98 6.31% 130,347 0.60%b 5.31% 84.9%
1995 10.37 0.74% 117,847 0.60%b 5.71% 134.3%
1996c
a For the period August 28, 1986 (commencement of operations) to
February 28, 1987.
b For the money fund, excludes expenses in excess of a 0.55%
voluntary expense limitation in effect November 7, 1990, through
February 28, 1997, and a 0.80% voluntary expense limitation in
effect through November 6, 1990. For the bond fund, excludes
expenses in excess of a 0.65% voluntary expense limitation in
effect March 1, 1995 through February 28, 1997, a 0.60% voluntary
expense limitation in effect November 7, 1990, through February
28, 1995, a 0.80% voluntary expense limitation in effect November
1, 1989, through November 6, 1990, a 1.00% voluntary expense
limitation in effect during the years ended February 28, 1989,
and February 29, 1988, and a 0.85% voluntary expense limitation
in effect through February 28, 1987.
c Fiscal year ended February 29.
d Annualized.
Table 4
Fund, Market, and Risk Characteristics: What to Expect
To help you decide whether the funds are appropriate for you,
this section takes a closer look at their investment objectives
and approaches.
What are the funds' objectives and investment programs?
Income from New York municipal securities is exempt from federal
and New York state and city income taxes.
o
The New York Tax-Free Money Fund's objective is to seek
preservation of capital, liquidity, and consistent with these
objectives, the highest possible current income exempt from
federal, New York state, and New York city income taxes. The fund
invests in municipal securities that mature in 397 days or less
and its dollar-weighted average maturity will not exceed 90 days.
The fund's yield will fluctuate in response to changes in
interest rates, but the share price is managed to remain stable
PAGE 8
at $1.00. Although the fund has maintained a constant share
price since its inception, and fund managers will make every
effort to continue to meet this objective in the future, the
price could drop below $1.00 under certain circumstances, such as
a major change in interest rates or default on one or more fund
holdings. Unlike most bank accounts or certificates of deposit,
your investment in the fund is not insured or guaranteed by the
U.S. government.
o
The New York Tax-Free Bond Fund's investment objective is to
provide, consistent with prudent portfolio management, the
highest level of income exempt from federal, New York state, and
New York city income taxes by investing primarily in investment-
grade New York municipal bonds. The fund's dollar-weighted
average maturity is expected to exceed 15 years.
o
Each fund will invest at least 65% of its total assets in New
York municipal securities. However, due to seasonal variations
or shortages in the supply of suitable short-term New York
securities, each fund may invest periodically in municipals whose
interest is exempt from federal but not New York state and city
income taxes. Every effort will be made to minimize such
investments, but they could compose up to 10% of the fund's
annual income.
What are the funds' credit-quality guidelines?
o
The money fund will generally purchase securities rated within
the two highest rating categories assigned by established rating
agencies, or, if not rated, of equivalent investment quality as
determined by T. Rowe Price. All securities purchased by the
fund will present minimal credit risks in the opinion of T. Rowe
Price.
o
The bond fund will generally purchase investment-grade
securities, which means their ratings are within the four highest
credit categories (e.g., AAA, AA, A, BBB) as determined by a
national rating organization or, if unrated, by T. Rowe Price.
The fund may occasionally purchase below-investment-grade
securities (including those with the lowest or no rating), but no
such purchase will be made if it would cause the fund's
noninvestment-grade bonds to exceed 5% of its net assets. Unrated
bonds may be less liquid than rated bonds.
Investment-grade securities include a range of securities from
the highest rated to medium quality (BBB). Securities in the BBB
category may be more susceptible to adverse economic conditions
or changing circumstances, and the securities at the lower end of
the BBB category have certain speculative characteristics.
At its discretion, the bond fund may retain a security whose
credit quality is downgraded after purchase. The money fund may
also do so, but only in accordance with Rule 2a-7 under the
Investment Company Act of 1940.
PAGE 9
What are the main risks of investing in municipal bond and money
market funds?
A more detailed discussion of these and other risk considerations
is contained in the funds' Statement of Additional Information.
Since they are managed to maintain a $1.00 share price, money
market funds should have little risk of principal loss. However,
the potential for realizing a loss of principal in a bond or
money market fund could derive from:
o
Interest rate or market risk:
the decline in the prices of fixed income securities and funds
that may accompany a rise in the overall level of interest rates
(please see Table 5). A sharp and unexpected rise in interest
rates could cause a money fund's price to drop below one dollar.
However, the extremely short-term securities held in money market
portfolios--a means of achieving an overall fund objective of
principal safety--reduces their potential for price
fluctuation.
o
Credit risk:
the chance that any of a fund's holdings will have its credit
rating downgraded or will default (fail to make scheduled
interest and principal payments), potentially reducing a fund's
income level and share price. Money funds invest in very high-
rated securities, thus reducing this risk.
Credit ratings and the financial and economic conditions of the
state, local governments, public authorities, and others in which
the funds may invest are subject to change at any time.
Significant political and economic developments within a state
may have repercussions, direct and indirect, on virtually all
municipal bonds issued in the state.
o
Political risk:
the chance that a significant restructuring of federal income tax
rates, or even serious discussion on the topic in Congress, could
cause municipal bond prices to fall. The demand for municipal
bonds is strongly influenced by the value of tax-exempt income to
investors. Broadly lower tax rates could reduce the advantage of
owning municipal bonds.
o
Geographical risk:
the chance of price declines resulting from developments in a
single state.
What are the particular risks associated with single-state funds
versus those that invest nationally?
A fund investing within a single state is, by definition, less
diversified geographically than one investing across many states.
The risk arises from the fund's greater exposure to that state's
economy and politics, factors that loom large in establishing the
credit quality of bonds issued by the state and its political
subdivisions. For example, general obligation bonds of a state or
locality that has a high income level, reasonable debt levels,
and a positive long-term outlook should have a higher credit
PAGE 10
rating than those of a state without those attributes.
Of course, many municipal bonds are not general obligations
backed by the state's "full faith and credit" (its full taxing
and revenue raising resources) and may not rely on any government
for money to service their debt. Bonds issued by governmental
authorities may depend wholly on revenues generated by the
project they financed or on other dedicated revenue streams. The
credit quality of these "revenue" bonds may vary significantly
from that of the state's general obligations.
How does the portfolio manager try to reduce risk?
Consistent with each fund's objective, the portfolio manager
actively seeks to reduce risk and increase total return. Risk
management tools include:
o
Diversification of assets to reduce the impact of a single
holding on the funds' net asset value.
o
Thorough credit research by our own analysts.
o
Adjustment of fund duration to try to reduce the negative impact
of rising interest rates or take advantage of the benefits of
falling rates.
What is the credit quality of New York state and city general
obligations?
Credit ratings and the financial and economic conditions of the
state, local governments, public authorities, and others in which
the funds may invest are subject to change at any time.
As of June 1, 1996, the state was rated A by Moody's, A- by
Standard & Poor's, and A+ by Fitch; the city's ratings were Baa1
by Moody's and BBB+ by Standard & Poor's and A- by Fitch. The
state constitution requires that all general obligations debt be
approved by the voters. New York state, New York city, and
related issuers experienced financial instability in the mid
1970s, including defaults by New York City and the New York Urban
Development Corporation on their short-term obligations. Both
entities recovered during the subsequent decade. Beginning in
1989, the state again experienced fiscal stress as the economy
slowed. Budget balancing difficulties continued in each
subsequent year, resulting in repeated downgrades by the rating
agencies. A return to balanced operations occurred in 1992 and
the state's financial outlook began to improve in fiscal 1993.
The 1996 budget included a multi-year personal income tax rate
cut and emphasized cost control. The original budget proposal for
fiscal 1997 assumes significant spending reductions will balance
against the effects of a weak economy. The budget, for the fiscal
year which began April 1, 1996, had not been adopted as of June
1, 1996.
New York city's revenue base has been affected by the slowdown in
the financial service industry and the absence of other private
sector growth. The state's failure to pass a budget in a timely
PAGE 11
fashion contributed to downgrades of the city's short-term note
ratings in 1990 and 1991. Although the city has balanced its
budget and avoided operating deficits for the past 15 years, it
faces a challenging budget environment for fiscal 1997 because of
significantly reduced state aid and a flat economic outlook.
What about the quality of the funds' other holdings?
The yield of each fund will fluctuate with changing market
conditions and interest rate levels. The share price of the bond
fund will also fluctuate; when you sell your shares, you may lose
money.
In addition to the state's general obligations, the funds will
invest a portion of their assets in bonds that are rated
according to the issuer's individual creditworthiness, such as
notes and bonds of local governments and public authorities.
While local governments in New York depend principally on their
own revenue sources, they could experience budget shortfalls due
to cutbacks in state aid.
The funds may invest in certain sectors with special risks, for
example health care, which could be affected by federal or state
legislation; electric utilities with exposure to nuclear power
plants; and private activity bonds without governmental backing.
The funds sometimes invest in obligations of the Commonwealth of
Puerto Rico and its public corporations (as well as the U.S.
territories of Guam and the Virgin Islands) that are exempt from
federal and New York state and local income taxes. These
investments require careful assessment of certain risk factors,
including reliance on substantial federal assistance and
favorable tax programs which have recently come under scrutiny by
Congress. As of June 1, 1996, Puerto Rico's general obligations
were rated Baa1 by Moody's and A (with a negative outlook) by
Standard & Poor's.
What are derivatives and can the funds invest in them?
The term derivative is used to describe financial instruments
whose value is derived from an underlying security (e.g., a stock
or bond) or a market benchmark (e.g., an interest rate index).
Many types of investments representing a wide range of potential
risks and rewards fall under the "derivatives" umbrella-- from
conventional instruments such as callable bonds, futures, and
options, to more exotic investments such as stripped mortgage
securities and structured notes. While the term "derivative" has
only recently become widely known among the investing public,
derivatives have in fact been employed by investment managers for
many years.
The bond fund will invest in derivatives only if the expected
risks and rewards are consistent with its objective, policies,
and overall risk profile as described in this prospectus. The
money fund does not invest in high-risk, highly leveraged
derivatives. The bond fund limits its use of derivatives to
situations in which they may enable the fund to accomplish the
following: increase yield; hedge against a decline in principal
PAGE 12
value; invest in eligible asset classes with greater efficiency
and lower cost than is possible through direct investment; or
adjust the fund's duration.
The bond fund will not invest in any high-risk, highly leveraged
derivative instrument that is expected to cause the price
volatility of the portfolio to be meaningfully different than
that of a long-term, investment-grade bond.
Who issues municipal securities?
Before choosing a fund, you may wish to review these
characteristics of municipal securities.
State and local governments and governmental authorities sell
notes and bonds (usually called "municipals") to pay for public
projects and services.
Who buys municipal securities?
Individuals are the primary investors, and a principal way they
invest is through mutual funds. Prices of municipals may be
affected by major changes in cash flows of money into or out of
municipal funds. For example, substantial and sustained
redemptions from municipal bond funds could result in lower
prices for these securities.
Is interest income from municipal issues always exempt from
federal taxes?
Municipal securities are also called "tax-exempts" because the
interest income they provide is usually exempt from federal
income taxes.
No. For example, since 1986, income from so-called "private
activity" municipals has been subject to the federal alternative
minimum tax (AMT). For instance, some bonds financing airports,
stadiums, and student loan programs fall into this category.
Shareholders subject to the AMT must include income derived from
private activity bonds in their AMT calculation. Relatively few
taxpayers are required to pay the tax. Normally, the funds will
not purchase any security if, as a result, more than 20% of the
fund's income would be subject to the AMT. The funds will report
annually to shareholders the portion of income, if any, subject
to the AMT. (Please see "Distributions and Taxes--Taxes on Fund
Distributions.")
Why are yields on municipals usually below those on otherwise
comparable taxable securities?
Since the income provided by most municipals is exempt from
federal taxation, investors are willing to accept lower yields on
a municipal bond than on an otherwise similar (in quality and
maturity) taxable bond.
Why are yields on New York bonds often below those of comparable
issues from other states?
Strong demand for New York securities, due to a relatively high
state income tax rate and an often limited supply, tends to push
their prices up and yields down.
Is there an easy way to compare after-tax yields on a New York
fund with a similar tax-exempt fund that invests nationally?
Subtract your state tax rate from 1 and multiply this number
times the yield on the national fund. The result is the yield to
PAGE 13
you on the national fund after paying New York s income tax.
Compare this with the New York fund's yield.
What are the major differences between money market and bond
funds?
o
Price:
Bond funds have fluctuating share prices. Money market funds are
managed to maintain a stable share price.
o
Maturity:
Short- and intermediate-term bond funds have longer average
maturities (from 1 to 10 years) than money market funds (90 days
or less). Longer-term bond funds have the longest average
maturities (10 years or more).
o
Income:
Limited-term bond funds typically offer more income than money
market funds and less income than longer-term bond funds.
Is a fund's yield fixed or will it vary?
You may want to review some fundamentals that apply to all fixed
income investments.
It will vary. The yield is calculated every day by dividing a
fund's net income per share, expressed at annual rates, by the
share price. Since both income and share price will fluctuate, a
fund's yield will also vary. (Although money fund prices are
stable, income is variable.)
Is a fund's "yield" the same thing as the "total return"?
Not for bond funds. The total return reported for a fund is the
result of reinvested distributions (income and capital gains) and
the change in share price for a given time period. Income is
always a positive contributor to total return and can enhance a
rise in share price or serve as an offset to a drop in share
price. Since money funds are managed to maintain a stable share
price, their yield and total return should be the same.
What is "credit quality" and how does it affect a fund's yield?
Credit quality refers to a bond issuer's expected ability to make
all required interest and principal payments in a timely manner.
Because highly rated issuers represent less risk, they can borrow
at lower interest rates than less creditworthy issuers.
Therefore, a fund investing in high credit-quality securities
should have a lower yield than an otherwise comparable fund
investing in lower credit-quality securities.
What is meant by a bond fund's "maturity"?
Every bond has a stated maturity date when the issuer must
repay the security's entire principal value to the investor.
However, many bonds are "callable," meaning their principal can
be repaid before their stated maturity dates on (or after)
specified call dates. Bonds are most likely to be called when
interest rates are falling, because the issuer wants to refinance
at a lower rate. In such an environment, a bond's "effective
maturity" is calculated using its nearest call date.
A bond mutual fund has no maturity in the strict sense of the
word, but it does have an average maturity and an average
PAGE 14
effective maturity. This number is an average of the stated or
effective maturities of the underlying bonds, with each bond's
maturity "weighted" by the percentage of fund assets it
represents. Funds that target effective maturities would use the
effective (rather than stated) maturities of the underlying
instruments when computing the average. Targeting effective
maturity provides additional flexibility in portfolio management
but, all else being equal, could result in higher volatility than
a fund targeting a stated maturity or maturity range.
What is meant by a bond fund's "duration"?
Duration is a calculation that seeks to measure the price
sensitivity of a bond or a bond fund to changes in interest
rates. It measures bond price sensitivity to interest rate
changes more accurately than maturity because it takes into
account the time value of cash flows generated over the bond's
life. Future interest and principal payments are discounted to
reflect their present value and then are multiplied by the number
of years they will be received to produce a value that is
expressed in years, i.e., the duration. Effective duration takes
into account call features and sinking fund payments that may
shorten a bond's life.
Since duration can also be computed for bond funds, you can
estimate the effect of interest rates on a fund's share price.
Simply multiply the fund's duration (available for T. Rowe Price
bond funds in our shareholder reports) by an expected change in
interest rates. For example, the price of a bond fund with a
duration of five years would be expected to fall approximately 5%
if rates rose by one percentage point.
How is a municipal's price affected by changes in interest rates?
When interest rates rise, a bond's price usually falls, and vice
versa.
In general, the longer a bond's maturity, the greater the price
increase or decrease in response to a given change in interest
rates, as shown in the table at right.
How Interest Rates Affect Bond Prices
Bond Maturity Coupon Price Per $1,000 of a Municipal Bond
if Interest Rates:
Increase Decrease
1% 2% 1% 2%
1 year 3.65% $990 $981 $1,010 $1,020
5 years 4.55 957 916 1,045 1,093
10 years 5.05 926 858 1,082 1,171
20 years 5.75 891 798 1,128 1,280
30 years 5.80 873 769 1,158 1,356
Table 5
Coupons reflect yields on AAA-rated municipals as of April 30,
1996. This is an illustration and does not represent expected
yields or share price changes of any T. Rowe Price fund.
Do money market securities react to changes in interest rates?
Yes. As interest rates change, the prices of some money
PAGE 15
market securities fluctuate, but changes are usually small
because of their very short maturities. Investments are typically
held until maturity in a money fund to help it maintain a $1.00
share price.
How can I decide which New York fund is most appropriate for me?
Review your own financial objectives, time horizon, and risk
tolerance. Use Table 6, which summarizes each fund's main
characteristics, to help choose a fund (or funds) suitable for
your particular needs. For example, only the money fund is
designed to provide principal stability, which makes it a good
choice for money you may need for occasional or unexpected
expenses. However, if you are investing for the highest possible
income and can tolerate some price volatility, you should
consider a longer-term bond fund.
Differences Between Funds
Fund Credit- Risk of Expected
Quality Share Price Average
Categories Income Fluctuation Maturity
Money Two highest Lowest Stable Not more than 90
days
Bond Primarily Higher Greater than 15+ Years
four highest than a a shorter-
shorter- term bond
term bond fund
fund
Table 6
Is there additional information about the two funds to help me
make a decision?
Neither fund should be relied upon as a complete investment
program, nor be used for short-term trading purposes.
You should review "Investment Policies and Practices" in
Section 3, which discusses the following: Types of Portfolio
Securities (municipal securities, private activity bonds,
municipal lease obligations, municipal warrants, securities with
"puts" or other demand features, securities with credit
enhancements, synthetic or derivative securities, and private
placements); and Types of Management Practices (cash position,
when-issued securities and forwards, interest rate futures,
borrowing money and transferring assets, portfolio turnover,
sector concentration, and credit-quality considerations).
2
About Your Account
Pricing Shares and Receiving Sale Proceeds
Here are some procedures you should know when investing in a
T. Rowe Price tax-free fund.
How and when shares are priced
The various ways you can buy, sell, and exchange shares are
explained at the end of this prospectus and on the New Account
Form. These procedures may differ for institutional accounts.
Bond and money funds.
The share price (also called "net asset value" or NAV per share)
for each fund is calculated at 4 p.m. ET each day the New York
PAGE 16
Stock Exchange is open for business. To calculate the NAV, a
fund's assets are valued and totaled, liabilities are subtracted,
and the balance, called net assets, is divided by the number of
shares outstanding. Amortized cost is used to value money fund
securities.
How your purchase, sale, or exchange price is determined
If we receive your request in correct form by 4 p.m. ET, your
transaction will be priced at that day's NAV. If we receive it
after 4 p.m., it will be priced at the next business day's NAV.
We cannot accept orders that request a particular day or price
for your transaction or any other special conditions.
When filling out the New Account Form, you may wish to give
yourself the widest range of options for receiving proceeds from
a sale.
Note:
The time at which transactions and shares are priced and the
time until which orders are accepted may be changed in case of an
emergency or if the New York Stock Exchange closes at a time
other than 4 p.m. ET.
How you can receive the proceeds from a sale
If your request is received by 4 p.m. ET in correct form,
proceeds are usually sent on the next business day. Proceeds can
be sent to you by mail or to your bank account by ACH transfer or
bank wire. Proceeds sent by ACH transfer should be credited the
second day after the sale. ACH (Automated Clearing House) is an
automated method of initiating payments from and receiving
payments in your financial institution account. ACH is a payment
system supported by over 20,000 banks, savings banks, and credit
unions, which electronically exchanges the transactions primarily
through the Federal Reserve Banks. Proceeds sent by bank wire
should be credited to your account the next business day.
If for some reason we cannot accept your request to sell shares,
we will contact you.
Exception:
o
Under certain circumstances and when deemed to be in the fund's
best interests, your proceeds may not be sent for up to five
business days after receiving your sale or exchange request. If
you were exchanging into a bond or money fund, your new
investment would not begin to earn dividends until the sixth
business day.
Useful Information on Distributions and Taxes
Dividends and Other Distributions
All net investment income and realized capital gains are
distributed to shareholders.
Dividend and capital gain distributions are reinvested in
additional fund shares in your account unless you select another
option on your New Account Form. The advantage of reinvesting
distributions arises from compounding; that is, you receive
income dividends and capital gain distributions on a rising
number of shares.
Distributions not reinvested are paid by check or transmitted to
PAGE 17
your bank account via ACH. If the Post Office cannot deliver your
check, or if your check remains uncashed for six months, the fund
reserves the right to reinvest your distribution check in your
account at the NAV on the business day of the reinvestment and to
reinvest all subsequent distributions in shares of the fund.
Income dividends
o
Bond funds declare income dividends daily at 4 p.m. ET to
shareholders of record at that time provided payment has been
received on the previous business day.
o
Money funds declare income dividends daily to shareholders of
record as of 12:00 noon ET on that day. Wire purchase orders
received before 12:00 noon ET receive the dividend for that day.
Other purchase orders receive the dividend on the next business
day after payment has been received.
o
Bond and money funds pay dividends on the first business day
of each month.
o
Bond and money fund shares will earn dividends through the date
of redemption; also, shares redeemed on a Friday or prior to a
holiday will continue to earn dividends until the next business
day. Generally, if you redeem all of your shares at any time
during the month, you will also receive all dividends earned
through the date of redemption in the same check. When you redeem
only a portion of your shares, all dividends accrued on those
shares will be reinvested, or paid in cash, on the next dividend
payment date.
Capital gains
o
A capital gain or loss is the difference between the purchase and
sale price of a security.
o
If a fund has net capital gains for the year (after subtracting
any capital losses), they are usually declared and paid in
December to shareholders of record on a specified date that
month. If a second distribution is necessary, it is usually
declared and paid during the first quarter of the following year.
Tax Information
You will be sent timely information for your tax filing needs.
Although the regular monthly income dividends you receive from
the funds are expected to be exempt from federal and state and
local (if any) income taxes, you need to be aware of the possible
tax consequences when:
o
You sell fund shares, including an exchange from one fund to
another.
o
The fund makes a distribution to your account.
Due to 1993 tax legislation, a portion of the capital gains
realized on the sale of market discount bonds with maturities
beyond one year may be treated as ordinary income and cannot be
PAGE 18
offset by other capital losses. Therefore, to the extent the fund
invests in these securities, the likelihood of a taxable gain
distribution will be increased.
Note:
You must report your total tax-exempt income on IRS Form 1040.
The IRS uses this information to help determine the tax status of
any Social Security payments you may have received during the
year.
Taxes on fund redemptions.
When you sell shares in any fund, you may realize a gain or loss.
An exchange from one fund to another is still a sale for tax
purposes. If you realize a loss on the sale or exchange of fund
shares held six months or less, your capital loss is reduced by
the tax-exempt dividends received on those shares.
In January, you will be sent Form 1099-B, indicating the date
and amount of each sale you made in the fund during the prior
year. This information will also be reported to the IRS. For
accounts opened new or by exchange in 1983 or later, we will
provide you with the gain or loss of the shares you sold during
the year, based on the "average cost" method. This information is
not reported to the IRS, and you do not have to use it. You may
calculate the cost basis using other methods acceptable to the
IRS, such as "specific identification."
To help you maintain accurate records, we send you a confirmation
immediately following each transaction (except for systematic
purchases and redemptions) you make and a year-end statement
detailing all your transactions in each fund account during the
year.
Taxes on fund distributions.
Distributions are taxable whether reinvested in additional shares
or received in cash.
In January, the funds will send you Form 1099-DIV indicating the
tax status of any capital gain distribution made to you. This
information will also be reported to the IRS. All capital gain
distributions are taxable to you for the year in which they are
paid. The only exception is that dividends declared during the
last three months of the year and paid in January are taxed as
though they were paid by December 31. Dividends are expected to
be tax-exempt.
Short-term capital gains are taxable as ordinary income and long-
term gains are taxable at the applicable long-term gain rate. The
gain is long- or short-term depending on how long the fund held
the securities, not how long you held shares in the fund. If you
realize a loss on the sale or exchange of fund shares held six
months or less, your short-term loss recognized is reclassified
to long-term to the extent of any long-term capital gain
distribution received.
If the funds invest in certain "private activity" bonds,
shareholders who are subject to the alternative minimum tax (AMT)
must include income generated by these bonds in their AMT
computation. The portion of your fund's income which should be
included in your AMT calculation, if any, will be reported to you
PAGE 19
in January.
Tax effect of buying shares before a capital gain distribution.
If you buy shares shortly before or on the "record date"--the
date that establishes you as the person to receive the upcoming
distribution--you will receive, in the form of a taxable
distribution, a portion of the money you just invested.
Therefore, you may also wish to find out the fund's record date
before investing. Of course, the fund's share price may, at any
time, reflect undistributed capital gains or income and
unrealized appreciation. When these amounts are eventually
distributed, they are taxable.
Note:
For shareholders who receive Social Security benefits, the
receipt of tax-exempt interest may increase the portion of
benefits that are subject to tax.
Transaction Procedures and Special Requirements
Purchase Conditions
Following these procedures helps assure timely and accurate
transactions.
Nonpayment.
If your payment is not received or you pay with a check or ACH
transfer that does not clear, your purchase will be canceled. You
will be responsible for any losses or expenses incurred by the
fund or transfer agent, and the fund can redeem shares you own in
this or another identically registered T. Rowe Price fund as
reimbursement. The fund and its agents have the right to reject
or cancel any purchase, exchange, or redemption due to
nonpayment.
U.S. dollars.
All purchases must be paid for in U.S. dollars; checks must be
drawn on U.S. banks.
Sale (Redemption) Conditions
10-day hold.
If you sell shares that you just purchased and paid for by check
or ACH transfer, a fund will process your redemption, but will
generally delay sending you the proceeds for up to 10 calendar
days to allow the check or transfer to clear. If your redemption
request was sent by mail or mailgram, proceeds will be mailed no
later than the seventh calendar day following receipt unless the
check or ACH transfer has not cleared. If during the clearing
period, we receive a check drawn against your bond or money
market account, it will be returned marked "uncollected." (The
10-day hold does not apply to the following: purchases paid for
by bank wire; cashier's, certified, or treasurer's checks; or
automatic purchases through your paycheck.)
Telephone, Tele*AccessR, and personal computer transactions.
These exchange and redemption services are established
automatically when you sign the New Account Form unless you check
the box which states that you do not want these services. Each
fund uses reasonable procedures (including shareholder identity
verification) to confirm that instructions given by telephone are
genuine and is not liable for acting on these instructions. If
these procedures are not followed, it is the opinion of certain
PAGE 20
regulatory agencies that a fund may be liable for any losses that
may result from acting on the instructions given. A confirmation
is sent promptly after the telephone transaction. All
conversations are recorded.
Redemptions over $250,000.
Large sales can adversely affect a portfolio manager's ability to
implement a fund's investment strategy by causing the premature
sale of securities that would otherwise be held. If, in any 90-
day period, you redeem (sell) more than $250,000, or your sale
amounts to more than 1% of the fund's net assets, the fund has
the right to delay sending your proceeds for up to five business
days after receiving your request, or to pay the difference
between the redemption amount and the lesser of the two
previously mentioned figures with securities from the fund.
Excessive Trading
T. Rowe Price may bar excessive traders from purchasing shares.
Frequent trades, involving either substantial fund assets or a
substantial portion of your account or accounts controlled by
you, can disrupt management of the fund and raise its expenses.
We define "excessive trading" as exceeding one purchase and sale
involving the same fund within any 120-day period.
For example, you are in fund A. You can move substantial assets
from fund A to fund B and, within the next 120 days, sell your
shares in fund B to return to fund A or move to fund C.
If you exceed the number of trades described above, you may be
barred indefinitely from further purchases of T. Rowe Price
funds.
Three types of transactions are exempt from excessive trading
guidelines: 1) trades solely between money market funds; 2)
redemptions that are not part of exchanges; and 3) systematic
purchases or redemptions (see "Shareholder Services").
Keeping Your Account Open
Due to the relatively high cost to a fund of maintaining small
accounts, we ask you to maintain an account balance of at least
$1,000. If you balance is below $1,000 for three months or
longer, we have the right to close your account after giving you
60 days in which to increase your balance.
Small Account Fee
Because of the disproportionately high costs of servicing
accounts with low balances, a $10 fee, paid to T. Rowe Price
Services, the fund's transfer agent, will automatically be
deducted from nonretirement accounts with balances falling below
a minimum level. The valuation of accounts and the deduction are
expected to take place during the last five business days of
September. The fee will be deducted from accounts with balances
below $2,000, except for UGMA/UTMA accounts, for which the limit
is $500. The fee will be waived for any investor whose aggregate
T. Rowe Price mutual fund investments total $25,000 or more.
Accounts employing automatic investing (e.g., payroll deduction,
automatic purchase from a bank account, etc.) are also exempt
PAGE 21
from the charge. The fee will not apply to IRAs and other
retirement plan accounts. (A separate custodial fee may apply to
IRAs and other retirement plan accounts.)
Signature Guarantees
A signature guarantee is designed to protect you and the T. Rowe
Price funds from fraud by verifying your signature.
You may need to have your signature guaranteed in certain
situations, such as:
o
Written requests 1) to redeem over $50,000, or 2) to wire
redemption proceeds.
o
Remitting redemption proceeds to any person, address, or bank
account not on record.
o
Transferring redemption proceeds to a T. Rowe Price fund
account with a different registration (name/ownership) from
yours.
o
Establishing certain services after the account is opened.
You can obtain a signature guarantee from most banks, savings
institutions, broker-dealers, and other guarantors acceptable to
T. Rowe Price. We cannot accept guarantees from notaries public
or organizations that do not provide reimbursement in the case of
fraud.
3
More About the Funds
Organization and Management
Shareholders benefit from T. Rowe Price's 59 years of
investment management experience.
How are the funds organized?
The T. Rowe Price State Tax-Free Income Trust was organized in
1986 as a Massachusetts business trust and is a "nondiversified,
open-end investment company," or mutual fund. The money fund and
the bond fund were both organized in 1986. Mutual funds pool
money received from shareholders and invest it to try to achieve
specified objectives.
What is meant by "shares"?
As with all mutual funds, investors purchase shares when they put
money in a fund. These shares are part of a fund's authorized
capital stock, but share certificates are not issued.
Each share and fractional share entitles the shareholder to:
o
Receive a proportional interest in a fund's income and capital
gain distributions.
o
Cast one vote per share on certain fund matters, including the
election of fund directors, changes in fundamental policies, or
approval of changes in the fund's management contract.
o
Do T. Rowe Price funds have annual shareholder meetings?
The funds are not required to hold annual meetings and in
PAGE 22
order to avoid unnecessary costs to fund shareholders, do not
intend to do so except when certain matters, such as a change in
a fund's fundamental policies, are to be decided. In addition,
shareholders representing at least 10% of all eligible votes may
call a special meeting if they wish for the purpose of voting on
the removal of any fund director or trustee. If a meeting is held
and you cannot attend, you can vote by proxy. Before the meeting,
the funds will send you proxy materials that explain the issues
to be decided and include a voting card for you to mail back.
Who runs the funds?
All decisions regarding the purchase and sale of fund investments
are made by T. Rowe Price--specifically by each fund's portfolio
manager.
General Oversight.
The funds are governed by a Board of Trustees that elects the
funds' officers and meets regularly to review the funds'
investments, performance, expenses, and other business affairs.
The policy of each fund is that a majority of Board members will
be independent of T. Rowe Price.
Portfolio Management.
Each fund has an Investment Advisory Committee whose chairman
has day-to-day responsibility for managing the portfolio and
works with the committee in developing and executing the funds'
investment programs. The Investment Advisory Committees are
composed of the following members:
Money Fund. Patrice L. Berchtenbreiter, Chairman, Paul W. Boltz,
A. Gene Caponi, Patricia S. Deford, Joseph K. Lynagh, Konstantine
B. Mallas, William T. Reynolds, Theodore E. Robson, and William
F. Snider, Jr. Ms. Berchtenbreiter has been chairman of the
fund's committee since 1992. She joined T. Rowe Price in 1972 and
has been managing investments since 1987.
Bond Fund. William T. Reynolds, Chairman, Patrice L.
Berchtenbreiter, Paul W. Boltz, A. Gene Caponi, Patricia S.
Deford, Joseph K. Lynagh, Konstantine B. Mallas, Theodore E.
Robson, and William F. Snider, Jr. Mr. Reynolds has been chairman
of the fund's committee since 1990. He joined T. Rowe Price in
1981, and has been managing investments since 1978.
Marketing.
T. Rowe Price Investment Services, Inc., a wholly owned
subsidiary of T. Rowe Price, distributes (sells) shares of these
and all other T. Rowe Price funds.
Shareholder Services.
T. Rowe Price Services, Inc., another wholly owned subsidiary,
acts as the fund's transfer and dividend disbursing agent and
provides shareholder and administrative services. Services for
certain types of retirement plans are provided by T. Rowe Price
Retirement Plan Services, Inc., also a wholly owned subsidiary.
The address for each is 100 East Pratt St., Baltimore, MD 21202.
How are fund expenses determined?
The management agreement spells out the expenses to be paid by
PAGE 23
each fund.
In addition to the management fee, each fund pays for the
following: shareholder service expenses; custodial, accounting,
legal, and audit fees; costs of preparing and printing
prospectuses and reports sent to shareholders; registration fees
and expenses; proxy and annual meeting expenses (if any); and
director/trustee fees and expenses.
The Management Fee.
This fee has two parts--an "individual fund fee" (discussed under
"Transaction and Fund Expenses"), which reflects a fund's
particular investment management costs, and a "group fee." The
group fee, which is designed to reflect the benefits of the
shared resources of the T. Rowe Price investment management
complex, is calculated daily based on the combined net assets of
all T. Rowe Price funds (except Equity Index and the Spectrum
Funds and any institutional or private label mutual funds). The
group fee schedule (shown below) is graduated, declining as the
asset total rises, so shareholders benefit from the overall
growth in mutual fund assets.
0.480% First $1 billion 0.350% Next $2 billion
0.450% Next $1 billion 0.340% Next $5 billion
0.420% Next $1 billion 0.330% Next $10 billion
0.390% Next $1 billion 0.320% Next $10 billion
0.370% Next $1 billion 0.310% Next $16 billion
0.360% Next $2 billion 0.305% Thereafter
Each fund's portion of the group fee is determined by the ratio
of its daily net assets to the daily net assets of all the Price
funds described previously. Based on combined Price funds' assets
of approximately $53.5 billion at March 31, 1996, the group fee
was 0.33%.
Understanding Performance Information
This section should help you understand the terms used to
describe fund performance. You will come across them in
shareholder reports you receive from us, in our newsletter, The
Price Report, in Insights articles, in T. Rowe Price
advertisements, and in the media.
Total Return
Total return is the most widely used performance measure.
Detailed performance information is included in the fund's annual
and semiannual shareholder reports, and in the quarterly
Performance Update, which are all available without charge.
This tells you how much an investment in a fund has changed in
value over a given time period. It reflects any net increase or
decrease in the share price and assumes that all dividends and
capital gains (if any) paid during the period were reinvested in
additional shares. Including reinvested distributions means that
total return numbers include the effect of compounding, i.e., you
receive income and capital gain distributions on a rising number
of shares.
Advertisements for a fund may include cumulative or compound
PAGE 24
average annual total return figures, which may be compared with
various indices, other performance measures, or other mutual
funds.
Cumulative Total Return
This is the actual rate of return on an investment for a
specified period. A cumulative return does not indicate how much
the value of the investment may have fluctuated between the
beginning and the end of the period specified.
Average Annual Total Return
This is always hypothetical. Working backward from the actual
cumulative return, it tells you what constant year-by-year return
would have produced the actual, cumulative return. By smoothing
out all the variations in annual performance, it gives you an
idea of the investment's annual contribution to your portfolio
provided you held it for the entire period in question.
Yield
You will see frequent references to a fund's yield in our
reports, in advertisements, in media stories, and so on.
The current or "dividend" yield on a fund or any investment tells
you the relationship between the investment's current level of
annual income and its price on a particular day. The dividend
yield reflects the actual income paid to shareholders for a given
period, annualized, and divided by the average price during the
given period. For example, a fund providing $5 of annual income
per share and a price of $50 has a current yield of 10%. Yields
can be calculated for any time period. The money fund may
advertise a "current" yield, reflecting the latest 7-day income
annualized, or an "effective" yield, which assumes the income has
been reinvested in the fund.
The advertised or "SEC" yield is found by determining the net
income per share (as defined by the SEC) earned by a fund during
a 30-day base period and dividing this amount by the per share
price on the last day of the base period. The SEC yield may
differ from the dividend yield.
Investment Policies and Practices
Fund managers have considerable leeway in choosing investment
strategies and selecting securities they believe will help the
funds achieve their objectives.
This section takes a detailed look at some of the types of
securities the funds may hold in their portfolios and the various
kinds of investment practices that may be used in day-to-day
portfolio management. Each fund's investment program is subject
to further restrictions and risks described in the Statement of
Additional Information.
Shareholder approval is required to substantively change a fund's
objective and certain investment restrictions noted in the
following section as "fundamental policies." The managers also
follow certain "operating policies" which can be changed without
shareholder approval. However, significant changes are discussed
with shareholders in fund reports. Each fund adheres to
applicable investment restrictions and policies at the time it
PAGE 25
makes an investment. A later change in circumstances will not
require the sale of an investment if it was proper at the time it
was made.
The funds' holdings of certain kinds of investments cannot exceed
maximum percentages of total assets, which are set forth herein.
For instance, the bond fund is not permitted to invest more than
10% of total assets in residual interest bonds. While these
restrictions provide a useful level of detail about the funds'
investment programs, investors should not view them as an
accurate gauge of the potential risk of such investments. For
example, in a given period, a 5% investment in residual interest
bonds could have significantly more of an impact on a fund's
share price than its weighting in the portfolio. The net effect
of a particular investment depends on its volatility and the size
of its overall return in relation to the performance of all the
funds' other investments.
Changes in the funds' holdings, the funds' performance, and the
contribution of various investments are discussed in the
shareholder reports sent to you.
Types of Portfolio Securities
In seeking to meet their investment objectives, the funds may
invest in any type of municipal security or instrument (including
certain potentially high-risk derivatives) whose investment
characteristics are consistent with the funds' investment
programs. The following pages describe the principal types of
portfolio securities and investment management practices of the
funds.
Fundamental policy:
Each fund is registered as a nondiversified mutual fund. This
means that each fund may invest a greater portion of its assets
in a single issuer than a diversified fund which may subject the
funds to greater risk with respect to their portfolio securities.
However, because each fund intends to qualify as a "regulated
investment company" under the Internal Revenue Code, it must
invest so that, at the end of each quarter, with respect to 50%
of its total assets, not more than 5% of its assets are invested
in the securities of a single issuer, and with respect to the
remaining 50%, no more than 25% of fund assets are invested in a
single issuer.
Operating policy (money fund only): Effective October 3, 1996,
or at such other time as required by Rule 2a-7 under the
Investment Company Act of 1940, the money market fund will not
purchase a security if, as a result, with respect to 75% of its
total assets, more than 5% of its total assets would be invested
in securities of a single issuer, provided that this limitation
does not apply to purchases of U.S. government securities or
securities subject to certain types of guarantees.
Municipal Securities.
In purchasing municipals, the funds rely on the opinion of the
issuer's bond counsel regarding the tax-exempt status of the
PAGE 26
investment.
Each fund's assets are invested primarily in various tax-free
municipal debt securities. The issuers have a contractual
obligation to pay interest at a stated rate on specific dates and
to repay principal (the bond's face value) on a specified date or
dates. An issuer may have the right to redeem or "call" a bond
before maturity, and the fund may have to reinvest the proceeds
at lower rates.
There are two broad categories of municipal bonds. General
obligation bonds are backed by the issuer's "full faith and
credit," that is, its full taxing and revenue raising power.
Revenue bonds usually rely exclusively on a specific revenue
source, such as charges for water and sewer service, to generate
money for debt service.
Private Activity Bonds.
While income from most municipals is exempt from federal income
taxes, the income from certain types of so-called private
activity bonds (a type of revenue bond) may be subject to the
alternative minimum tax (AMT). However, only persons subject to
the AMT pay this tax. Private activity bonds may be issued for
purposes such as housing or airports or to benefit a private
company. (Being subject to the AMT does not mean the investor
necessarily pays this tax. For further information, please see
"Distributions and Taxes.")
Fundamental policy:
Under normal market conditions, each fund will not purchase any
security if, as a result, less than 80% of the funds income
would be exempt from federal and New York state and city income
taxes. The income included under the 80% test does not include
income from securities subject to the alternative minimum tax.
Operating policy:
During periods of abnormal market conditions, for temporary
defensive purposes, the funds may invest without limit in high-
quality, short-term securities whose income is subject to federal
and New York state and city income tax.
In addition to general obligation and revenue bonds, the funds'
investments may include, but are not limited to, the following
types of securities:
Municipal Lease Obligations.
A lease is not a full faith and credit obligation of the
issuer and is usually backed only by the borrowing government's
unsecured pledge to make annual appropriations for lease
payments. There have been challenges to the legality of lease
financing in numerous states and, from time to time, certain
municipalities have considered not appropriating money for lease
payments. In deciding whether to purchase a lease obligation, the
funds would assess the financial condition of the borrower, the
merits of the project, the level of public support for the
project, and the legislative history of lease financing in the
state. These securities may be less readily marketable than other
municipals. The funds may also purchase unrated lease
PAGE 27
obligations.
Municipal Warrants (bond fund).
Municipal warrants are essentially call options on municipal
bonds. In exchange for a premium, they give the purchaser the
right, but not the obligation, to purchase a municipal bond in
the future. The funds might purchase a warrant to lock in forward
supply in an environment where the current issuance of bonds is
sharply reduced. Like options, warrants may expire worthless and
they may have reduced liquidity.
Operating policy:
The bond fund will not invest more than 2% of its total assets in
municipal warrants.
Securities With "Puts" or Other Demand Features.
Some longer-term municipals give the investor the right to "put"
or sell the security at par (face value) within a specified
number of days following the investor's request--usually one to
seven days. This demand feature enhances a security's liquidity
by shortening its effective maturity and enables it to trade at a
price equal to or very close to par. If the demand feature were
terminated prior to being exercised, the funds would hold the
longer-term security.
Securities With Credit Enhancements.
o
Letters of Credit.
Letters of credit are issued by a third party, usually a bank, to
enhance liquidity and ensure repayment of principal and any
accrued interest if the underlying municipal security should
default.
o
Municipal Bond Insurance.
T. Rowe Price periodically reviews the credit quality of the
insurer.
This insurance, which is usually purchased by the bond issuer
from a private, nongovernmental insurance company, provides an
unconditional and irrevocable guarantee that the insured bond's
principal and interest will be paid when due. Insurance does not
guarantee the price of the bond or the share price of any fund.
The credit rating of an insured bond reflects the credit rating
of the insurer, based on its claims-paying ability.
The obligation of a municipal bond insurance company to pay a
claim extends over the life of each insured bond. Although
defaults on insured municipal bonds have been low to date and
municipal bond insurers have met their claims, there is no
assurance this will continue. A higher than expected default rate
could strain the insurer's loss reserves and adversely affect its
ability to pay claims to bondholders, such as the funds. The
number of municipal bond insurers is relatively small, and not
all of them have the highest rating.
o
Standby Purchase Agreements.
A Standby Bond Purchase Agreement (SBPA) is a liquidity
PAGE 28
facility provided to pay the purchase price of bonds that cannot
be remarketed. The obligation of the liquidity provider (usually
a bank) is only to advance funds to purchase tendered bonds that
cannot be remarketed and does not cover principal or interest
under any other circumstances. The liquidity provider's
obligations under the SBPA are usually subject to numerous
conditions, including the continued creditworthiness of the
underlying borrower.
Synthetic or Derivative Securities.
These securities are created from existing municipal bonds:
o
Residual Interest Bonds (bond fund) (a type of potentially high-
risk derivative).
The income stream provided by an underlying bond is divided to
create two securities, one short-term and one long-term. The
interest rate on the short-term component is reset by an index or
auction process normally every 7 to 35 days. After income is paid
on the short-term securities at current rates, the residual
income goes to the long-term securities. Therefore, rising short-
term interest rates result in lower income for the longer-term
portion, and vice versa. The longer-term bonds can be very
volatile and may be less liquid than other municipals of
comparable maturity.
Operating policy:
The bond fund will not invest more than 10% of its total assets
in residual interest bonds.
o
Participation Interests.
This term covers various types of securities created by
converting fixed rate bonds into short-term, variable rate
certificates. These securities have been developed in the
secondary market to meet demand for short-term, tax-exempt
securities. The funds will invest only in securities deemed tax-
exempt by a nationally recognized bond counsel, but there is no
guarantee the interest will be exempt because the IRS has not
issued a definitive ruling.
o
Embedded Interest Rate Swaps and Caps (bond fund).
Embedded interest rate swaps enhance yields, but also increase
interest rate risk.
In a fixed rate, long-term municipal bond with an interest rate
swap attached to it, the bondholder usually receives the bond's
fixed coupon payment as well as a variable rate payment that
represents the difference between a fixed rate for the term of
the swap (which is typically shorter than the bond it is attached
to) and a variable rate short-term municipal index. The
bondholder receives excess income when short-term rates remain
below the fixed interest rate swap rate. If short-term rates rise
above the fixed income swap rate, the bondholder's income is
reduced. At the end of the interest rate swap term, the bond
reverts to a single fixed coupon payment.
An embedded interest rate cap allows the bondholder to receive
PAGE 29
payments whenever short-term rates rise above a level established
at the time of purchase. They normally are used to hedge against
rising short-term interest rates.
Both instruments may be volatile and of limited liquidity and
their use may adversely affect a fund's total return.
Operating policy:
The bond fund will not invest more than 10% of its total assets
in embedded interest rate swaps and caps.
Private Placements.
The funds may seek to enhance their yield through the purchase of
private placements. These securities are sold through private
negotiations, usually to institutions or mutual funds, and may
have resale restrictions. Their yields are usually higher than
comparable public securities to compensate the investor for their
limited marketability.
Operating policy:
The bond fund may not invest more than 15% (10% for the money
market fund) of its net assets in illiquid securities, including
unmarketable private placements.
Types of Management Practices
Cash reserves provide flexibility and serve as a short-term
defense during periods of unusual market volatility.
Cash Position (bond fund).
The fund will hold a portion of its assets in short-term, tax-
exempt money market securities maturing in one year or less. The
reserve position accomplishes the following: provides flexibility
in meeting redemptions, expenses, and the timing of new
investments; can help in structuring a fund's weighted average
maturity; and serves as a short-term defense during periods of
unusual market volatility. The fund's cash reserve position will
be comprised of short-term, investment-grade securities including
tax-exempt commercial paper, municipal notes, and short-term
maturity bonds. Some of these securities may have adjustable,
variable, or floating rates.
When-Issued Securities (each fund) and Forwards (bond fund).
New issues of municipals are often sold on a "when-issued" basis,
that is, delivery and payment take place 15-45 days after the
buyer has agreed to the purchase. Some bonds, called "forwards,"
have longer-than-standard settlement dates, typically 6 to 24
months. When buying these securities, each fund will maintain
cash or high-grade marketable securities held by its custodian
equal in value to its commitment for these securities. The funds
do not earn interest on when-issued and forward securities until
settlement, and the value of the securities may fluctuate between
purchase and settlement. Municipal "forwards" typically carry a
substantial yield premium to compensate the buyer for their
greater interest rate, credit, and liquidity risks.
Interest Rate Futures (bond fund).
Futures (a type of potentially high-risk derivative) are often
used to manage risk, because they enable the investor to buy or
sell an asset in the future at an agreed upon price.
Specifically, the funds may use futures (and options on futures)
PAGE 30
for any number of reasons, including: to hedge against a
potentially unfavorable change in interest rates and to adjust
their exposure to the municipal bond market; to protect portfolio
value; in an effort to enhance income; and to adjust the
portfolios' duration. The use of futures for hedging and non-
hedging purposes may not always be successful. Their prices can
be highly volatile, using them could lower a fund's total return,
and the potential loss from their use could exceed a fund's
initial exposure to such contracts.
Operating policy:
Initial margin deposits on futures and premiums on options used
for non-hedging purposes will not equal more than 5% of the bond
fund's net asset value.
Borrowing Money and Transferring Assets.
Each fund can borrow money from banks as a temporary measure for
emergency purposes, to facilitate redemption requests, or for
other purposes consistent with each fund's investment objective
and program. Such borrowings may be collateralized with fund
assets, subject to restrictions.
Fundamental policy:
Borrowings may not exceed 33 1/3% of total fund assets.
Operating policy:
Each fund may not transfer as collateral any portfolio securities
except as necessary in connection with permissible borrowings or
investments, and then such transfers may not exceed 33 1/3% of
fund's total assets. A fund may not purchase additional
securities when borrowings exceed 5% of total assets.
Portfolio Turnover (bond fund).
The fund generally purchases securities with the intention of
holding them for investment; however, when market conditions or
other circumstances warrant, securities may be purchased and sold
without regard to the length of time held. Due to the nature of
the fund's investment program, the fund's portfolio turnover rate
may exceed 100%. Although the fund does not expect to generate
any taxable income, a high turnover rate may increase transaction
costs and may affect taxes paid by shareholders to the extent
short-term gains are distributed. The bond fund's portfolio
turnover rates for the fiscal years ended February 29, 1996,
February 28, 1995, and February 28, 1994, were 116.0%, 134.3%,
and 84.9%, respectively.
Sector Concentration.
It is possible that each fund could have a considerable amount of
assets (25% or more) in securities that would tend to respond
similarly to particular economic or political developments. An
example would be securities of issuers related to a single
industry, such as health care or nuclear energy.
Operating policy:
Each fund will not invest more than 25% of total assets in
industrial development bonds of projects in the same industry
(such as solid waste, nuclear utility, or airlines). Bonds which
are refunded with escrowed U.S. government securities are not
subject to the 25% limitation.
Credit-Quality Considerations.
PAGE 31
The credit quality of most bond issues is evaluated by rating
agencies such as Moody's and Standard & Poor's. Credit quality
refers to the issuer's ability to meet all required interest and
principal payments. The highest ratings are assigned to issuers
perceived to be the best credit risks. T. Rowe Price research
analysts also evaluate all portfolio holdings of each fund,
including those rated by outside agencies. The lower the rating
on a bond, the higher the yield, other things being equal.
Table 7 shows the rating scale used by the major rating agencies.
T. Rowe Price considers publicly available ratings, but
emphasizes its own credit analysis when selecting investments.
Ratings of Municipal Debt Securities
Moody's Standard Fitch Defin-
Investors & Poor's Investors ition
Service, Inc. Corporation Service, Inc.
Long-Term Aaa AAA AAA Highest
quality
Aa AA AA High
quality
A A A Upper
medium
grade
Baa BBB BBB Medium
grade
Moody's S&P Fitch
Short-Term MIG1/VMIG1 Best quality SP1+ Very F-1+
strong Except-
quality ionally
strong
quality
SP1 Strong F-1 Very
grade strong
quality
MIG2/VMIG2 High quality SP2 Satisfac- F-2
tory grade Good
credit
quality
Commercial P-1 Superior A-1+ Extremely F-1+
Paper quality strong quality Except-
ionally
strong
quality
A-1 Strong F-1 Very
quality strong
quality
P-2 Strong A-2 Satisfac- F-2
quality tory quality Good
credit
quality
Table 7
Explanation of Quality Ratings
Bond Rating Explanation
PAGE 32
Moody's Investors
Service, Inc. Aaa Highest quality, smallest
degree of investment risk.
Aa High quality; together with
Aaa bonds, they compose the
high-grade bond group.
A Upper-medium-grade
obligations; many favorable
investment attributes.
Baa Medium-grade obligations;
neither highly protected nor
poorly secured. Interest and
principal appear adequate for
the present but certain
protective elements may be
lacking or may be unreliable
over any great length of time.
Ba More uncertain, with
speculative elements.
Protection of interest and
principal payments not well
safeguarded during good and
bad times.
B Lack characteristics of
desirable investment;
potentially low assurance of
timely interest and principal
payments or maintenance of
other contract terms over
time.
Caa Poor standing, may be in
default; elements of danger
with respect to principal or
interest payments.
Ca Speculative in a high degree;
could be in default or have
other marked shortcomings.
C Lowest rated; extremely poor
prospects of ever attaining
investment standing.
Standard & Poor's
Corporation AAA Highest rating; extremely
strong capacity to pay
principal and interest.
AA High quality; very strong
capacity to pay principal and
interest.
A Strong capacity to pay
principal and interest;
somewhat more susceptible to
the adverse effects of
changing circumstances and
economic conditions.
PAGE 33
BBB Adequate capacity to pay
principal and interest;
normally exhibit adequate
protection parameters, but
adverse economic conditions or
changing circumstances more
likely to lead to a weakened
capacity to pay principal and
interest than for higher-rated
bonds.
BB, B, CCC, CC Predominantly speculative with
respect to the issuer's
capacity to meet required
interest and principal
payments. BB-lowest degree of
speculation; CC-the highest
degree of speculation. Quality
and protective characteristics
outweighedby large
uncertainties or major risk
exposure to adverse
conditions.
D In default.
Fitch Investors
Service, Inc. AAA Highest quality; obligor has
exceptionally strong ability
to pay interest and repay
principal, which is unlikely
to be affected by reasonably
foreseeable events.
AA Very high quality; obligor's
ability to pay interest and
repay principal is very
strong. Because bonds rated
in the AAA and AA categories
are not significantly
vulnerable to foreseeable
future developments, short-
term debt of these issuers is
generally rated F-1+.
A High quality; obligor's
ability to pay interest and
repay principal is considered
to be strong, but may be more
vulnerable to adverse changes
in economic conditions and
circumstances than higher-
rated bonds.
BBB Satisfactory credit quality;
obligor's ability to pay
interest and repay principal
is considered adequate.
Unfavorable changes in
PAGE 34
economic conditions and
circumstances are more likely
to adversely affect these
bonds and impair timely
payment. The likelihood that
the ratings of these bonds
will fall below investment
grade is higher than for
higher-rated bonds.
BB, CCC, CC, C Not investment grade;
predominantly speculative with
respect to the issuer's
capacity to repay interest and
repay principal in accordance
with the terms of the
obligation for bond issues not
in default. BB is the least
speculative. C is the most
speculative.
Table 8
PAGE 1
4 Investing with T. Rowe Price
Account Requirements and Transaction Information
Always verify your transactions by carefully reviewing the
confirmation we send you. Please report any discrepancies to
Shareholder Services promptly.
Tax Identification Number
We must have your correct social security or corporate tax
identification number on a signed New Account Form or W-9 Form.
Otherwise, federal law requires the funds to withhold a
percentage (currently 31%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS
fine. If this information is not received within 60 days after
your account is established, your account may be redeemed, priced
at the NAV on the date of redemption.
Unless you request otherwise, one shareholder report will be
mailed to multiple account owners with the same tax
identification number and same ZIP code and to shareholders who
have requested that their account be combined with someone
else's for financial reporting.
Institutional Accounts
Transaction procedures in the following sections may not apply to
institutional accounts. For institutional account procedures,
please call your designated account manager or service
representative.
Opening a New Account: $2,500 minimum initial investment; $1,000
for gifts or transfers to minors (UGMA/UTMA) accounts
Account Registration
If you own other T. Rowe Price funds, be sure to register any new
account just like your existing accounts so you can exchange
among them easily. (The name and account type would have to be
identical.)
Regular Mail
T. Rowe Price
Account Services
P.O. Box 17300
Baltimore, MD
21298-9353
Mailgram, Express,
Registered, or Certified
Mail
T. Rowe Price
Account Services
10090 Red Run Blvd.
PAGE 2
Owings Mills, MD 21117
By Mail
Please make your check payable to T. Rowe Price Funds
(otherwise it will be returned) and send your check together
with the New Account Form to the address at left. We do not
accept third party checks to open new accounts.
By Wire
o Call Investor Services for an account number and give the
following wire address to your bank:
Morgan Guaranty Trust Co. of New York
ABA# 021000238
T. Rowe Price [fund name]
AC-00153938
account name(s), and account number
o Complete a New Account Form and mail it to one of the
appropriate addresses listed on the previous page.
Note: No services will be established and IRS penalty
withholding may occur until a signed New Account Form is
received.
By Exchange
Call Shareholder Services or use Tele*Access or your personal
computer (see "Automated Services" under "Shareholder Services").
The new account will have the same registration as the account
from which you are exchanging. Services for the new account may
be carried over by telephone request if preauthorized on the
existing account. (See explanation of "Excessive Trading" under
"Transaction Procedures.")
In Person
Drop off your New Account Form at any of the locations listed on
the cover and obtain a receipt.
Purchasing Additional Shares: $100 minimum purchase; $50 minimum
for Automatic Asset Builder and gifts or transfers to minors
(UGMA/UTMA) accounts
By ACH Transfer
Use Tele*Access, your personal computer, or call Investor
Services if you have established electronic transfers using the
ACH network.
By Wire
Call Shareholder Services or use the wire address in "Opening a
New Account."
Regular Mail
T. Rowe Price Funds
PAGE 3
Account Services
P.O. Box 89000
Baltimore, MD
21289-1500
(For mailgrams,
express, registered,
or certified mail,
see previous section.)
By Mail
o Make your check payable to T. Rowe Price Funds (otherwise
it may be returned).
o Mail the check to us at the address shown at left with
either a fund reinvestment slip or a note indicating the
fund you want to buy and your fund account number.
o Remember to provide your account number and the fund name on
your check.
By Automatic Asset Builder
Fill out the Automatic Asset Builder
section on the New Account or Shareholder Services Form.
Exchanging and Redeeming Shares
By Phone
Call Shareholder Services. If you find our phones busy during
unusually volatile markets, please consider placing your order by
your personal computer, Tele*Access (if you have previously
authorized telephone services), mailgram or by express mail. For
exchange policies, please see "Transaction Procedures and Special
Requirements--Excessive Trading."
Redemption proceeds can be mailed to your account address, sent
by ACH transfer, or wired to your bank (provided your bank
information is already on file). For charges, see "Electronic
Transfers--By Wire" under "Shareholder Services".
By Mail
For each account involved, provide the account name, number, fund
name, and exchange or redemption amount. For exchanges, be sure
to indicate any fund you are exchanging out of and the fund or
funds you are exchanging into. Please mail to the appropriate
address below or as indicated at left. T. Rowe Price requires the
signatures of all owners exactly as registered, and possibly a
signature guarantee (see "Transaction Procedures and Special
Requirements--Signature Guarantees").
Mailgram, Express, Registered Regular Mail:
or Certified mail:
PAGE 4
T. Rowe Price T. Rowe Price
Account Services Account Services
10090 Red Run Boulevard P.O. Box 89000
Owings Mills, MD 21117 Baltimore, MD 21289-0220
Rights Reserved by the Fund
The fund and its agents reserve the right to waive or lower
investment minimums; to accept initial purchases by telephone or
mailgram; to cancel or rescind any purchase or exchange (for
example, if an account has been restricted due to excessive
trading or fraud) upon notice to the shareholder within five
business days of the trade or if the written confirmation has not
been received by the shareholder, whichever is sooner; to freeze
any account and suspend account services when notice has been
received of a dispute between the registered or beneficial
account owners or there is reason to believe a fraudulent
transaction may occur; to otherwise modify the conditions of
purchase and any services at any time; or to act on instructions
believed to be genuine.
Shareholder Services
1-800-225-5132
1-410-625-6500
Shareholder Services
Many services are available to you as a T. Rowe Price
shareholder; some you receive automatically and others you must
authorize on the New Account Form. By signing up for services on
the New Account Form rather than later, you avoid having to
complete a separate form and obtain a signature guarantee. This
section reviews some of the principal services currently offered.
Our Services Guide contains detailed descriptions of these and
other services.
If you are a new T. Rowe Price investor, you will receive a
Services Guide with our Welcome Kit.
Investor Services
1-800-638-5660
1-410-547-2308
Note: Corporate and other entity accounts require an original or
certified resolution to establish services and to redeem by mail.
For more information, call Investor Services.
Retirement Plans
We offer a wide range of plans for individuals and
institutions, including large and small businesses: IRAs,
SEP-IRAs, Keoghs (profit sharing and money purchase pension),
401(k), and 403(b)(7). For information on IRAs, call Investor
Services. For information on all other retirement plans, please
PAGE 5
call our Trust Company at 1-800-492-7670.
Exchange Service
You can move money from one account to an existing identically
registered account, or open a new identically registered account.
Remember, exchanges are purchases and sales for tax purposes.
(Exchanges into a state tax-free fund are limited to investors
living in states where the funds are registered.) Some of the T.
Rowe Price funds may impose a redemption fee of .50% to 2%,
payable to such funds, on shares held for less than one year, or
in some funds, six months.
Automated Services
Tele*Access
1-800-638-2587
1-410-625-7676
Tele*Access. 24-hour service via toll-free number provides
information on fund yields and prices, dividends, account
balances, and your latest transaction, as well as the ability to
request prospectuses, account and tax forms, duplicate
statements, and checks, and to initiate purchase, redemption and
exchange orders in your accounts (see "Electronic Transfers"
below).
Personal Computer Access. 24-hour service via dial-up modem
provides the same information as Tele*Access, but on a personal
computer. Please call Investor Services to order.
Telephone and Walk-In Services
Buy, sell, or exchange shares by calling one of our service
representatives or by visiting one of our investor center
locations whose addresses are listed on the cover.
Electronic Transfers
By ACH. With no charges to pay, you can initiate a purchase or
redemption for as little as $100 or as much as $100,000 between
your bank account and fund account using the ACH network. Enter
instructions via Tele*Access or your personal computer or call
Shareholder Services.
By Wire. Electronic transfers can also be conducted via bank
wire. There is currently a $5 fee for wire redemptions under
$5,000, and your bank may charge for incoming or outgoing wire
transfers regardless of size.
Checkwriting (not available for equity funds, or the High Yield
Fund or Emerging Markets Bond Fund)
You may write an unlimited number of free checks on any money
market fund, and most bond funds, with a minimum of $500 per
check. Keep in mind, however that a check results in a
redemption; a check written on a bond fund will create a taxable
PAGE 6
event which you and we must report to the IRS.
Automatic Investing ($50 minimum)
You can invest automatically in several different ways,
including:
Automatic Asset Builder. You instruct us to move $50 or more
from your bank account, or you can instruct your employer to send
all or a portion of your paycheck to the fund or funds you
designate.
Note: If you are moving money from your bank account, and if
the date you select for your transactions falls on a Sunday or a
Monday which is a holiday, your order will be priced on the
second business day following this date.
Automatic Exchange. You can set up systematic investments from
one fund account into another, such as from a money fund into a
stock fund.
Discount Brokerage
Discount Brokerage is a division of T. Rowe Price Investment
Services, Inc., Member NASD/SIPC.
This additional service gives you the opportunity to easily
consolidate all your investments with one company. Through our
discount brokerage, you can buy and sell individual securities--
stocks, bonds, options, and others--at considerable commission
savings. We also provide a wide range of services, including:
Automated telephone and on-line services - You can enter trades,
access quotes, and review account information 24 hours a day,
seven days a week. Any trades executed through these programs
save you an additional 10% on commissions.
Note: Discount applies to our current commission schedule,
subject to our $35 minimum commission.
To open an account:
1-800-638-5660
For existing discount brokerage investors:
1-800-225-7720
Investor Information - A variety of informative reports, such as
our Brokerage Insights series, S&P Market Month Newsletter, and
optional Stock Reports can help you better evaluate economic
trends and investment opportunities.
Dividend Reinvestment Service - Virtually all stock held in
customer accounts are eligible for this service--free of
charge.
PAGE 1
Facts at a Glance
Investment Goal
The highest level of income exempt from federal and Virginia
state income taxes consistent with each fund's prescribed
investment program.
As with all mutual funds, these funds may not meet their goal.
Strategy and Risk/Reward
Virginia Short-Term Tax-Free Bond Fund.
Invests primarily in short-term, investment-grade Virginia
municipal bonds. Dollar-weighted average maturity will not exceed
three years. There is no maturity limit on individual securities.
Risk/Reward:
Higher income than a municipal money market fund and less
potential share price fluctuation than the Virginia Tax-Free Bond
Fund.
Virginia Tax-Free Bond Fund.
Invests primarily in investment-grade Virginia municipal bonds.
Dollar-weighted average maturity is expected to exceed 15 years.
Risk/Reward:
Higher income than the Virginia Short-Term Bond Fund but also
greater potential price fluctuation.
Investor Profile
Virginia taxpayers who, because of their tax bracket, can benefit
from income that is exempt from federal and Virginia state income
taxes. Not appropriate for tax-deferred retirement plans, such as
IRAs.
Fees and Charges
100% no load. No fees or charges to buy or sell shares or to
reinvest dividends; no 12b-1 marketing fees; free telephone
exchange.
Investment Manager
Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe
Price Associates, Inc. ("T. Rowe Price") and its affiliates
managed over $82 billion, including over $5.7 billion in
municipal bond assets, for over four million individual and
institutional investor accounts as of March 31, 1996.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION, OR
ANY STATE SECURITIES COMMISSION, PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
T. Rowe Price
State Tax-Free
Income Trust
July 1, 1996
Prospectus
Contents
1
About the Funds
Transaction and Fund Expenses
Financial Highlights
PAGE 2
Fund, Market, and Risk
Characteristics
2
About Your Account
Pricing Shares and Receiving Sale Proceeds
Distributions and Taxes
Transaction Procedures and Special Requirements
3
More About the Funds
Organization and Management
Understanding Performance Information
Investment Policies and Practices
4
Investing With T. Rowe Price
Account Requirements and Transaction Information
Opening a New Account
Purchasing Additional Shares
Exchanging and Redeeming
Shareholder Services
This prospectus contains information you should know before
investing. Please keep it for future reference. A Statement of
Additional Information about the funds, dated July 1, 1996, has
been filed with the Securities and Exchange Commission and is
incorporated by reference in this prospectus. To obtain a free
copy, call 1-800-638-5660.
To Open an Account
Investor Services
1-800-638-5660
1-410-547-2308
For Existing Accounts
Shareholder Services
1-800-225-5132
1-410-625-6500
For Yields and Prices
Tele*AccessR
1-800-638-2587
1-410-625-7676
24 hours, 7 days
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PAGE 3
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Internet Address
http://www.troweprice.com
To help you achieve your financial goals, T. Rowe Price offers a
wide range of stock, bond, and money market investments, as well
as convenient services and timely, informative reports.
Prospectus
T. Rowe Price
Virginia Tax-Free Funds
T. Rowe Price
State Tax-Free
Income Trust
July 1, 1996
Short- and long-term bond funds for investors seeking income that
is exempt from federal and Virginia state income taxes.
Invest With ConfidenceR
1
About the Funds
Transaction and Fund Expenses
Like all T. Rowe Price funds, these funds are 100% no load.
These tables should help you understand the kinds of expenses you
will bear directly or indirectly as a fund shareholder.
For the fiscal year ended February 29, 1996, the Short-Term
Bond Fund and Tax-Free Bond Fund paid $18,000 and $144,000,
respectively, to T. Rowe Price Services, Inc. for transfer and
dividend disbursing functions and shareholder services, and
$60,000 and $61,000, respectively, to T. Rowe Price for
accounting services.
In Table 1 below, "Shareholder Transaction Expenses," shows
that you pay no sales charges. All the money you invest in a fund
goes to work for you, subject to the fees explained below.
"Annual Fund Expenses" shows how much it will cost to operate
each fund for a year, based on 1996 fiscal year expenses. These
are costs you pay indirectly, because they are deducted from each
fund's total assets before the daily share price is calculated
and before dividends and other distributions are made. In other
words, you will not see these expenses on your account
statement.
Shareholder Transaction Expenses
Short-Term Bond Tax-Free Bond
Sales charge "load" on
purchases None None
Sales charge "load" on
reinvested dividends None None
Redemption fees None None
Exchange fees None None
Annual Fund Expenses
PAGE 4
Percentage of Fiscal 1996 Average
Net Assets
Short-Term Bond Tax-Free Bond
(after reduction)
Management fee 0.00%a 0.44%
Marketing fees (12b-1) None None
Total other (shareholder
servicing, custodial,
auditing, etc.) 0.65%a 0.21%
Total fund expenses
0.65%a 0.65%
a The fund's management fee, other expenses, and its total
expense ratio would have been 0.44%, 1.35%, and 1.79%,
respectively, had T. Rowe Price not agreed to reduce management
fees and assume other expenses in accordance with the expense
limitation described in Table 3.
Note: A $5 fee is charged for wire redemptions under $5,000,
subject to change without notice, and a $10 fee is charged for
small accounts when applicable (see "Small Account Fee" under
"Transaction Procedures and Special Requirements").
Table 1
The main types of expenses, which all mutual funds may charge
against fund assets, are:
o
A management fee:
the percent of fund assets paid to the funds' investment manager.
Each fund's fee is comprised of a group fee, discussed later, and
an individual fund fee of 0.10%.
o
"Other" administrative expenses:
primarily the servicing of shareholder accounts, such as
providing statements, reports, disbursing dividends, as well as
custodial services.
o
Marketing or distribution fees:
an annual charge ("12b-1") to existing shareholders to defray the
cost of selling shares to new shareholders. T. Rowe Price funds
do not levy 12b-1 fees.
For further details on fund expenses, please see "Organization
and Management."
o
Hypothetical example:
The table at right is just an example; actual expenses can be
higher or lower than those shown.
Assume you invest $1,000, the fund returns 5% annually, expense
ratios remain as listed previously, and you close your account at
the end of the time periods shown. Your expenses would be:
Fund 1 year 3 years 5 years 10 years
PAGE 5
Short-Term Bond $7 $21 $36 $81
Tax-Free Bond $7 $21 $36 $81
Table 2
Table 3 sets forth expense ratio limitations and the periods for
which they are effective. For each, T. Rowe Price has agreed to
waive its fees and bear any expenses to the extent such fees or
expenses would cause the fund's ratio of expenses to average net
assets to exceed the indicated percentage limitations. Fees
waived or expenses paid or assumed are subject to reimbursement
to T. Rowe Price by each fund through the indicated reimbursement
date, but no reimbursement will be made if it would result in the
fund's expense ratio exceeding its specified limit.
Expense Ratio Limitations
Fund Limitation Expense Ratio Reimbursement
Period Limitation Date
Short-Term
Bond a March 1, 1996 -
February 28, 1998 0.65% February 29, 2000
Tax-Free
Bond b March 1, 1995-
February 28, 1997 0.65% February 28, 1999
a To limit the Short-Term Bond Fund's expenses during its
initial period of operations, T. Rowe Price agreed to waive its
fees and bear any expenses through February 29, 1996, to the
extent such fees or expenses would cause the fund's ratio of
expenses to average net assets to exceed 0.65%. Effective March
1, 1996, T. Rowe Price agreed to extend the existing expense
limitation of 0.65% for a period of two years through February
28, 1998. Fees waived or expenses paid or assumed under this
agreement are subject to reimbursement to T. Rowe Price whenever
the expense ratio is below 0.65%; however, no reimbursement will
be made after February 28, 1998 (for the first agreement), or
February 29, 2000 (for the second agreement), or if it would
result in the expense ratio exceeding 0.65%. Any amounts
reimbursed will have the effect of increasing fees otherwise paid
by the fund.
b The Tax-Free Bond Fund previously operated under 0.60%
limitation that expired February 28, 1995. Effective March 1,
1995, T. Rowe Price agreed to increase the existing expense
limitation of 0.60% to 0.65% for a period of two years from March
1, 1995. Fees waived or expenses paid or assumed under these
agreements are subject to reimbursement to T. Rowe Price;
however, no reimbursement will be made after February 28, 1997
(for the first agreement), or February 28, 1999 (for the second
agreement), or if it would result in the expense ratio exceeding
0.60% (for the first agreement), or 0.65% (for the second
agreement). Any amounts reimbursed will have the effect of
increasing fees otherwise paid by the fund.
Table 3
Financial Highlights
The following table provides information about each fund's
financial history. It is based on a single share outstanding
PAGE 6
throughout each fiscal year. The respective table is part of each
fund's financial statements, which are included in the funds'
annual report and incorporated by reference into the Statement of
Additional Information. This document is available to
shareholders upon request. The financial statements in the annual
report have been audited by Coopers & Lybrand L.L.P., independent
accountants, whose unqualified report covers the periods shown.
Investment Activities Distributions
Net Real-
ized and
Net Unreal- Total
Asset Net ized Gain from Net Net
Value, Invest-(Loss) Invest-Invest- Real-
Period Begin- ment on ment ment ized Total
Ended ning of Income Invest- Activi-Income Gain Distri-
February 28 Period (Loss) ments ties (Loss) (Loss) butions
_________________________________________________________________
Short-Term Bond
1995a $5.00 $0.05f $0.06 $0.11 $(0.05) -- $(0.05)
1996e 5.06 0.21f 0.11 0.32 (0.21) (0.01) (0.22)
Tax-Free Bond
1992be $10.00 $0.48d $0.31 $0.79 $(0.48)$(0.04)$(0.52)
1993 10.27 0.58d 0.82 1.40 (0.58) (0.03) (0.61)
1994 11.06 0.56d 0.09 0.65 (0.56) (0.15) (0.71)
1995 11.00 0.57d (0.43) 0.14 (0.57) (0.01) (0.58)
1996e 10.56 0.57d 0.53 1.10 (0.57) -- (0.57)
_________________________________________________________________
End of Period
Ratio
of
Ratio Net
of Invest-
Net Total Expenses ment Port-
Asset Return to Income folio
Period Value, (Includes Net Average to Aver- Turn-
Ended End of Reinvested Assets ($ Net age Net over
February 28 Period Dividends) Thousands) Assets Assets Rate
_________________________________________________________________
Short-Term Bond
1995a $5.06 2.28% $4,965 0.65%cf 4.43%c 14.8%c
1996e 5.16 6.43% 12,480 0.65%f 4.07% 36.4%
Tax-Free Bond
1992b $10.27 8.12% $44,198 0.65%cd 5.80%c 76.3%c
1993 11.06 14.11% 111,705 0.65%d 5.53% 68.5%
1994 11.00 5.99% 168,715 0.65%d 5.03% 61.8%
1995 10.56 1.51% 155,278 0.65%d 5.49% 89.1%
1996e 11.09 10.69% 178,750 0.65%d 5.27% 93.7%
_________________________________________________________________
PAGE 7
a For the period November 30, 1994 (commencement of operations),
to February 28, 1995.
b For the period April 30, 1991 (commencement of operations), to
February 29, 1992.
c Annualized.
d Excludes expenses in excess of a 0.65% voluntary expense
limitation in effect through February 28, 1997.
e Year ended February 29.
f Excludes expenses in excess of a 0.65% voluntary expense
limitation in effect through February 29, 1996.
Table 4
Fund, Market, and Risk Characteristics: What to Expect
To help you decide which of the T. Rowe Price Virginia bond
funds may be appropriate for you, this section takes a closer
look at their investment objectives and approaches.
What are the funds' objectives and investment programs?
Income from Virginia municipal securities is exempt from federal
and Virginia state income taxes.
The Virginia Short-Term Tax-Free Bond Fund's objective is to
provide the highest level of income exempt from federal and
Virginia state income taxes consistent with modest fluctuation in
principal value. The fund will invest primarily (at least 65% of
its total assets) in investment-grade Virginia municipal bonds.
While the portfolio's dollar-weighted average maturity will not
exceed three years, there is no maturity limit on individual
securities. The fund is expected to provide a higher level of
after-tax income than a money market fund and less share price
volatility than the Virginia Tax-Free Bond Fund. Unlike a money
market fund, the fund's share price will fluctuate.
The Virginia Tax-Free Bond Fund's investment objective is to
provide, consistent with prudent portfolio management, the
highest level of income exempt from federal and Virginia state
income taxes by investing primarily in investment-grade Virginia
municipal bonds. The fund's dollar-weighted average maturity is
expected to exceed 15 years. The fund is expected to provide
higher income and also experience greater share price fluctuation
than the Virginia Short-Term Tax-Free Bond Fund.
Due to seasonal variations or shortages in the supply of suitable
short-term Virginia securities, each fund may invest periodically
in municipals whose interest is exempt from federal but not
Virginia state income taxes. Every effort will be made to
minimize such investments, but they could compose up to 10% of
each fund's annual income.
What are the funds' credit-quality guidelines?
At their discretion, the funds may retain a security whose credit
quality is downgraded after purchase.
The funds will generally purchase investment-grade securities--
securities whose ratings are within the four highest credit
categories (e.g., AAA, AA, A, BBB) as determined by a national
rating organization or, if unrated, by T. Rowe Price. The funds
may occasionally purchase below-investment-grade securities
PAGE 8
(including those with the lowest or no rating), but no such
purchase will be made if it would cause a fund's noninvestment-
grade bonds to exceed 5% of its net assets. Unrated bonds may be
less liquid than rated bonds.
Investment-grade securities include a range from the highest
rated to medium quality (BBB). Securities in the BBB category may
be more susceptible to adverse economic conditions or changing
circumstances, and the securities at the lower end of the BBB
category have certain speculative characteristics.
What are the main risks of investing in municipal bond funds?
A more detailed discussion of these and other risk considerations
is contained in the funds' Statement of Additional Information.
The potential for realizing a loss of principal in a bond fund
could derive from:
o
Interest rate or market risk:
the decline in fixed income securities and funds that may
accompany a rise in the overall level of interest rates (please
see Table 5).
o
Credit risk:
the chance that any of the fund's holdings will have its credit
rating downgraded or will default (fail to make scheduled
interest and principal payments), potentially reducing the fund's
income level and share price.
o
Political risk:
the chance that a significant restructuring of federal income tax
rates, or even serious discussion on the topic in Congress, could
cause municipal bond prices to fall. The demand for municipal
bonds is strongly influenced by the value of tax-exempt income to
investors. Broadly lower tax rates could reduce the advantage of
owning municipal bonds.
o
Geographical risk:
the chance of price declines resulting from developments in a
single state.
What are the particular risks associated with single-state funds
versus those that invest nationally?
Significant political and economic developments within a state
may have repercussions, direct and indirect, on virtually all
municipal bonds issued in the state.
A fund investing within a single state is, by definition, less
diversified geographically than one investing across many states.
The risk arises from the fund's greater exposure to that state's
economy and politics, factors that loom large in establishing the
credit quality of bonds issued by the state and its political
subdivisions. For example, general obligation bonds of a state or
locality that has a high income level, reasonable debt levels,
and a positive long-term outlook should have a higher credit
rating than those of a state without those attributes.
PAGE 9
Of course, many municipal bonds are not general obligations
backed by the state's "full faith and credit" (its full taxing
and revenue raising resources) and may not rely on any government
for money to service their debt. Bonds issued by governmental
authorities may depend wholly on revenues generated by the
project they financed or on other dedicated revenue streams. The
credit quality of these "revenue" bonds may vary significantly
from that of the state's general obligations.
How does the portfolio manager try to reduce risk?
Consistent with each fund's objective, the portfolio manager
actively seeks to reduce risk and increase total return. Risk
management tools include:
o
Diversification of assets to reduce the impact of a single
holding on the funds' net asset value.
o
Thorough credit research by our own analysts.
o
Adjustment of fund duration to try to reduce the negative impact
of rising interest rates or take advantage of the benefits of
falling rates.
What is the credit quality of Virginia general obligations?
Credit ratings and the financial and economic conditions of the
state, local governments, public authorities, and others in which
the funds may invest are subject to change at any time.
The majaor rating agencies (Moody's, Standard & Poor's, and
Fitch) assigned a triple-A rating to Virginia general obligations
as of June 1, 1996, and have never rated the state below that
level. For more than a century, the state has paid the principal
and interest on its general obligation bonds when due and has not
issued short-term tax anticipation notes or other similar short-
term debt for its own needs. The Virginia constitution limits the
issuance of general obligation bonds to 1.15 times average tax
revenues for the past three fiscal years. Additional restrictions
are imposed for bonds issued for certain other purposes. The
state has substantial capacity to issue additional debt within
these legal debt limits.
What about the quality of the funds' other holdings?
The share price and yield of each fund will fluctuate with
changing market conditions and interest rate levels. When you
sell your shares, you may lose money.
In addition to the state's general obligations, the funds will
invest a substantial portion of their assets in bonds that are
rated according to the issuer's individual creditworthiness, such
as bonds of local governments and public authorities. While local
governments in Virginia depend principally on their own revenue
sources, they could experience budget shortfalls due to cutbacks
in state aid.
The funds may invest in certain sectors with special risks--for
example, health care, which could be affected by federal or state
legislation, electric utilities with exposure to nuclear power
PAGE 10
plants, and private activity bonds without governmental backing.
The funds may invest in obligations of the Commonwealth of Puerto
Rico and its public corporations (as well as the U.S. territories
of Guam and the Virgin Islands) that are exempt from federal and
Virginia state income taxes. These investments require careful
assessment of certain risk factors, including reliance on
substantial federal assistance and favorable tax programs, which
have recently come under scrutiny by Congress. As of June 1,
1996, Puerto Rico's general obligation bonds were rated Baa1 by
Moody's and A (with a negative outlook) by Standard & Poor's.
What are derivatives and can the funds invest in them?
The term derivative is used to describe financial instruments
whose value is derived from an underlying security (e.g., a stock
or bond) or a market benchmark (e.g., an interest rate index).
Many types of investments representing a wide range of potential
risks and rewards fall under the "derivatives" umbrella--from
conventional instruments such as callable bonds, futures, and
options, to more exotic investments such as stripped mortgage
securities and structured notes. While the term "derivative" has
only recently become widely known among the investing public,
derivatives have in fact been employed by investment managers for
many years.
Each fund will invest in derivatives only if the expected
risks and rewards are consistent with its objective, policies,
and overall risk profile as described in this prospectus. The
funds limit their use of derivatives to situations in which they
may enable the fund to accomplish the following: increase yield;
hedge against a decline in principal value; invest in eligible
asset classes with greater efficiency and lower cost than is
possible through direct investment; or, adjust the fund's
duration.
These funds will not invest in any high-risk, highly leveraged
derivative instrument that is expected to cause the price
volatility of the portfolio to be meaningfully different than
that of 1) a three-year investment-grade bond for the Short-Term
Tax-Free Bond Fund; or 2) a long-term investment-grade bond for
the Tax-Free Bond Fund.
Who issues municipal securities?
Before choosing a fund, you may wish to review these
characteristics of municipal securities.
State and local governments and governmental authorities sell
notes and bonds (usually called "municipals") to pay for public
projects and services.
Who buys municipal securities?
Individuals are the primary investors, and a principal way they
invest is through mutual funds. Prices of municipals may be
affected by major changes in cash flows of money into or out of
municipal funds. For example, substantial and sustained
redemptions from municipal bond funds could result in lower
prices for these securities.
PAGE 11
Is interest income from municipal issues always exempt from
federal taxes?
Municipal securities are also called "tax-exempts" because the
interest income they provide is usually exempt from federal
income taxes.
No. For example, since 1986, income from so-called "private
activity" municipals has been subject to the federal alternative
minimum tax (AMT). For instance, some bonds financing airports,
stadiums, and student loan programs fall into this category.
Shareholders subject to the AMT must include income derived from
private activity bonds in their AMT calculation. Relatively few
taxpayers are required to pay the tax. Normally, the funds will
not purchase any security if, as a result, more than 20% of the
fund's income would be subject to the AMT. The funds will report
annually to shareholders the portion of income, if any, subject
to the AMT. (Please see "Distributions and Taxes--Taxes on Fund
Distributions.")
Why are yields on municipals usually below those on otherwise
comparable taxable securities?
Since the income provided by most municipals is exempt from
federal taxation, investors are willing to accept lower yields on
a municipal bond than on an otherwise similar (in quality and
maturity) taxable bond.
Why are yields on Virginia bonds often below those of comparable
issues from other states?
Strong demand for Virginia securities, due to a relatively high
state income tax rate and an often limited supply, tends to push
their prices up and yields down.
Is there an easy way to compare after-tax yields on a Virginia
fund with a similar tax-exempt fund that invests nationally?
Subtract your state tax rate from 1 and multiply this number
times the yield on the national fund. The result is the yield to
you on the national fund after paying Virginia income tax.
Compare this with the Virginia fund's yield.
Is a fund's yield fixed or will it vary?
You may want to review some fundamentals that apply to all fixed
income investments.
It will vary. The yield is calculated every day by dividing the
fund's net income per share, expressed at annual rates, by the
share price. Since both income and share price will fluctuate,
the fund's yield will also vary.
Is a fund's "yield" the same thing as the "total return"?
Not for bond funds. Your total return is the result of
reinvested income and the change in share price for a given time
period. Income is always a positive contributor to total return
and can enhance a rise in share price or serve as an offset to a
drop in share price.
What is "credit quality" and how does it affect a fund's yield?
Credit quality refers to a bond issuer's expected ability to make
all required interest and principal payments in a timely manner.
Because highly rated issuers represent less risk, they can borrow
at lower interest rates than less creditworthy issuers.
Therefore, a fund investing in high credit-quality securities
PAGE 12
should have a lower yield than an otherwise comparable fund
investing in lower credit-quality securities.
What is meant by a bond fund's "maturity"?
Every bond has a stated maturity date when the issuer must
repay the security's entire principal value to the investor.
However, many bonds are "callable," meaning their principal can
be repaid before their stated maturity dates on (or after)
specified call dates. Bonds are most likely to be called when
interest rates are falling, because the issuer wants to refinance
at a lower rate. In such an environment, a bond's "effective
maturity" is calculated using its nearest call date.
A bond mutual fund has no maturity in the strict sense of the
word, but it does have an average maturity and an average
effective maturity. This number is an average of the stated or
effective maturities of the underlying bonds, with each bond's
maturity "weighted" by the percentage of fund assets it
represents. Funds that target effective maturities would use the
effective (rather than stated) maturities of the underlying
instruments when computing the average. Targeting effective
maturity provides additional flexibility in portfolio management
but, all else being equal, could result in higher volatility than
a fund targeting a stated maturity or maturity range.
What is meant by a bond fund's "duration"?
Duration is a calculation that seeks to measure the price
sensitivity of a bond or a bond fund to changes in interest
rates. It measures bond price sensitivity to interest rate
changes more accurately than maturity because it takes into
account the time value of cash flows generated over the bond's
life. Future interest and principal payments are discounted to
reflect their present value and then are multiplied by the number
of years they will be received to produce a value that is
expressed in years, i.e., the duration. Effective duration takes
into account call features and sinking fund payments that may
shorten a bond's life.
Since duration can also be computed for bond funds, you can
estimate the effect of interest rates on a fund's share price.
Simply multiply the fund's duration (available for T. Rowe Price
bond funds in our shareholder reports) by an expected change in
interest rates. For example, the price of a bond fund with a
duration of five years would be expected to fall approximately 5%
if rates rose by one percentage point.
How is a municipal's price affected by changes in interest rates?
When interest rates rise, a bond's price usually falls, and vice
versa.
In general, the longer a bond's maturity, the greater the price
increase or decrease in response to a given change in interest
rates, as shown in the table at right.
How Interest Rates Affect Bond Prices
Bond Maturity Coupon Price Per $1,000 of a Municipal Bond
if Interest Rates:
Increase Decrease
1% 2% 1% 2%
PAGE 13
1 year 3.65% $990 $981 $1,010 $1,020
5 years 4.55 957 916 1,045 1,093
10 years 5.05 926 858 1,082 1,171
20 years 5.75 891 798 1,128 1,280
30 years 5.80 873 769 1,158 1,356
Table 5
Coupons reflect yields on AAA-rated municipals as of April 30,
1996. This is an illustration and does not represent expected
yields or share price changes of any T. Rowe Price fund.
How can I decide which Virginia fund is most appropriate for me?
Neither fund should be relied upon as a complete investment
program, nor be used for short-term trading purposes.
Review your own financial objectives, time horizon, and risk
tolerance. Use Table 6, which summarizes each funds' main
characteristics, to help choose a fund (or funds) suitable for
your particular needs. If you will need your principal in a
relatively short time, and/or want to minimize share price
volatility, the Short-Term Bond Fund may be a good choice.
However, if you are investing for higher tax-free income and can
tolerate some price volatility, you should consider the longer-
term bond fund.
Differences Between Funds
Fund Credit-Quality Risk of Share Expected
Categories Income Price Fluctuation Average
Maturity
_________________________________________________________________
Short-Term
Bond Primarily four Low to Low to moderate Generally
highest moderate three
years
Tax-Free
Bond Primarily four
highest High High 15+ Years
Table 6
Is there other information I need to review before making a
decision?
You should review "Investment Policies and Practices" in
Section 3, which discusses the following: Types of Portfolio
Securities (municipal securities, private activity bonds,
municipal lease obligations, municipal warrants, securities with
"puts" or other demand features, securities with credit
enhancements, synthetic or derivative securities, and private
placements); and Types of Management Practices (cash position,
when-issued securities and forwards, interest rate futures,
borrowing money and transferring assets, portfolio turnover,
sector concentration, and credit-quality considerations).
2
About Your Account
Pricing Shares and Receiving Sale Proceeds
Here are some procedures you should know when investing in a
T. Rowe Price tax-free fund.
PAGE 14
How and when shares are priced
The various ways you can buy, sell, and exchange shares are
explained at the end of this prospectus and on the New Account
Form. These procedures may differ for institutional accounts.
Bond funds.
The share price (also called "net asset value" or NAV per share)
for each fund is calculated at 4 p.m. ET each day the New York
Stock Exchange is open for business. To calculate the NAV, a
fund's assets are valued and totaled, liabilities are subtracted,
and the balance, called net assets, is divided by the number of
shares outstanding.
How your purchase, sale, or exchange price is determined
If we receive your request in correct form by 4 p.m. ET, your
transaction will be priced at that day's NAV. If we receive it
after 4 p.m., it will be priced at the next business day's NAV.
We cannot accept orders that request a particular day or price
for your transaction or any other special conditions.
When filling out the New Account Form, you may wish to give
yourself the widest range of options for receiving proceeds from
a sale.
Note:
The time at which transactions and shares are priced and the
time until which orders are accepted may be changed in case of an
emergency or if the New York Stock Exchange closes at a time
other than 4 p.m. ET.
How you can receive the proceeds from a sale
If your request is received by 4 p.m. ET in correct form,
proceeds are usually sent on the next business day. Proceeds can
be sent to you by mail or to your bank account by ACH transfer or
bank wire. Proceeds sent by ACH transfer should be credited the
second day after the sale. ACH (Automated Clearing House) is an
automated method of initiating payments from and receiving
payments in your financial institution account. ACH is a payment
system supported by over 20,000 banks, savings banks, and credit
unions, which electronically exchanges the transactions primarily
through the Federal Reserve Banks. Proceeds sent by bank wire
should be credited to your account the next business day.
If for some reason we cannot accept your request to sell shares,
we will contact you.
Exception:
o
Under certain circumstances and when deemed to be in the fund's
best interests, your proceeds may not be sent for up to five
business days after receiving your sale or exchange request. If
you were exchanging into a bond or money fund, your new
investment would not begin to earn dividends until the sixth
business day.
Useful Information on Distributions and Taxes
Dividends and Other Distributions
All net investment income and realized capital gains are
distributed to shareholders.
Dividend and capital gain distributions are reinvested in
additional fund shares in your account unless you select another
PAGE 15
option on your New Account Form. The advantage of reinvesting
distributions arises from compounding; that is, you receive
income dividends and capital gain distributions on a rising
number of shares.
Distributions not reinvested are paid by check or transmitted to
your bank account via ACH. If the Post Office cannot deliver your
check, or if your check remains uncashed for six months, the fund
reserves the right to reinvest your distribution check in your
account at the NAV on the business day of the reinvestment and to
reinvest all subsequent distributions in shares of the fund.
Income dividends
o
Bond funds declare income dividends daily at 4 p.m. ET to
shareholders of record at that time provided payment has been
received on the previous business day.
o
Bond funds pay dividends on the first business day of each
month.
o
Bond fund shares will earn dividends through the date of
redemption; also, shares redeemed on a Friday or prior to a
holiday will continue to earn dividends until the next business
day. Generally, if you redeem all of your shares at any time
during the month, you will also receive all dividends earned
through the date of redemption in the same check. When you redeem
only a portion of your shares, all dividends accrued on those
shares will be reinvested, or paid in cash, on the next dividend
payment date.
Capital gains
o
A capital gain or loss is the difference between the purchase and
sale price of a security.
o
If a fund has net capital gains for the year (after subtracting
any capital losses), they are usually declared and paid in
December to shareholders of record on a specified date that
month. If a second distribution is necessary, it is usually
declared and paid during the first quarter of the following year.
Tax Information
You will be sent timely information for your tax filing needs.
Although the regular monthly income dividends you receive from
the funds are expected to be exempt from federal and state and
local (if any) income taxes, you need to be aware of the possible
tax consequences when:
o
You sell fund shares, including an exchange from one fund to
another.
o
The fund makes a distribution to your account.
Due to 1993 tax legislation, a portion of the capital gains
realized on the sale of market discount bonds with maturities
beyond one year may be treated as ordinary income and cannot be
PAGE 16
offset by other capital losses. Therefore, to the extent the fund
invests in these securities, the likelihood of a taxable gain
distribution will be increased.
Note:
You must report your total tax-exempt income on IRS Form 1040.
The IRS uses this information to help determine the tax status of
any Social Security payments you may have received during the
year.
Taxes on fund redemptions.
When you sell shares in any fund, you may realize a gain or loss.
An exchange from one fund to another is still a sale for tax
purposes. If you realize a loss on the sale or exchange of fund
shares held six months or less, your capital loss is reduced by
the tax-exempt dividends received on those shares.
In January, you will be sent Form 1099-B, indicating the date
and amount of each sale you made in the fund during the prior
year. This information will also be reported to the IRS. For
accounts opened new or by exchange in 1983 or later, we will
provide you with the gain or loss of the shares you sold during
the year, based on the "average cost" method. This information is
not reported to the IRS, and you do not have to use it. You may
calculate the cost basis using other methods acceptable to the
IRS, such as "specific identification."
To help you maintain accurate records, we send you a confirmation
immediately following each transaction (except for systematic
purchases and redemptions) you make and a year-end statement
detailing all your transactions in each fund account during the
year.
Taxes on fund distributions.
Distributions are taxable whether reinvested in additional shares
or received in cash.
In January, the funds will send you Form 1099-DIV indicating the
tax status of any capital gain distribution made to you. This
information will also be reported to the IRS. All capital gain
distributions are taxable to you for the year in which they are
paid. The only exception is that dividends declared during the
last three months of the year and paid in January are taxed as
though they were paid by December 31. Dividends are expected to
be tax-exempt.
Short-term capital gains are taxable as ordinary income and long-
term gains are taxable at the applicable long-term gain rate. The
gain is long- or short-term depending on how long the fund held
the securities, not how long you held shares in the fund. If you
realize a loss on the sale or exchange of fund shares held six
months or less, your short-term loss recognized is reclassified
to long-term to the extent of any long-term capital gain
distribution received.
If the funds invest in certain "private activity" bonds,
shareholders who are subject to the alternative minimum tax (AMT)
must include income generated by these bonds in their AMT
computation. The portion of your fund's income which should be
included in your AMT calculation, if any, will be reported to you
PAGE 17
in January.
Tax effect of buying shares before a capital gain distribution.
If you buy shares shortly before or on the "record date"--the
date that establishes you as the person to receive the upcoming
distribution--you will receive, in the form of a taxable
distribution, a portion of the money you just invested.
Therefore, you may also wish to find out the fund's record date
before investing. Of course, the fund's share price may, at any
time, reflect undistributed capital gains or income and
unrealized appreciation. When these amounts are eventually
distributed, they are taxable.
Note:
For shareholders who receive Social Security benefits, the
receipt of tax-exempt interest may increase the portion of
benefits that are subject to tax.
Transaction Procedures and Special Requirements
Purchase Conditions
Following these procedures helps assure timely and accurate
transactions.
Nonpayment.
If your payment is not received or you pay with a check or ACH
transfer that does not clear, your purchase will be canceled. You
will be responsible for any losses or expenses incurred by the
fund or transfer agent, and the fund can redeem shares you own in
this or another identically registered T. Rowe Price fund as
reimbursement. The fund and its agents have the right to reject
or cancel any purchase, exchange, or redemption due to
nonpayment.
U.S. dollars.
All purchases must be paid for in U.S. dollars; checks must be
drawn on U.S. banks.
Sale (Redemption) Conditions
10-day hold.
If you sell shares that you just purchased and paid for by check
or ACH transfer, a fund will process your redemption but, will
generally delay sending you the proceeds for up to 10 calendar
days to allow the check or transfer to clear. If your redemption
request was sent by mail or mailgram, proceeds will be mailed no
later than the seventh calendar day following receipt unless the
check or ACH transfer has not cleared. If during the clearing
period, we receive a check drawn against your bond or money
market account, it will be returned marked "uncollected." (The
10-day hold does not apply to the following: purchases paid for
by bank wire; cashier's, certified, or treasurer's checks; or
automatic purchases through your paycheck.)
Telephone, Tele*AccessR, and personal computer transactions.
These exchange and redemption services are established
automatically when you sign the New Account Form unless you check
the box which states that you do not want these services. Each
fund uses reasonable procedures (including shareholder identity
verification) to confirm that instructions given by telephone are
genuine and is not liable for acting on these instructions. If
these procedures are not followed, it is the opinion of certain
PAGE 18
regulatory agencies that a fund may be liable for any losses that
may result from acting on the instructions given. A confirmation
is sent promptly after the telephone transaction. All
conversations are recorded.
Redemptions over $250,000.
Large sales can adversely affect a portfolio manager's ability to
implement a fund's investment strategy by causing the premature
sale of securities that would otherwise be held. If, in any 90-
day period, you redeem (sell) more than $250,000, or your sale
amounts to more than 1% of the fund's net assets, the fund has
the right to delay sending your proceeds for up to five business
days after receiving your request, or to pay the difference
between the redemption amount and the lesser of the two
previously mentioned figures with securities from the fund.
Excessive Trading
T. Rowe Price may bar excessive traders from purchasing shares.
Frequent trades, involving either substantial fund assets or a
substantial portion of your account or accounts controlled by
you, can disrupt management of the fund and raise its expenses.
We define "excessive trading" as exceeding one purchase and sale
involving the same fund within any 120-day period.
For example, you are in fund A. You can move substantial assets
from fund A to fund B and, within the next 120 days, sell your
shares in fund B to return to fund A or move to fund C.
If you exceed the number of trades described above, you may be
barred indefinitely from further purchases of T. Rowe Price
funds.
Three types of transactions are exempt from excessive trading
guidelines: 1) trades solely between money market funds; 2)
redemptions that are not part of exchanges; and 3) systematic
purchases or redemptions (see "Shareholder Services").
Keeping Your Account Open
Due to the relatively high cost to a fund of maintaining small
accounts, we ask you to maintain an account balance of at least
$1,000. If your balance is below $1,000 for three months or
longer, we have the right to close your account after giving you
60 days in which to increase your balance.
Small Account Fee
Because of the disproportionately high costs of servicing
accounts with low balances, a $10 fee, paid to T. Rowe Price
Services, the fund's transfer agent, will automatically be
deducted from nonretirement accounts with balances falling below
a minimum level. The valuation of accounts and the deduction are
expected to take place during the last five business days of
September. The fee will be deducted from accounts with balances
below $2,000, except for UGMA/UTMA accounts, for which the limit
is $500. The fee will be waived for any investor whose aggregate
T. Rowe Price mutual fund investments total $25,000 or more.
Accounts employing automatic investing (e.g., payroll deduction,
automatic purchase from a bank account, etc.) are also exempt
PAGE 19
from the charge. The fee will not apply to IRAs and other
retirement plan accounts. (A separate custodial fee may apply to
IRAs and other retirement plan accounts.)
Signature Guarantees
A signature guarantee is designed to protect you and the T. Rowe
Price funds from fraud by verifying your signature.
You may need to have your signature guaranteed in certain
situations, such as:
o
Written requests 1) to redeem over $50,000, or 2) to wire
redemption proceeds.
o
Remitting redemption proceeds to any person, address, or bank
account not on record.
o
Transferring redemption proceeds to a T. Rowe Price fund
account with a different registration (name/ownership) from
yours.
o
Establishing certain services after the account is opened.
You can obtain a signature guarantee from most banks, savings
institutions, broker-dealers, and other guarantors acceptable to
T. Rowe Price. We cannot accept guarantees from notaries public
or organizations that do not provide reimbursement in the case of
fraud.
3
More About the Funds
Organization and Management
Shareholders benefit from T. Rowe Price's 59 years of
investment management experience.
How are the funds organized?
The T. Rowe Price State Tax-Free Income Trust was organized in
1986 as a Massachusetts business trust and is a "nondiversified,
open-end investment company," or mutual fund. The Virginia Tax-
Free Bond Fund was organized in 1991, and the Virginia Short-Term
Tax-Free Bond Fund was organized in 1994. Mutual funds pool money
received from shareholders and invest it to try to achieve
specified objectives.
What is meant by "shares"?
As with all mutual funds, investors purchase shares when they put
money in a fund. These shares are part of a fund's authorized
capital stock, but share certificates are not issued.
Each share and fractional share entitles the shareholder to:
o
Receive a proportional interest in a fund's income and capital
gain distributions.
o
Cast one vote per share on certain fund matters, including the
election of fund directors, changes in fundamental policies, or
approval of changes in the fund's management contract.
Do T. Rowe Price funds have annual shareholder meetings?
The funds are not required to hold annual meetings and in
PAGE 20
order to avoid unnecessary costs to fund shareholders, do not
intend to do so except when certain matters, such as a change in
a fund's fundamental policies, are to be decided. In addition,
shareholders representing at least 10% of all eligible votes may
call a special meeting if they wish for the purpose of voting on
the removal of any fund director or trustee. If a meeting is held
and you cannot attend, you can vote by proxy. Before the meeting,
the fund will send you proxy materials that explain the issues to
be decided and include a voting card for you to mail back.
Who runs the fund?
All decisions regarding the purchase and sale of fund investments
are made by T. Rowe Price--specifically by each fund's portfolio
manager.
General Oversight.
The funds are governed by a Board of Trustees that elects the
funds' officers and meets regularly to review the funds'
investments, performance, expenses, and other business affairs.
The policy of each fund is that a majority of Board members will
be independent of T. Rowe Price.
Portfolio Management.
Each fund has an Investment Advisory Committee whose chairman
has day-to-day responsibility for managing the portfolio and
works with the committee in developing and executing the funds'
investment programs. The Investment Advisory Committees are
composed of the following members:
Short-Term Bond Fund. Charles B. Hill, Chairman, Janet G.
Albright, A. Gene Caponi, Patricia S. Deford, Laura L. McAree,
Hugh D. McGuirk, Mary J. Miller, and William T. Reynolds. Mr.
Hill has been chairman of the fund's committee since its
inception in 1994. He joined T. Rowe Price in 1991 and has been
managing investments since 1986.
Tax-Free Bond Fund. Mary J. Miller, Chairman, Paul W. Boltz, A.
Gene Caponi, Patricia S. Deford, Hugh D. McGuirk, Konstantine B.
Mallas, and William T. Reynolds. Mrs. Miller has been chairman of
the Tax-Free Bond Fund since the fund's inception in 1991. She
joined T. Rowe Price in 1983 and has been managing investments
since 1987.
Marketing.
T. Rowe Price Investment Services, Inc., a wholly owned
subsidiary of T. Rowe Price, distributes (sells) shares of these
and all other T. Rowe Price funds.
Shareholder Services.
T. Rowe Price Services, Inc., another wholly owned subsidiary,
acts as the funds' transfer and dividend disbursing agent and
provides shareholder and administrative services. The address for
T. Rowe Price Investment Services, Inc. and T. Rowe Price
Services, Inc. is 100 East Pratt St., Baltimore, MD 21202.
How are fund expenses determined?
The management agreement spells out the expenses to be paid by
each fund.
In addition to the management fee, each fund pays for the
following: shareholder service expenses; custodial, accounting,
PAGE 21
legal, and audit fees; costs of preparing and printing
prospectuses and reports sent to shareholders; registration fees
and expenses; proxy and annual meeting expenses (if any); and
director/trustee fees and expenses.
The Management Fee.
This fee has two parts--an "individual fund fee" (discussed under
"Transaction and Fund Expenses"), which reflects a fund's
particular investment management costs, and a "group fee." The
group fee, which is designed to reflect the benefits of the
shared resources of the T. Rowe Price investment management
complex, is calculated daily based on the combined net assets of
all T. Rowe Price funds (except Equity Index and the Spectrum
Funds and any institutional or private label mutual funds). The
group fee schedule (shown below) is graduated, declining as the
asset total rises, so shareholders benefit from the overall
growth in mutual fund assets.
0.480% First $1 billion 0.350% Next $2 billion
0.450% Next $1 billion 0.340% Next $5 billion
0.420% Next $1 billion 0.330% Next $10 billion
0.390% Next $1 billion 0.320% Next $10 billion
0.370% Next $1 billion 0.310% Next $16 billion
0.360% Next $2 billion 0.305% Thereafter
Each fund's portion of the group fee is determined by the ratio
of its daily net assets to the daily net assets of all the Price
funds described previously. Based on combined Price funds' assets
of approximately $53.5 billion at March 31, 1996, the group fee
was 0.33%.
Understanding Performance Information
This section should help you understand the terms used to
describe fund performance. You will come across them in
shareholder reports you receive from us, in our newsletter, The
Price Report, in Insights articles, in T. Rowe Price
advertisements, and in the media.
Total Return
Total return is the most widely used performance measure.
Detailed performance information is included in the funds' annual
and semiannual shareholder reports, and in the quarterly
Performance Update, which are all available without charge.
This tells you how much an investment in a fund has changed in
value over a given time period. It reflects any net increase or
decrease in the share price and assumes that all dividends and
capital gains (if any) paid during the period were reinvested in
additional shares. Including reinvested distributions means that
total return numbers include the effect of compounding, i.e., you
receive income and capital gain distributions on a rising number
of shares.
Advertisements for a fund may include cumulative or compound
average annual total return figures, which may be compared with
various indices, other performance measures, or other mutual
funds.
PAGE 22
Cumulative Total Return
This is the actual rate of return on an investment for a
specified period. A cumulative return does not indicate how much
the value of the investment may have fluctuated between the
beginning and the end of the period specified.
Average Annual Total Return
This is always hypothetical. Working backward from the actual
cumulative return, it tells you what constant year-by-year return
would have produced the actual, cumulative return. By smoothing
out all the variations in annual performance, it gives you an
idea of the investment's annual contribution to your portfolio
provided you held it for the entire period in question.
Yield
You will see frequent references to a fund's yield in our
reports, in advertisements, in media stories, and so on.
The current or "dividend" yield on a fund or any investment tells
you the relationship between the investment's current level of
annual income and its price on a particular day. The dividend
yield reflects the actual income paid to shareholders for a given
period, annualized, and divided by the average price during the
given period. For example, a fund providing $5 of annual income
per share and a price of $50 has a current yield of 10%. Yields
can be calculated for any time period.
The advertised or "SEC" yield is found by determining the net
income per share (as defined by the SEC) earned by a fund during
a 30-day base period and dividing this amount by the per share
price on the last day of the base period. The SEC yield may
differ from the dividend yield.
Investment Policies and Practices
Fund managers have considerable leeway in choosing investment
strategies and selecting securities they believe will help the
funds achieve their objectives.
This section takes a detailed look at some of the types of
securities the funds may hold in their portfolios and the various
kinds of investment practices that may be used in day-to-day
portfolio management. Each fund's investment program is subject
to further restrictions and risks described in the Statement of
Additional Information.
Shareholder approval is required to substantively change a fund's
objective and certain investment restrictions noted in the
following section as "fundamental policies." The managers also
follow certain "operating policies" which can be changed without
shareholder approval. However, significant changes are discussed
with shareholders in fund reports. Each fund adheres to
applicable investment restrictions and policies at the time it
makes an investment. A later change in circumstances will not
require the sale of an investment if it was proper at the time it
was made.
The funds' holdings of certain kinds of investments cannot exceed
maximum percentages of total assets, which are set forth herein.
PAGE 23
For instance, these funds are not permitted to invest more than
10% of total assets in residual interest bonds. While these
restrictions provide a useful level of detail about the funds'
investment programs, investors should not view them as an
accurate gauge of the potential risk of such investments. For
example, in a given period, a 5% investment in residual interest
bonds could have significantly more of an impact on a fund's
share price than its weighting in the portfolio. The net effect
of a particular investment depends on its volatility and the size
of its overall return in relation to the performance of all the
funds' other investments.
Changes in the funds' holdings, the funds' performance, and the
contribution of various investments are discussed in the
shareholder reports sent to you.
Types of Portfolio Securities
In seeking to meet their investment objectives, the funds may
invest in any type of municipal security or instrument (including
certain potentially high-risk derivatives) whose investment
characteristics are consistent with the funds' investment
programs. The following pages describe the principal types of
portfolio securities and investment management practices of the
funds.
Fundamental policy:
Each fund is registered as a nondiversified mutual fund. This
means that each fund may invest a greater portion of its assets
in a single issuer than a diversified fund which may subject the
funds to greater risk with respect to their portfolio securities.
However, because each fund intends to qualify as a "regulated
investment company" under the Internal Revenue Code, it must
invest so that, at the end of each quarter, with respect to 50%
of its total assets, not more than 5% of its assets are invested
in the securities of a single issuer, and with respect to the
remaining 50%, no more than 25% of fund assets are invested in a
single issuer.
Municipal Securities.
In purchasing municipals, the funds rely on the opinion of the
issuer's bond counsel regarding the tax-exempt status of the
investment.
Each fund's assets are invested primarily in various tax-free
municipal debt securities. The issuers have a contractual
obligation to pay interest at a stated rate on specific dates and
to repay principal (the bond's face value) on a specified date or
dates. An issuer may have the right to redeem or "call" a bond
before maturity, and the fund may have to reinvest the proceeds
at lower rates.
There are two broad categories of municipal bonds. General
obligation bonds are backed by the issuer's "full faith and
credit," that is, its full taxing and revenue raising power.
Revenue bonds usually rely exclusively on a specific revenue
source, such as charges for water and sewer service, to generate
money for debt service.
PAGE 24
Private Activity Bonds.
While income from most municipals is exempt from federal income
taxes, the income from certain types of so-called private
activity bonds (a type of revenue bond) may be subject to the
alternative minimum tax (AMT). However, only persons subject to
the AMT pay this tax. Private activity bonds may be issued for
purposes such as housing or airports or to benefit a private
company. (Being subject to the AMT does not mean the investor
necessarily pays this tax. For further information, please see
"Distributions and Taxes.")
Fundamental policy:
Under normal market conditions, the funds will not purchase any
security if, as a result, less than 80% of the funds income
would be exempt from federal and Virginia state income taxes. The
income included under the 80% test does not include income from
securities subject to the alternative minimum tax.
Operating policy:
During periods of abnormal market conditions, for temporary
defensive purposes, the funds may invest without limit in high-
quality, short-term securities whose income is subject to federal
and Virginia state income tax.
In addition to general obligation and revenue bonds, the funds'
investments may include, but are not limited to, the following
types of securities:
Municipal Lease Obligations.
A lease is not a full faith and credit obligation of the
issuer and is usually backed only by the borrowing government's
unsecured pledge to make annual appropriations for lease
payments. There have been challenges to the legality of lease
financing in numerous states and, from time to time, certain
municipalities have considered not appropriating money for lease
payments. In deciding whether to purchase a lease obligation, the
funds would assess the financial condition of the borrower, the
merits of the project, the level of public support for the
project, and the legislative history of lease financing in the
state. These securities may be less readily marketable than other
municipals. The funds may also purchase unrated lease
obligations.
Municipal Warrants.
Municipal warrants are essentially call options on municipal
bonds. In exchange for a premium, they give the purchaser the
right, but not the obligation, to purchase a municipal bond in
the future. The funds might purchase a warrant to lock in forward
supply in an environment where the current issuance of bonds is
sharply reduced. Like options, warrants may expire worthless and
they may have reduced liquidity.
Operating policy:
Neither fund may invest more than 2% of its total assets in
municipal warrants.
Securities with "Puts" or other Demand Features.
Some longer-term municipals give the investor the right to "put"
PAGE 25
or sell the security at par (face value) within a specified
number of days following the investor's request--usually one to
seven days. This demand feature enhances a security's liquidity
by shortening its effective maturity and enables it to trade at a
price equal to or very close to par. If the demand feature were
terminated prior to being exercised, the funds would hold the
longer-term security.
Securities With Credit Enhancements.
o
Letters of Credit.
Letters of credit are issued by a third party, usually a bank, to
enhance liquidity and ensure repayment of principal and any
accrued interest if the underlying municipal security should
default.
o
Municipal Bond Insurance.
T. Rowe Price periodically reviews the credit quality of the
insurer.
This insurance, which is usually purchased by the bond issuer
from a private, nongovernmental insurance company, provides an
unconditional and irrevocable guarantee that the insured bond's
principal and interest will be paid when due. Insurance does not
guarantee the price of the bond or the share price of any fund.
The credit rating of an insured bond reflects the credit rating
of the insurer, based on its claims-paying ability.
The obligation of a municipal bond insurance company to pay a
claim extends over the life of each insured bond. Although
defaults on insured municipal bonds have been low to date and
municipal bond insurers have met their claims, there is no
assurance this will continue. A higher than expected default rate
could strain the insurer's loss reserves and adversely affect its
ability to pay claims to bondholders, such as the funds. The
number of municipal bond insurers is relatively small, and not
all of them have the highest rating.
o
Standby Purchase Agreements.
A Standby Bond Purchase Agreement (SBPA) is a liquidity
facility provided to pay the purchase price of bonds that cannot
be remarketed. The obligation of the liquidity provider (usually
a bank) is only to advance funds to purchase tendered bonds that
cannot be remarketed and does not cover principal or interest
under any other circumstances. The liquidity provider's
obligations under the SBPA are usually subject to numerous
conditions, including the continued creditworthiness of the
underlying borrower.
Synthetic or Derivative Securities.
These securities are created from existing municipal bonds:
o
Residual Interest Bonds (a potentially high-risk derivative).
The income stream provided by an underlying bond is divided to
create two securities, one short-term and one long-term. The
interest rate on the short-term component is reset by an index or
PAGE 26
auction process normally every 7 to 35 days. After income is paid
on the short-term securities at current rates, the residual
income goes to the long-term securities. Therefore, rising short-
term interest rates result in lower income for the longer-term
portion, and vice versa. The longer-term bonds can be very
volatile and may be less liquid than other municipals of
comparable maturity.
Operating policy:
Neither fund may invest more than 10% of its total assets in
residual interest bonds.
o
Participation Interests.
This term covers various types of securities created by
converting fixed rate bonds into short-term, variable rate
certificates. These securities have been developed in the
secondary market to meet demand for short-term, tax-exempt
securities. The funds will invest only in securities deemed tax-
exempt by a nationally recognized bond counsel, but there is no
guarantee the interest will be exempt because the IRS has not
issued a definitive ruling.
o
Embedded Interest Rate Swaps and Caps.
Embedded interest rate swaps enhance yields, but also increase
interest rate risk.
In a fixed rate, long-term municipal bond with an interest rate
swap attached to it, the bondholder usually receives the bond's
fixed coupon payment as well as a variable rate payment that
represents the difference between a fixed rate for the term of
the swap (which is typically shorter than the bond it is attached
to) and a variable rate short-term municipal index. The
bondholder receives excess income when short-term rates remain
below the fixed interest rate swap rate. If short-term rates rise
above the fixed income swap rate, the bondholder's income is
reduced. At the end of the interest rate swap term, the bond
reverts to a single fixed coupon payment.
An embedded interest rate cap allows the bondholder to receive
payments whenever short-term rates rise above a level established
at the time of purchase. They normally are used to hedge against
rising short-term interest rates.
Both instruments may be volatile and of limited liquidity and
their use may adversely affect a fund's total return.
Operating policy:
Neither fund may invest more than 10% of its total assets in
embedded interest rate swaps and caps.
Private Placements.
The funds may seek to enhance their yield through the purchase of
private placements. These securities are sold through private
negotiations, usually to institutions or mutual funds, and may
have resale restrictions. Their yields are usually higher than
comparable public securities to compensate the investor for their
limited marketability.
PAGE 27
Operating policy:
The funds may not invest more than 15% of its net assets in
illiquid securities, including unmarketable private placements.
Types of Management Practices
Cash reserves provide flexibility and serve as a short-term
defense during periods of unusual market volatility.
Cash Position.
Each fund will hold a certain portion of its assets in short-
term, tax-exempt money market securities maturing in one year or
less. The reserve position accomplishes the following: provides
flexibility in meeting redemptions, expenses, and the timing of
new investments; can help in structuring a fund's weighted
average maturity; and serves as a short-term defense during
periods of unusual market volatility. Each fund's cash reserve
position will be composed of short-term, investment-grade
securities including tax-exempt commercial paper, municipal
notes, and short-term maturity bonds. Some of these securities
may have adjustable, variable, or floating rates.
When-Issued Securities and Forwards.
New issues of municipals are often sold on a "when-issued"
basis, that is, delivery and payment take place 15-45 days after
the buyer has agreed to the purchase. Some bonds, called
"forwards," have longer-than-standard settlement dates, typically
6 to 24 months. When buying these securities, each fund will
maintain cash or high-grade marketable securities held by its
custodian equal in value to its commitment for these securities.
The funds do not earn interest on when-issued and forward
securities until settlement, and the value of the securities may
fluctuate between purchase and settlement. Municipal "forwards"
typically carry a substantial yield premium to compensate the
buyer for their greater interest rate, credit, and liquidity
risks.
Interest Rate Futures.
Futures (a type of potentially high-risk derivative) are often
used to manage risk, because they enable the investor to buy or
sell an asset in the future at an agreed upon price.
Specifically, the funds may use futures (and options on futures)
for any number of reasons, including: to hedge against a
potentially unfavorable change in interest rates and to adjust
their exposure to the municipal bond market; to protect portfolio
value; in an effort to enhance income; and to adjust the
portfolios' duration. The use of futures for hedging and non-
hedging purposes may not always be successful. Their prices can
be highly volatile, using them could lower a fund's total return,
and the potential loss from their use could exceed a fund's
initial exposure to such contracts.
Operating policy:
Initial margin deposits on futures and premiums on options used
for non-hedging purposes will not equal more than 5% of a fund's
net asset value.
Borrowing Money and Transferring Assets.
Each fund can borrow money from banks as a temporary measure for
emergency purposes, to facilitate redemption requests, or for
PAGE 28
other purposes consistent with each fund's investment objective
and program. Such borrowings may be collateralized with fund
assets, subject to restrictions.
Fundamental policy:
Borrowings may not exceed 33 1/3% of total fund assets.
Operating policy:
Each fund may not transfer as collateral any portfolio securities
except as necessary in connection with permissible borrowings or
investments, and then such transfers may not exceed 33 1/3% of
fund's total assets. A fund may not purchase additional
securities when borrowings exceed 5% of total assets.
Portfolio Turnover.
The funds generally purchase securities with the intention of
holding them for investment; however, when market conditions or
other circumstances warrant, securities may be purchased and sold
without regard to the length of time held. Although the funds do
not expect to generate any taxable income, a high turnover rate
may increase transaction costs and may affect taxes paid by
shareholders to the extent short-term gains are distributed. The
Short-Term Bond Fund's portfolio turnover rate for the fiscal
year ended February 29, 1996, and the fiscal period ended
February 28, 1995, were 36.4% and 14.8%, respectively. The Tax-
Free Bond Fund's portfolio turnover rates for the fiscal years
ended February 29, 1996, February 28, 1995, and 1994, were 93.7%,
89.1%, and 61.8%, respectively.
Sector Concentration.
It is possible that each fund could have a considerable amount of
assets (25% or more) in securities that would tend to respond
similarly to particular economic or political developments. An
example would be securities of issuers related to a single
industry, such as health care or nuclear energy.
Operating policy:
Each fund will not invest more than 25% of total assets in
industrial development bonds of projects in the same industry
(such as solid waste, nuclear utility, or airlines). Bonds which
are refunded with escrowed U.S. government securities are not
subject to the 25% limitation.
Credit-Quality Considerations.
The credit quality of most bond issues is evaluated by rating
agencies such as Moody's and Standard & Poor's. Credit quality
refers to the issuer's ability to meet all required interest and
principal payments. The highest ratings are assigned to issuers
perceived to be the best credit risks. T. Rowe Price research
analysts also evaluate all portfolio holdings of each fund,
including those rated by outside agencies. The lower the rating
on a bond, the higher the yield, other things being equal.
Table 7 shows the rating scale used by the major rating agencies.
T. Rowe Price considers publicly available ratings, but
emphasizes its own credit analysis when selecting investments.
Ratings of Municipal Debt Securities
Moody's Standard Fitch Defin-
PAGE 29
Investors & Poor's Investors ition
Service, Inc. Corporation Service, Inc.
Long-Term Aaa AAA AAA Highest
quality
Aa AA AA High
quality
A A A Upper
medium
grade
Baa BBB BBB Medium
grade
Moody's S&P Fitch
Short-Term MIG1/VMIG1 Best quality SP1+ Very F-1+
strong Except-
quality ionally
strong
quality
SP1 Strong F-1 Very
grade strong
quality
MIG2/VMIG2 High quality SP2 Satisfac- F-2
tory grade Good
credit
quality
Commercial P-1 Superior A-1+ Extremely F-1+
Paper quality strong quality Except-
ionally
strong
quality
A-1 Strong F-1 Very
quality strong
quality
P-2 Strong A-2 Satisfac- F-2
quality tory quality Good
credit
quality
Table 7
Explanation of Quality Ratings
Bond Rating Explanation
Moody's Investors
Service, Inc. Aaa Highest quality, smallest
degree of investment risk.
Aa High quality; together with
Aaa bonds, they compose the
high-grade bond group.
A Upper-medium-grade
obligations; many favorable
investment attributes.
Baa Medium-grade obligations;
neither highly protected nor
poorly secured. Interest and
principal appear adequate for
the present but certain
PAGE 30
protective elements may be
lacking or may be unreliable
over any great length of time.
Ba More uncertain, with
speculative elements.
Protection of interest and
principal payments not well
safeguarded during good and
bad times.
B Lack characteristics of
desirable investment;
potentially low assurance of
timely interest and principal
payments or maintenance of
other contract terms over
time.
Caa Poor standing, may be in
default; elements of danger
with respect to principal or
interest payments.
Ca Speculative in a high degree;
could be in default or have
other marked shortcomings.
C Lowest rated; extremely poor
prospects of ever attaining
investment standing.
Standard & Poor's
Corporation AAA Highest rating; extremely
strong capacity to pay
principal and interest.
AA High quality; very strong
capacity to pay principal and
interest.
A Strong capacity to pay
principal and interest;
somewhat more susceptible to
the adverse effects of
changing circumstances and
economic conditions.
BBB Adequate capacity to pay
principal and interest;
normally exhibit adequate
protection parameters, but
adverse economic conditions or
changing circumstances more
likely to lead to a weakened
capacity to pay principal and
interest than for higher-rated
bonds.
BB, B, CCC, CC Predominantly speculative with
respect to the issuer's
capacity to meet required
interest and principal
PAGE 31
payments. BB-lowest degree of
speculation; CC-the highest
degree of speculation. Quality
and protective characteristics
outweighedby large
uncertainties or major risk
exposure to adverse
conditions.
D In default.
Fitch Investors
Service, Inc. AAA Highest quality; obligor has
exceptionally strong ability
to pay interest and repay
principal, which is unlikely
to be affected by reasonably
foreseeable events.
AA Very high quality; obligor's
ability to pay interest and
repay principal is very
strong. Because bonds rated
in the AAA and AA categories
are not significantly
vulnerable to foreseeable
future developments, short-
term debt of these issuers is
generally rated F-1+.
A High quality; obligor's
ability to pay interest and
repay principal is considered
to be strong, but may be more
vulnerable to adverse changes
in economic conditions and
circumstances than higher-
rated bonds.
BBB Satisfactory credit quality;
obligor's ability to pay
interest and repay principal
is considered adequate.
Unfavorable changes in
economic conditions and
circumstances are more likely
to adversely affect these
bonds and impair timely
payment. The likelihood that
the ratings of these bonds
will fall below investment
grade is higher than for
higher-rated bonds.
BB, CCC, CC, C Not investment grade;
predominantly speculative with
respect to the issuer's
capacity to repay interest and
repay principal in accordance
PAGE 32
with the terms of the
obligation for bond issues not
in default. BB is the least
speculative. C is the most
speculative.
Table 8
PAGE 1
4 Investing with T. Rowe Price
Account Requirements and Transaction Information
Always verify your transactions by carefully reviewing the
confirmation we send you. Please report any discrepancies to
Shareholder Services promptly.
Tax Identification Number
We must have your correct social security or corporate tax
identification number on a signed New Account Form or W-9 Form.
Otherwise, federal law requires the funds to withhold a
percentage (currently 31%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS
fine. If this information is not received within 60 days after
your account is established, your account may be redeemed, priced
at the NAV on the date of redemption.
Unless you request otherwise, one shareholder report will be
mailed to multiple account owners with the same tax
identification number and same ZIP code and to shareholders who
have requested that their account be combined with someone
else's for financial reporting.
Institutional Accounts
Transaction procedures in the following sections may not apply to
institutional accounts. For institutional account procedures,
please call your designated account manager or service
representative.
Opening a New Account: $2,500 minimum initial investment; $1,000
for gifts or transfers to minors (UGMA/UTMA) accounts
Account Registration
If you own other T. Rowe Price funds, be sure to register any new
account just like your existing accounts so you can exchange
among them easily. (The name and account type would have to be
identical.)
Regular Mail
T. Rowe Price
Account Services
P.O. Box 17300
Baltimore, MD
21298-9353
Mailgram, Express,
Registered, or Certified
Mail
T. Rowe Price
Account Services
10090 Red Run Blvd.
PAGE 2
Owings Mills, MD 21117
By Mail
Please make your check payable to T. Rowe Price Funds
(otherwise it will be returned) and send your check together
with the New Account Form to the address at left. We do not
accept third party checks to open new accounts.
By Wire
o Call Investor Services for an account number and give the
following wire address to your bank:
Morgan Guaranty Trust Co. of New York
ABA# 021000238
T. Rowe Price [fund name]
AC-00153938
account name(s), and account number
o Complete a New Account Form and mail it to one of the
appropriate addresses listed on the previous page.
Note: No services will be established and IRS penalty
withholding may occur until a signed New Account Form is
received.
By Exchange
Call Shareholder Services or use Tele*Access or your personal
computer (see "Automated Services" under "Shareholder Services").
The new account will have the same registration as the account
from which you are exchanging. Services for the new account may
be carried over by telephone request if preauthorized on the
existing account. (See explanation of "Excessive Trading" under
"Transaction Procedures.")
In Person
Drop off your New Account Form at any of the locations listed on
the cover and obtain a receipt.
Purchasing Additional Shares: $100 minimum purchase; $50 minimum
for Automatic Asset Builder and gifts or transfers to minors
(UGMA/UTMA) accounts
By ACH Transfer
Use Tele*Access, your personal computer, or call Investor
Services if you have established electronic transfers using the
ACH network.
By Wire
Call Shareholder Services or use the wire address in "Opening a
New Account."
Regular Mail
T. Rowe Price Funds
PAGE 3
Account Services
P.O. Box 89000
Baltimore, MD
21289-1500
(For mailgrams,
express, registered,
or certified mail,
see previous section.)
By Mail
o Make your check payable to T. Rowe Price Funds (otherwise
it may be returned).
o Mail the check to us at the address shown at left with
either a fund reinvestment slip or a note indicating the
fund you want to buy and your fund account number.
o Remember to provide your account number and the fund name on
your check.
By Automatic Asset Builder
Fill out the Automatic Asset Builder
section on the New Account or Shareholder Services Form.
Exchanging and Redeeming Shares
By Phone
Call Shareholder Services. If you find our phones busy during
unusually volatile markets, please consider placing your order by
your personal computer, Tele*Access (if you have previously
authorized telephone services), mailgram or by express mail. For
exchange policies, please see "Transaction Procedures and Special
Requirements--Excessive Trading."
Redemption proceeds can be mailed to your account address, sent
by ACH transfer, or wired to your bank (provided your bank
information is already on file). For charges, see "Electronic
Transfers--By Wire" under "Shareholder Services".
By Mail
For each account involved, provide the account name, number, fund
name, and exchange or redemption amount. For exchanges, be sure
to indicate any fund you are exchanging out of and the fund or
funds you are exchanging into. Please mail to the appropriate
address below or as indicated at left. T. Rowe Price requires the
signatures of all owners exactly as registered, and possibly a
signature guarantee (see "Transaction Procedures and Special
Requirements--Signature Guarantees").
Mailgram, Express, Registered Regular Mail:
or Certified mail:
PAGE 4
T. Rowe Price T. Rowe Price
Account Services Account Services
10090 Red Run Boulevard P.O. Box 89000
Owings Mills, MD 21117 Baltimore, MD 21289-0220
Rights Reserved by the Fund
The fund and its agents reserve the right to waive or lower
investment minimums; to accept initial purchases by telephone or
mailgram; to cancel or rescind any purchase or exchange (for
example, if an account has been restricted due to excessive
trading or fraud) upon notice to the shareholder within five
business days of the trade or if the written confirmation has not
been received by the shareholder, whichever is sooner; to freeze
any account and suspend account services when notice has been
received of a dispute between the registered or beneficial
account owners or there is reason to believe a fraudulent
transaction may occur; to otherwise modify the conditions of
purchase and any services at any time; or to act on instructions
believed to be genuine.
Shareholder Services
1-800-225-5132
1-410-625-6500
Shareholder Services
Many services are available to you as a T. Rowe Price
shareholder; some you receive automatically and others you must
authorize on the New Account Form. By signing up for services on
the New Account Form rather than later, you avoid having to
complete a separate form and obtain a signature guarantee. This
section reviews some of the principal services currently offered.
Our Services Guide contains detailed descriptions of these and
other services.
If you are a new T. Rowe Price investor, you will receive a
Services Guide with our Welcome Kit.
Investor Services
1-800-638-5660
1-410-547-2308
Note: Corporate and other entity accounts require an original or
certified resolution to establish services and to redeem by mail.
For more information, call Investor Services.
Retirement Plans
We offer a wide range of plans for individuals and
institutions, including large and small businesses: IRAs,
SEP-IRAs, Keoghs (profit sharing and money purchase pension),
401(k), and 403(b)(7). For information on IRAs, call Investor
Services. For information on all other retirement plans, please
PAGE 5
call our Trust Company at 1-800-492-7670.
Exchange Service
You can move money from one account to an existing identically
registered account, or open a new identically registered account.
Remember, exchanges are purchases and sales for tax purposes.
(Exchanges into a state tax-free fund are limited to investors
living in states where the funds are registered.) Some of the T.
Rowe Price funds may impose a redemption fee of .50% to 2%,
payable to such funds, on shares held for less than one year, or
in some funds, six months.
Automated Services
Tele*Access
1-800-638-2587
1-410-625-7676
Tele*Access. 24-hour service via toll-free number provides
information on fund yields and prices, dividends, account
balances, and your latest transaction, as well as the ability to
request prospectuses, account and tax forms, duplicate
statements, and checks, and to initiate purchase, redemption and
exchange orders in your accounts (see "Electronic Transfers"
below).
Personal Computer Access. 24-hour service via dial-up modem
provides the same information as Tele*Access, but on a personal
computer. Please call Investor Services to order.
Telephone and Walk-In Services
Buy, sell, or exchange shares by calling one of our service
representatives or by visiting one of our investor center
locations whose addresses are listed on the cover.
Electronic Transfers
By ACH. With no charges to pay, you can initiate a purchase or
redemption for as little as $100 or as much as $100,000 between
your bank account and fund account using the ACH network. Enter
instructions via Tele*Access or your personal computer or call
Shareholder Services.
By Wire. Electronic transfers can also be conducted via bank
wire. There is currently a $5 fee for wire redemptions under
$5,000, and your bank may charge for incoming or outgoing wire
transfers regardless of size.
Checkwriting (not available for equity funds, or the High Yield
Fund or Emerging Markets Bond Fund)
You may write an unlimited number of free checks on any money
market fund, and most bond funds, with a minimum of $500 per
check. Keep in mind, however that a check results in a
redemption; a check written on a bond fund will create a taxable
PAGE 6
event which you and we must report to the IRS.
Automatic Investing ($50 minimum)
You can invest automatically in several different ways,
including:
Automatic Asset Builder. You instruct us to move $50 or more
from your bank account, or you can instruct your employer to send
all or a portion of your paycheck to the fund or funds you
designate.
Note: If you are moving money from your bank account, and if
the date you select for your transactions falls on a Sunday or a
Monday which is a holiday, your order will be priced on the
second business day following this date.
Automatic Exchange. You can set up systematic investments from
one fund account into another, such as from a money fund into a
stock fund.
Discount Brokerage
Discount Brokerage is a division of T. Rowe Price Investment
Services, Inc., Member NASD/SIPC.
This additional service gives you the opportunity to easily
consolidate all your investments with one company. Through our
discount brokerage, you can buy and sell individual securities--
stocks, bonds, options, and others--at considerable commission
savings. We also provide a wide range of services, including:
Automated telephone and on-line services - You can enter trades,
access quotes, and review account information 24 hours a day,
seven days a week. Any trades executed through these programs
save you an additional 10% on commissions.
Note: Discount applies to our current commission schedule,
subject to our $35 minimum commission.
To open an account:
1-800-638-5660
For existing discount brokerage investors:
1-800-225-7720
Investor Information - A variety of informative reports, such as
our Brokerage Insights series, S&P Market Month Newsletter, and
optional Stock Reports can help you better evaluate economic
trends and investment opportunities.
Dividend Reinvestment Service - Virtually all stock held in
customer accounts are eligible for this service--free of
charge.
PAGE 21
PAGE 1
STATEMENT OF ADDITIONAL INFORMATION
T. Rowe Price State Tax-Free Income Trust
(the "Trust")
New York Tax-Free Money Fund
New York Tax-Free Bond Fund
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
(collectively the "Funds" and individually the "Fund")
T. Rowe Price California Tax-Free Income Trust
(the "Trust")
California Tax-Free Bond Fund
California Tax-Free Money Fund
(collectively the "Funds" and individually the "Fund")
This Statement of Additional Information is not a prospectus
but should be read in conjunction with the appropriate Fund
prospectus dated July 1, 1996, which may be obtained from T. Rowe
Price Investment Services, Inc., 100 East Pratt Street,
Baltimore, Maryland 21202. The purchase or exchange of shares in
any of the above-listed funds is limited to investors residing in
states where the funds are qualified for sale.
If you would like a prospectus for a Fund of which you are
not a shareholder, please call 1-800-638-5660. A prospectus with
more complete information, including management fees and expenses
will be sent to you. Please read it carefully.
The date of this Statement of Additional Information is July
1, 1996.
STATE 7/1/96
PAGE 2
TABLE OF CONTENTS
Page Page
Capital Stock . . . . . . . . Portfolio Management
Code of Ethics . . . . . . . Practices . . . . . . . . . .
Custodian . . . . . . . . . . Pricing of Securities Being
Determination of Maturity of Offered . . . . . . . . . . .
Money Market Securities . . Principal Holders of
Distributor for the Trusts . Securities . . . . . . . . . .
Dividends . . . . . . . . . . Ratings of Commercial Paper . .
Federal and State Registration Ratings of Municipal Debt
of Shares . . . . . . . . . Securities . . . . . . . . . .
Forwards . . . . . . . . . . Ratings of Municipal Notes
Futures Contracts . . . . . . and Variable Securities . .
Independent Accountants . . . Risk Factors Associated with a
Investment Management California Portfolio . . . . .
Services . . . . . . . . . . Risk Factors Associated with a
Investment in Taxable Money Florida Portfolio
Market Securities . . . . . Risk Factors Associated with a
Investment Objectives and Georgia Portfolio . . . . . .
Policies . . . . . . . . . . Risk Factors Associated with a
Investment Performance . . . Maryland Portfolio . . . . . .
Investment Programs . . . . . Risk Factors Associated with a
Investment Restrictions . . . New Jersey Portfolio . . . . .
Legal Counsel . . . . . . . . Risk Factors Associated with a
Management of the Trusts . . New York Portfolio . . . . . .
Municipal Securities . . . . Risk Factors Associated with a
Net Asset Value Per Share . . Virginia Portfolio . . . . . .
Options . . . . . . . . . . . Tax-Exempt vs. Taxable Yield .
Organization of the Trusts . Tax Status . . . . . . . . . .
Risk Factors . . . . . . . . When-Issued Securities . . . .
Portfolio Transactions . . . Yield Information . . . . . . .
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of each
Fund's investment objectives and policies discussed in each
Fund's prospectus. The Funds will not make a material change in
their investment objectives without obtaining shareholder
approval. Unless otherwise specified, the investment programs
and restrictions of the Funds are not fundamental policies. Each
Fund's operating policies are subject to change by each Trust's
Board of Trustees without shareholder approval. However,
shareholders will be notified of a material change in an
operating policy. The fundamental policies of each Fund may not
PAGE 3
be changed without the approval of at least a majority of the
outstanding shares of the Fund or, if it is less, 67% of the
shares represented at a meeting of shareholders at which the
holders of 50% or more of the shares of the Fund are represented.
RISK FACTORS
All Funds
The Funds are designed for investors who, because of their
tax bracket, can benefit from investment in municipal bonds whose
income is exempt from federal taxes. The Funds are not
appropriate for qualified retirement plans where income is
already tax deferred.
Municipal Securities
There can be no assurance that the Funds will achieve their
investment objectives. Yields on municipal securities are
dependent on a variety of factors, including the general
conditions of the money market and the municipal bond market, the
size of a particular offering, the maturity of the obligation,
and the rating of the issue. Municipal securities with longer
maturities tend to produce higher yields and are generally
subject to potentially greater capital appreciation and
depreciation than obligations with shorter maturities and lower
yields. The market prices of municipal securities usually vary,
depending upon available yields. An increase in interest rates
will generally reduce the value of portfolio investments, and a
decline in interest rates will generally increase the value of
portfolio investments. The ability of all the Funds to achieve
their investment objectives is also dependent on the continuing
ability of the issuers of municipal securities in which the Funds
invest to meet their obligations for the payment of interest and
principal when due. The ratings of Moody's, S&P, and Fitch
represent their opinions as to the quality of municipal
securities which they undertake to rate. Ratings are not
absolute standards of quality; consequently, municipal securities
with the same maturity, coupon, and rating may have different
yields. There are variations in municipal securities, both
within a particular classification and between classifications,
depending on numerous factors. It should also be pointed out
that, unlike other types of investments, municipal securities
have traditionally not been subject to regulation by, or
registration with, the SEC, although there have been proposals
which would provide for regulation in the future.
PAGE 4
The federal bankruptcy statutes relating to the debts of
political subdivisions and authorities of states of the United
States provide that, in certain circumstances, such subdivisions
or authorities may be authorized to initiate bankruptcy
proceedings without prior notice to or consent of creditors,
which proceedings could result in material and adverse changes in
the rights of holders of their obligations.
Proposals have been introduced in Congress to restrict or
eliminate the federal income tax exemption for interest on
municipal securities, and similar proposals may be introduced in
the future. Proposed "Flat Tax" and "Value Added Tax" proposals
would also have the effect of eliminating the tax preference for
municipal securities. Some of the past proposals would have
applied to interest on municipal securities issued before the
date of enactment, which would have adversely affected their
value to a material degree. If such a proposal were enacted, the
availability of municipal securities for investment by the Funds
and the value of a Fund's portfolio would be affected and, in
such an event, a Fund would reevaluate its investment objectives
and policies.
Although the banks and securities dealers with which the
Fund will transact business will be banks and securities dealers
that T. Rowe Price believes to be financially sound, there can be
no assurance that they will be able to honor their obligations to
the Fund with respect to such securities.
After purchase by a Fund, a security may cease to be rated
or its rating may be reduced below the minimum required for
purchase by the Fund. For the Money Funds, the procedures set
forth in Rule 2a-7, under the Investment Company Act of 1940, may
require the prompt sale of any such security. For the other
Funds, neither event would require a sale of such security by the
Fund. However, T. Rowe Price Associates, Inc. ("T. Rowe Price")
will consider such event in its determination of whether the Fund
should continue to hold the security. To the extent that the
ratings given by Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Corporation ("S&P"), or Fitch Investors
Service, Inc. ("Fitch") may change as a result of changes in such
organizations or their rating systems, the Fund will attempt to
use comparable ratings as standards for investments in accordance
with the investment policies contained in the prospectus. When
purchasing unrated securities, T. Rowe Price, under the
supervision of the Fund's Board of Trustees, determines whether
PAGE 5
the unrated security is of a quality comparable to that which the
Fund is allowed to purchase.
Municipal Bond Insurance. All of the Funds may purchase
insured bonds from time to time. The Florida Insured
Intermediate Tax-Free Fund must purchase such bonds. Municipal
bond insurance provides an unconditional and irrevocable
guarantee that the insured bond's principal and interest will be
paid when due. The guarantee is purchased from a private, non-
governmental insurance company.
There are two types of insured securities that may be
purchased by the Funds, bonds carrying either (1) new issue
insurance or (2) secondary insurance. New issue insurance is
purchased by the issuer of a bond in order to improve the bond's
credit rating. By meeting the insurer's standards and paying an
insurance premium based on the bond's total debt service, the
issuer is able to obtain a higher credit rating for the bond.
Once purchased, municipal bond insurance cannot be cancelled, and
the protection it affords continues as long as the bonds are
outstanding and the insurer remains solvent.
The Funds may also purchase bonds which carry secondary
insurance purchased by an investor after a bond's original
issuance. Such policies insure a security for the remainder of
its term. Generally, the Funds expect that portfolio bonds
carrying secondary insurance will have been insured by a prior
investor. However, the Funds may, on occasion, purchase
secondary insurance on their own behalf.
Each of the municipal bond insurance companies has
established reserves to cover estimated losses. Both the method
of establishing these reserves and the amount of the reserves
vary from company to company. The obligation of a municipal bond
insurance company to pay a claim extends over the life of each
insured bond. Municipal bond insurance companies are obligated
to pay a bond's interest and principal when due if the issuing
entity defaults on the insured bond. Although defaults on
insured municipal bonds have been low to date and municipal
insurers have met these claims, there is no assurance this low
rate will continue in the future. A higher than expected default
rate could deplete loss reserves and adversely affect the ability
of a municipal bond insurer to pay claims to holders of insured
bonds, such as the Fund.
PAGE 6
Money Funds
The Money Funds will limit their purchases of portfolio
instruments to those U.S. dollar-denominated securities which the
Fund's Board of Trustees determines present minimal credit risk,
and which are Eligible Securities as defined in Rule 2a-7 under
the Investment Company Act of 1940 (1940 Act). Eligible
Securities are generally securities which have been rated (or
whose issuer has been rated or whose issuer has comparable
securities rated) in one of the two highest short-term rating
categories by nationally recognized statistical rating
organizations or, in the case of any instrument that is not so
rated, is of comparable high quality as determined by T. Rowe
Price pursuant to written guidelines established under the
supervision of the Fund's Board of Trustees. In addition, the
Funds may treat variable and floating rate instruments with
demand features as short-term securities pursuant to Rule 2a-7
under the 1940 Act.
There can be no assurance that the Money Funds will achieve
their investment objectives or be able to maintain their net
asset value per share at $1.00. The price stability and
liquidity of the Money Funds may not be equal to that of a
taxable money market fund which exclusively invests in short-term
taxable money market securities. The taxable money market is a
broader and more liquid market with a greater number of
investors, issuers, and market makers than the short-term
municipal securities market. The weighted average maturity of
the Money Funds varies (subject to a 90 day maximum under Rule
2a-7): the shorter the average maturity of a portfolio, the less
its price will be impacted by interest rate fluctuations.
Bond Funds
Because of their investment policies, the Bond Funds may not
be suitable or appropriate for all investors. The Funds are
designed for investors who wish to invest in non-money market
funds for income, and who would benefit, because of their tax
bracket, from receiving income that is exempt from federal income
taxes. The Funds' investment programs permit the purchase of
investment grade securities that do not meet the high quality
standards of the Money Funds. Since investors generally perceive
that there are greater risks associated with investment in lower
quality securities, the yields from such securities normally
exceed those obtainable from higher quality securities. In
addition, the principal value of long term lower-rated securities
generally will fluctuate more widely than higher quality
PAGE 7
securities. Lower quality investments entail a higher risk of
default--that is, the nonpayment of interest and principal by the
issuer than higher quality investments. The value of the
portfolio securities of the Bond Funds will fluctuate based upon
market conditions. Although these Funds seek to reduce credit
risk by investing in a diversified portfolio, such
diversification does not eliminate all risk. The Funds are also
not intended to provide a vehicle for short-term trading
purposes.
Special Risks of High Yield Investing
Junk bonds are regarded as predominantly speculative with
respect to the issuer's continuing ability to meet principal and
interest payments. Because investment in low and lower-medium
quality bonds involves greater investment risk, to the extent the
Bond Funds invest in such bonds, achievement of their investment
objectives will be more dependent on T. Rowe Price's credit
analysis than would be the case if the Funds were investing in
higher quality bonds. High yield bonds may be more susceptible
to real or perceived adverse economic conditions than investment
grade bonds. A projection of an economic downturn, or higher
interest rates, for example, could cause a decline in high yield
bond prices because such events could lessen the ability of
highly leverage issuers to make principal and interest payments
on their debt securities. In addition, the secondary trading
market for high yield bonds may be less liquid than the market
for higher grade bonds, which can adversely affect the ability of
a Fund to dispose of its portfolio securities. Bonds for which
there is only a "thin" market can be more difficult to
value inasmuch as objective pricing data may be less available
and judgment may play a greater role in the valuation process.
Reference is also made to the sections entitled "Types of
Securities" and "Portfolio Management Practices" for discussions
of the risks associated with the investments and practices
described therein.
RISK FACTORS ASSOCIATED WITH A NEW YORK PORTFOLIO
The Funds' concentration in the debt obligations of one
state carries a higher risk than a portfolio that is
geographically diversified. In addition to State general
obligation bonds and notes and the debt of various state
agencies, the fund will invest in local bond issues, lease
obligations and revenue bonds, the credit quality and risk of
PAGE 8
which will vary according to each security's own structure and
underlying economics.
The Funds' ability to maintain a high level of "triple-
exempt" income is primarily dependent upon the ability of New
York issuers to continue to meet debt service obligations in a
timely fashion. In 1975 the State, New York City, and other
related issuers experienced serious financial difficulties that
ultimately resulted in much lower credit ratings and loss of
access to the public debt markets. A series of fiscal reforms
and an improved economic climate allowed these entities to return
to financial stability by the early 1980s. Credit ratings were
restored or raised and access to the public credit markets was
also restored. During the early 1990's, the State and City
confronted renewed fiscal pressure, as the region suffered
moderate economic decline. Conditions began to improve in 1993,
though below average economic performance and tight budgetary
conditions persist. Both entities face challenging budgets for
fiscal 1997 while they attempt to adjust spending levels and
priorities.
New York State
The State, its agencies, and local governments issued $18.9
billion in long-term municipal bonds in 1995. Approximately 48%
was general obligation debt, backed by the taxing power of the
issuer and 52% were revenue bonds and lease backed obligations,
issued for a wide variety of purposes, including transportation,
housing, education and healthcare.
As of March 31, 1996, total State-related bonded debt was
$36.1 billion, of which $5.2 billion was general obligation debt,
$7 billion was State moral obligation debt, and $17.9 billion was
financed under lease-purchase or other contractual obligations.
In addition, the State had $149 million in bond anticipation
notes outstanding. Since 1993, the State has not issued Tax and
Revenue Anticipation Notes (TRANs) terminating the practice of
annual seasonal borrowing which had occurred since 1952. As of
June 1, 1996, the State's general obligation bonds were rated A
by Moody's, A- by Standard & Poor's and A+ by Fitch. All general
obligation bonds must be approved by the voter prior to
issuance.
The fiscal stability of the State is also important for
numerous authorities which have responsibilities for financing,
constructing, and operating revenue-producing public benefit
PAGE 9
facilities. As of September 30, 1994 there were 18 authorities
that had aggregate debt outstanding, including refunding bonds,
of $70 billion.
The authorities most reliant upon annual direct State
support include the Metropolitan Transit Authority (MTA), the
Urban Development Authority (UDC), and the New York Housing
Finance Agency (HFA). In February 1975, the UDC defaulted on
approximately $1.0 billion of short-term notes. The default was
ultimately cured by the creation of the Project Finance Authority
(PFA), through which the State provided assistance to the UDC,
including support for debt service. Since then, there have been
no additional defaults by State authorities although substantial
annual assistance is required by the MTA and the HFA in
particular.
Subsequent to the fiscal crisis of the mid-70's, New York
State maintained balanced operations on a cash basis, although by
1992 it had built up an accumulated general fund deficit of over
$6 billion on a "Generally Accepted Accounting Principles" (GAAP)
basis. This deficit consisted mainly of overdue tax refunds and
payments due localities.
To resolve its accumulated general fund deficit the State
established the Local Government Assistance Corporation (LGAC) in
1990. A total of $4.7 billion in LGAC bonds have been issued.
The proceeds of these bonds were used to provide the State's
assistance to localities and school districts, enabling the State
to reduce its accumulated general fund deficit. State short-term
borrowing requirements, which peaked at a record $5.9 billion in
fiscal 1991, have been reduced to zero. Nonetheless, the State
ended fiscal 1995 with a General Fund unreserved deficit balance
of $3.9 billion. The adopted budget for fiscal 1996 included a
multi-year tax reduction plan which lowers the maximum personal
income tax rate from 7.875 to 6.85%. The original proposed
budget for fiscal 1997 assumes that significant spending
reductions will balance against the effects of a weak economy.
The budget, for the fiscal year which began on April 1, 1996, had
not been adopted as of June 1, 1996.
New York State has a large, diversified economy which has
witnessed a basic shift away from manufacturing toward more
service sector employment. In 1995, per capita income in New
York State was $25,782, 18% above the national average. Like
most northeastern states, New York suffered a population loss
during the 1970s. However, during the 1980s that trend reversed
and population increased slightly, standing at 18,169,000 in
PAGE 10
1994. During 1990-1992, the State experienced a slowing of
economic growth evidenced by the loss of 425,000 jobs.
Conditions improved slightly in 1993 as employment grew by 0.3%.
In 1994 and 1995, State employment grew by 0.9% and 0.7%,
respectively, both below the national average. Such economic
trends are important as they influence the growth or contraction
of State revenues available for operations and debt service.
New York City
The financial problems of New York City were acute between
1975 and 1979, highlighted by a default on the City's short-term
obligations. In the subsequent decade, the City made a
significant recovery. The most important contribution to the
City's fiscal recovery was the creation of the Municipal
Assistance Corporation for the City of New York (MAC). Backed by
sales, use, stock transfer, and other taxes, MAC issued bonds and
used the proceeds to purchase City bonds and notes. Although the
MAC bonds met with reluctance by investors at first, the program
has proven to be very successful over the past fifteen years.
Over the past six years, MAC returned substantial funds to the
City for general use as large surplus balances accumulated.
Much progress has been made since the fiscal crisis of 1975.
By 1981, the City achieved a budget balanced in accordance with
Generally Accepted Accounting Principles (GAAP) and has continued
to generate small surpluses on an operating basis. By 1983, the
City eliminated its accumulated General Fund deficit and as of
the fiscal year ending June 30, 1994, had a total General Fund
balance of $88 million. Although the City continues to finance
its seasonal cash flow needs through public borrowings, the total
amount of these borrowings has not exceeded 5% of any year's
revenues and all have been repaid by the end of the fiscal year.
As of June 1, 1996 the City's general obligation bonds are
rated Baa1 by Moody's, BBB+ by Standard & Poor's and A- by Fitch.
The City's general obligation bonds have been on Fitch Investor
Service's Negative "Fitch Alert" since March 1996.
While New York City sustained a decade long record of
relative financial stability, during the 1990's budgetary
pressures have been evident. Its major revenue sources, income
and sales taxes, were slowed and a downturn in the real estate
market reduced property tax revenues. Nonetheless, the City
concluded the 1995 fiscal year with an operating surplus of $71
million. Revenues and expenditures for the 1995 fiscal year were
balanced in accordance with GAAP for the fifteenth consecutive
PAGE 11
year. New York City will require some combination of cuts in
expenditures and state approval of new revenue sources to achieve
permanent fiscal balance in future fiscal years.
Long Island and LILCO
The Long Island Lighting Company (LILCO) is the single
largest property taxpayer in both Nassau and Suffolk Counties.
LILCO has experienced substantial financial difficulty primarily
arising from problems related to its completed but unlicensed 809
megawatt Shoreham Nuclear Power Facility located in Suffolk
County. In 1987, the State Legislature created the Long Island
Power Authority (LIPA). In February, 1989, an agreement was
reached with the state of New York to transfer ownership of the
Shoreham Plant to LIPA for one dollar in exchange for certain
rate benefits to LILCO.
LILCO has challenged various property tax assessments levied
in Suffolk County on its facilities and seeks substantial
refunds. An $81 million refund was made to LILCO in January 1996
for Phase I of this tax litigation. Phase II, in which the
Company seeks to recover over $500 million in property taxes paid
on Shoreham for the years 1984-1992, is currently pending. A
decision is expected by the fourth quarter of 1996.
As requested by the Governor, LIPA has proposed a plan to
restructure LILCO, reduce rates on Long Island and provide a
framework for long-term competition in power production. Most of
LILCO's assets would be sold or purchased by LIPA with the
issuance of approximately $4.5 billion of tax-exempt debt. The
proposal is in the initial stages with much negotiation expected
and many approvals required.
Sectors
Certain areas of potential investment concentration present
unique risks. In 1995, $1.6 billion of tax-exempt debt issued in
New York was for public or non-profit hospitals. A significant
portion of the Fund's assets may be invested in health care
issues. For over a decade, the hospital industry has been under
significant pressure to reduce expenses and shorten length of
stay, a phenomenon which has negatively affected the financial
health of many hospitals. While each hospital bond issue is
separately secured by the individual hospital's revenues, third
party reimbursement sources such as the federal Medicare and
state Medicaid programs or private insurers are common to all
PAGE 12
hospitals. To the extent these third party payors reduce
reimbursement levels, the individual hospitals may be affected.
The proposed fiscal 1997 State budget calls for sizeable
reductions in the state's support of Medicaid and health
services.
The Funds may from time to time invest in electric revenue
issues which have exposure to or participate in nuclear power
plants which could affect the issuers' financial performance.
Such risks include delay in construction and operation due to
increased regulation, unexpected outages or plan shutdowns,
increased Nuclear Regulatory Commission surveillance or
inadequate rate relief. In addition, the financial performance
of electric utilities may be impacted by increased competition
and deregulation in the industry.
The Funds may invest in private activity bond issues for
corporate and non-profit borrowers. These issues sold through
various governmental conduits, are backed solely by the revenues
pledged by the respective borrowing corporations. No
governmental support is implied. This category accounted for
3.4% of the tax-exempt debt issued in New York during 1995.
RISK FACTORS ASSOCIATED WITH A CALIFORNIA PORTFOLIO
The Funds' concentration in debt obligations of one state
carries a higher risk than a portfolio that is geographically
diversified. In addition to State general obligations and notes,
the funds will invest in local bond issues, lease obligations and
revenue bonds, the credit quality and risk of which will vary
according to each security's own structure and underlying
economics.
Debt. The State, its agencies and local governmental
entities issued $25.9 billion in long term municipal bonds in
1995. Approximately 27% was general obligation debt, backed by
the taxing power of the issuer, and 73% were revenue bonds and
lease backed obligations, issued for a wide variety of purposes,
including transportation, housing, education and healthcare.
As of February 1, 1996, the State of California had
approximately $18.5 billion outstanding general obligation bonds
secured by the State's revenue and taxing power. An additional
$2.8 billion authorized but unissued state general obligation
debt remains to be issued to comply with voter initiatives and
PAGE 13
legislative mandates. Debt service on roughly 21% of the State's
outstanding debt is met from revenue producing projects such as
water, harbor, and housing facilities. As part of its cash
management program, the State regularly issues short-term notes
to meet its disbursement requirements in advance of revenue
collections. During fiscal 1996, the State issued $2.0 billion
in short-term notes for this purpose.
The State also supports $5.5 billion in lease-purchase
obligations attributable to the State Public Works Board. These
obligations are not backed by the full faith and credit of the
State but instead, are subject to annual appropriations from the
State's General Fund.
In addition to the State obligations described above, bonds
have been issued by special public authorities in California that
are not obligations of the State. These include bonds issued by
the California Housing Finance Agency, the Department of Water
Resources, the Department of Veterans Affairs, California State
University and the California Transportation Commission.
Economy. California's economy is the largest among the 50
states and one of the largest in the world. The 1995 population
of 32 million represents 12% of the U.S. total. The State's per
capita personal income in 1994 exceeded the U.S. average by
3%.
Due in part to its rapidly growing population, the
California economy has proven to be more cyclical than that of
the nation. During the recessionary period of the early 1980s
and again in the 1990s, California's unemployment levels have
averaged above the national rate. Federal defense spending cuts
and military base closings have negatively affected the
California economy in recent years. The level of economic
activity within the State is important as it influences the
growth or contraction of State and local government revenues
available for operations and debt service.
Recessionary influences and the effects of overbuilding in
selected areas have resulted in a contraction in real estate
values in many regions of the State during the last five years.
A decline in property values could have a negative effect on the
ability of certain local governments to meet their obligations.
As a state, California is more prone to earthquakes than
most other states in the country, creating potential economic
losses from damages. On January 17, 1994, a major earthquake,
PAGE 14
measuring 6.8 on the Richter scale, hit Southern California
centered in the area of Northridge. Total damage has been
estimated at $20 billion. Significant federal aid has been
received.
Legislative. Due to the Funds' concentration in California
state and its municipal issuers, the Funds may be affected by
certain amendments to the California constitution and state
statutes which limit the taxing and spending authority of
California governmental entities and may affect their ability to
meet their debt service obligations.
In 1978, California voters approved "Proposition 13" adding
Article XIIIA, an amendment to the state constitution which
limits ad valorem taxes on real property to 1% of "full cash
value" and restricts the ability of taxing entities to increase
real property taxes. The full cash value may be adjusted
annually to reflect increases (not to exceed 2%) or decreases in
the consumer price index or comparable local data, or declining
property value caused by damage, destruction or other factors.
In subsequent action, the State substantially increased General
Fund expenditures to provide assistance to its local governments
to offset the losses in revenues and to maintain essential local
services but later, phased out most aid in response to fiscal
pressures.
Another constitutional amendment, Article XIIIB, was passed
by voters in 1979 prohibiting the State from spending revenues
beyond its annually adjusted "appropriations limit". Any
revenues exceeding this limit must be returned to the taxpayers
as a revision in the tax rate or fee schedule over the following
two years. Such a refund, in the amount of $1.1 billion,
occurred in fiscal year 1987. Excluded from the appropriation
limit are certain expenditures including debt service on
indebtedness incurred or authorized prior to January 1, 1979 or
subsequently approved by voters.
An effect of the tax and spending limitations in California
has been a broad scale shift by local governments away from
general obligation debt that requires voter approval and pledging
future tax revenues, towards lease revenue financing that is
subject to abatement and does not require voter approval. Lease
backed debt is generally viewed as a less secure form of
borrowing and therefore entails greater credit risk. Local
governments also raise capital through the use of Mello-Roos,
1915 Act, and Tax Increment Bonds, all of which are generally
riskier than general obligation debt as they often rely on tax
PAGE 15
revenues to be generated by future development for their
support.
Proposition 98, enacted in 1988, changed the State's method
of funding education for grades below the university level.
Under this constitutional amendment, the schools are guaranteed a
minimum share of State General Fund revenues. The major effect
of Proposition 98 has been to restrict the State's flexibility to
respond to fiscal stress.
Future initiatives, if proposed and adopted or future court
decisions could create renewed pressure on California governments
and their ability to raise revenues. The State and its
underlying localities have displayed flexibility, however, in
overcoming the negative effects of past initiatives.
Financial. California's finances have been under pressure
since 1990 as the effects of recession took their toll. From
1991 through 1995, accumulated deficits were carried over into
the following years. Fiscal 1996 is now expected to end with a
general fund balance of $50 million. The Governor has proposed a
budget for fiscal 1997 which features a proposed income tax rate
cut and increased school funding levels supported by economic
growth and health and welfare savings. We are unable to predict
whether the budget package will be negotiated in a timely manner
by the Governor and the legislature.
As a result of the State's prior fiscal imbalance, the
rating services downgraded California's general obligation bonds
from their prior AAA levels. As of June 1, 1996, the State's
general obligation bonds are rated A1 by Moody's, A by Standard &
Poor's and A+ by Fitch.
The consequences of the State's financial problems reach
beyond its own general obligation bond ratings. Many state
agencies and local governments which depend upon state
appropriations have realized significant cutbacks in funding in
recent years. These entities have been forced to make program
reductions or to increase fees or raise special taxes to cover
their debt service and lease obligations.
On December 6, 1994, Orange County filed for protection
under Chapter 9 of the U.S. Bankruptcy Code after reports of
significant losses in its investment pool. Upon restructuring,
the realized losses in the pool were $1.6 billion or 21% of
assets. More than 200 public entities, most of which, but not
all, are located in Orange County were also depositors in the
PAGE 16
pool. The County defaulted on a number of its debt obligations.
The County has a plan in place to emerge from bankruptcy by June
12, 1996. Through a series of long-term financings, it expects
to repay most of its obligations to pool depositors and become
current on its public debt obligations. The balance of claims
against the County are payable from any proceeds received from
litigation against securities dealers and other parties.
Sectors
Certain areas of potential investment concentration present
unique risks. In 1995, $1.4 billion of tax-exempt debt issued in
California was for public or non-profit hospitals. A significant
portion of the Funds' assets may be invested in health care
issues. For over a decade, the hospital industry has been under
significant pressure to reduce expenses and shorten length of
stay, a phenomenon which has negatively affected the financial
health of many hospitals. While each hospital bond issue is
separately secured by the individual hospital's revenues, third
party reimbursement sources such as the federal Medicare and
state MediCal programs or private insurers are common to all
hospitals. To the extent these third party payors reduce
reimbursement levels, the individual hospitals may be
affected.
The Funds may from time to time invest in electric revenue
issues which have exposure to or participate in nuclear power
plants which could affect the issuers' financial performance.
Such risks include delay in construction and operation due to
increased regulation, unexpected outages or plant shutdowns,
increased Nuclear Regulatory Commission surveillance or
inadequate rate relief. In addition, the financial performance
of electric utilities may be impacted by increased competition
and deregulation in the industry.
The Funds may invest in private activity bond issues for
corporate and non-profit borrowers. These issues sold through
various governmental conduits, are backed solely by the revenues
pledged by the respective borrower corporations. No governmental
support is implied. This category accounted for 5.3% of the tax-
exempt debt issued in California during 1995.
PAGE 17
RISK FACTORS ASSOCIATED WITH A MARYLAND PORTFOLIO
Each Fund's concentration in the debt obligations of one
state carries a higher risk than a portfolio that is
geographically diversified. In addition to State of Maryland
general obligations and state agency issues, the fund will invest
in local bond issues, lease obligations and revenue bonds, the
credit quality and risk of which will vary according to each
security's own structure and underlying economics.
Debt. The State of Maryland and its local governments issue
three basic types of debt, with varying degrees of credit risk:
general obligation bonds backed by the unlimited taxing power of
the issuer, revenue bonds secured by specific pledged fees or
charges for a related project, and tax-exempt lease obligations,
secured by annual appropriations by the issuer, usually with no
implied tax or specific revenue appropriations by the issuer. In
1995, $2.1 billion in state and local debt was issued in
Maryland, with approximately 50% representing general obligation
debt and 50% revenue bonds and lease backed debt, compared to 38%
general obligation and 62% revenue backed bonds nationally.
The State of Maryland had $2.7 billion in general obligation
bonds outstanding as of March 31, 1996 along with an additional
$1.3 billion in other tax-supported debt. General obligation
debt of the State of Maryland is rated Aaa by Moody's, AAA by
Standard & Poor's and AAA by Fitch. There is no general debt
limit imposed by the State Constitution or public general laws.
The State Constitution imposes a 15 year maturity limit on State
general obligation bonds. Although voters approved a
constitutional amendment in 1982 permitting the State to borrow
up to $100 million in short-term notes in anticipation of taxes
and revenues, the State has not made use of this authority.
Many agencies and other instrumentalities of the State
government are authorized to borrow money under legislation which
expressly provides that the loan obligations shall not be deemed
to constitute a debt or a pledge of the faith and credit of the
State. The Community Development Administration of the
Department of Housing and Community Development, the Maryland
Stadium Authority, the Board of Trustees of St. Mary's College of
Maryland, the Maryland Environmental Service, the Board of
Regents of the University of Maryland System, the Board of
Regents of Morgan State University, the Maryland Food Center
Authority, and the Maryland Water Quality Financing
Administration have issued and have outstanding bonds of this
type. The principal of and interest on bonds issued by these
PAGE 18
bodies are payable solely from various sources, principally fees
generated from use of the facilities, enterprises financed by the
bonds, or other dedicated fees. Total outstanding revenue and
enterprise debt of these State units, the Maryland Transportation
Authority, and the Maryland Department of Transportation at March
31, 1996 was $3.7 billion.
Economy. The economy of the State of Maryland generally
demonstrates strong performance relative to the nation. Per
capita income is 13% above the U.S. average. Unemployment was
5.1% in 1995, compared to a national average of 5.6%. The
State's population in 1995 was 5.0 million, with 83% concentrated
in the Baltimore-Washington corridor.
Financial. To a large degree, the risk of the Funds is
dependent upon the financial strength of the State of Maryland
and its localities. Over the long term, Maryland's financial
condition has been strong; however, in fiscal 1992, the State
experienced unanticipated shortfalls in revenues, as collections
of major taxes fell during the recession. To address this loss,
the governor enacted a series of mid-year reductions in
expenditures, primarily cuts in local aid.
Balancing the state budget for fiscal year 1993 involved a
variety of additional taxes, including a higher income tax on
upper income households and an expanded sales tax. The
legislature also adopted further cuts in State aid to localities,
but this action was offset by the ability of localities to
increase the local "piggyback" tax from 50 percent to 60 percent
of the State rate. These actions were successful in restoring
the State's financial condition and replenishing reserves. The
State concluded fiscal 1993 with a General Fund balance of $110
million (1.3% of General Fund expenditures). During fiscal 1994
through 1996 economic conditions improved moderately, allowing
the state to continue to improve its financial condition. The
results of fiscal year 1996 are projected to show a general fund
balance of $439 million (5.9% of revenues). The fiscal 1997
budget does not enact any substantial changes in income tax
rates.
Many local Maryland governments also suffered from fiscal
stress and general declines in financial performance during the
recession. Downturns in real estate related receipts, declines in
the growth of income tax revenues, lower cash positions and
reduced interest income have been the common problems. State aid
to local governments was also reduced during that period. Local
governments closed these gaps by increasing property and local
PAGE 19
income tax rates, implementing program cuts, and curtailing pay
raises. Certain counties in Maryland are subject to voter
approval limitations on property tax levy increases or on
increases in governmental spending which limits their flexibility
in responding to external changes.
Initiatives to reform existing tax structures in certain
counties were placed on the November 1992 election ballot and
were adopted in November of 1992. These counties are now
assessing the impacts of these restrictions. Future initiatives,
if proposed and adopted, could create pressure on the counties
and other local governments and their ability to raise revenues.
The Funds cannot predict the impact of any such future tax
limitations on debt quality.
Sectors. Certain areas of potential investment
concentration present unique risks. In 1995 $243 million of tax-
exempt debt issued in Maryland was for public or non-profit
hospitals. A significant portion of the Funds' assets may be
invested in health care issues. For over a decade, the hospital
industry has been under significant pressure to reduce expenses
and shorten length of stay, a phenomenon which has negatively
affected the financial health of many hospitals. While each
hospital bond issue is separately secured by the individual
hospital's revenues, third party reimbursement mechanisms are
common to the group. At the present time Maryland hospitals
operate under a system which reimburses hospitals according to a
State administered set of rates and charges rather than the
Federal Diagnosis Related Group (DRG) system for Medicare
payments. Since 1983, Maryland hospitals, on average over the
trailing three year period, have increased hospital charges at a
level below the national average in terms of Medicare cost
increases, allowing them to continue operating under a Medicare
waiver. Any loss of this waiver in the future may have an
adverse impact upon the credit quality of Maryland hospitals.
The Funds may from time to time invest in electric revenue
issues which have exposure to or participate in nuclear power
plants which could affect the issuers' financial performance.
Such risks include delay in construction and operation due to
increased regulation, unexpected outages or plan shutdowns,
increased Nuclear Regulatory Commission surveillance or
inadequate rate relief. In addition, the financial performance
of electric utilities may be impacted by increased competition
and deregulation in the industry.
PAGE 20
The Funds may invest in private activity bond issues for
corporate and non-profit borrowers. These issues sold through
various governmental conduits, are backed solely by the revenues
pledged by the respective borrowing corporations. No
governmental support is implied. This category accounted for
1.6% of the tax-exempt debt issued in Maryland during 1995.
RISK FACTORS ASSOCIATED WITH A VIRGINIA PORTFOLIO
The Fund's concentration in the debt obligations of one
state carries a higher risk than a portfolio that is
geographically diversified. In addition to State of Virginia
general obligations and state agency issues, the fund will invest
in local bond issues, lease obligations and revenue bonds, the
credit quality and risk of which will vary according to each
security's own structure and underlying economics.
Debt. The State of Virginia and its local governments
issued $4.1 billion municipal bonds in 1995, approximately 26%
general obligation debt backed by the unlimited taxing power of
the issuer and 74% revenue bonds secured by specific pledged fees
or charges for an enterprise or project. Included within the
revenue bond category are tax-exempt lease obligations that are
subject to annual appropriations of a governmental body to meet
debt service, usually with no implied tax or specific revenue
pledge. Debt issued in 1995 was for a wide variety of public
purposes, including transportation, housing, education, health
care, and industrial development.
As of June 30, 1995 the State of Virginia had $963 million
outstanding general obligation bonds secured by the State's
revenue and taxing power, a modest amount compared to many other
states. Under state law, general obligation debt is limited to
1.15 times the average of the preceding three years' income tax
and sales and use tax collections. The State's outstanding
general obligation debt is well below that limit and over 90% of
the debt service is actually met from revenue producing capital
projects such as universities and toll roads. Debt service
payments on all general obligation bonds represented 1.28% of the
State's Governmental Funds expenditures in fiscal year 1995.
The State also supports $1.3 billion in debt issued by the
Virginia Public Building Authority, the Virginia College Building
Authority, the Virginia Port Authority, the Innovative Technology
Authority and for transportation purposes. These bonds are not
PAGE 21
backed by the full faith and credit of the State but instead, are
subject to annual appropriations from the State's General
Fund.
In addition to the State and public authorities described
above, an additional $6.6 billion bonds have been issued by
special public authorities in Virginia that are not obligations
of the State. These bonds include debt issued by the Virginia
Education Loan Authority, the Virginia Public School Authority,
the Virginia Resources Authority, and the Virginia Housing
Development Authority.
Economy. The State of Virginia has a population of
approximately 6.6 million, making it the twelfth largest state.
Since the 1930s the State's population has grown at a rate
exceeding the national average. Stable to strong economic growth
during the 1980s was led by the northern Virginia area outside of
Washington, D.C. where approximately 25% of the State's
population is concentrated. The next largest metropolitan area
is the Norfolk-Virginia Beach-Newport News area, followed by the
Richmond-Petersburg area, including the State's capital of
Richmond. The State's economy is broadly based, with a large
concentration in service and governmental jobs, followed by
manufacturing. Virginia has significant concentrations of high
technology employers, with nearly 150,000 people employed in 3900
establishments. Per capita income exceeds national averages
while unemployment figures have consistently tracked below
national averages.
Financial. To a large degree, the risk of the portfolio is
dependent on the financial strength of the State of Virginia and
its localities. As of June 1, 1996, the State was rated Aaa by
Moody's, AAA by Standard & Poor's and AAA by Fitch. The State's
budget is prepared on a biennial basis. From 1970 through 1994
the State's General Fund showed a positive balance for all of its
two year budgetary periods. The national recession and its
negative effects on State personal income tax collections did,
however, force the State to draw down its General Fund balances
to a deficit position in 1992. Spending cuts and improved
economic conditions allowed for positive operations in 1993-1995.
Although the State posted a budgetary surplus for fiscal 1995,
federal retiree settlements and other transfers reduced the
available general fund balance to a deficit of $114 million.
A significant portion of the Fund's assets is expected to be
invested in the debt obligations of local governments and public
authorities with investment grade ratings of BBB or higher.
PAGE 22
While local governments in Virginia are primarily reliant on
independent revenue sources, such as property taxes, they are not
immune to budget shortfalls caused by cutbacks in State aid.
Likewise, certain enterprises such as toll roads or hospitals may
be affected by changes in economic activity.
Sectors. Certain areas of potential investment
concentration present unique risks. In 1995, $395 million of
tax-exempt debt issued in Virginia was for public or non-profit
hospitals. A significant portion of the Fund's assets may be
invested in health care issues. For over a decade, the hospital
industry has been under significant pressure to reduce expenses
and shorten length of stay, a phenomenon which has negatively
affected the financial health of many hospitals. While each
hospital bond issue is separately secured by the individual
hospital's revenues, third party reimbursement sources such as
the federal Medicare and state Medicaid programs or private
insurers are common to all hospitals. To the extent these payors
reduce reimbursement levels, the individual hospitals may be
affected.
The Fund may from time to time invest in electric revenue
issues which have exposure to or participate in nuclear power
plants which could affect the issuers' financial performance.
Such risks include delay in construction and operation due to
increased regulation, unexpected outages or plant shutdowns,
increased Nuclear Regulatory Commission surveillance or
inadequate rate relief.
The Fund may invest in private activity bond issues for
corporate and non-profit borrowers. These issues sold through
various governmental conduits, are backed solely by the revenues
pledged by the respective borrowing corporations. No
governmental support is implied. This category account for 7.7%
of the tax-exempt debt issued in Virginia during 1995.
RISK FACTORS ASSOCIATED WITH A NEW JERSEY PORTFOLIO
The Fund's concentration in the debt obligations of one
state carries a higher risk than a portfolio that is
geographically diversified. In addition to State of New Jersey
general obligation bonds, notes and state agency issues, the fund
will invest in local bond issues, lease obligations and revenue
bonds, the credit quality and risk of which will vary according
to each security's own structure and underlying economics.
PAGE 23
Debt. The State of New Jersey and its local governments
issued $4.6 billion of municipal bonds in 1995. Of this amount,
approximately 27% was general obligation debt backed by the
unlimited taxing power of the issuer and 73% were revenue bonds
secured by specific pledged fees or charges for an enterprise or
project. Included within the revenue bond sector are tax-exempt
lease obligations that are subject to annual appropriations of a
governmental body, usually with no implied tax or specific
revenue pledge. Debt issued in 1995 was for a wide array of
public purposes, including water and sewer projects, health care,
housing, education, transportation, and pollution control.
The State of New Jersey has approximately $3.6 billion
outstanding general obligation bonds secured by the State's
revenue and taxing power. As of June 1, 1996, its general
obligation bonds were rated Aa1 by Moody's, AA+ by Standard &
Poor's and AA+ by Fitch. In addition to the State's direct debt,
it is obligated for certain lease backed debt issued through the
Mercer County Improvement Authority, the New Jersey Economic
Development Authority, the New Jersey Building Authority, the
Educational Facilities Authority and the Transportation Trust
Fund Authority. Under state law, the obligations of certain
local school districts and county college districts have been
supported by State appropriations. The State has also entered
into a "moral obligation" (as opposed to a legal commitment) to
make up debt service shortfalls for the New Jersey Housing and
Mortgage Finance Agency as well as the South Jersey Port
Corporation. While no assistance has ever been required for the
New Jersey Housing and Mortgage Finance Agency, from time to
time, the State has supported the operations and debt service of
the South Jersey Port Corporation. The State has also guaranteed
bonds issued by the Sports and Exposition Authority. The related
obligations of the State described in this paragraph total an
additional $4.8 billion.
A number of other state-created agencies issue tax-exempt
revenue bonds that are not a debt or liability of the State. The
largest such entities include the New Jersey Turnpike Authority,
the New Jersey Educational Facilities Authority and the New
Jersey Health Care Facilities Financing Authority.
A significant portion of the portfolio's assets is expected
to be invested in the debt obligations of local governments and
public authorities with investment grade ratings of BBB or
higher. While local governments in New Jersey are primarily
reliant on independent revenue sources, such as property taxes,
they are not immune to budget shortfalls caused by economic
PAGE 24
downturns or cutbacks in State aid. Likewise, certain
enterprises such as toll roads or hospitals may be affected by
changes in economic activity. Under the New Jersey Local Budget
Law, the State oversees the budget preparation of local
governments and has certain powers to enforce balanced budgets,
limit short term borrowing and regulate overall debt limits.
Economy. New Jersey is the ninth largest and most densely
populated state with 7.9 million residents. The economic base is
diversified among manufacturing, construction, services, and
agricultural uses. The average per capita income of $28,858
ranks the State as the second highest in the United States. Over
the long term, the State's economy has been a strong performer,
with unemployment levels generally below national averages;
however, since the recession of 1991-92, the State's growth rate
has lagged the nation.
Financial. To a large degree, the risk of the portfolio is
dependent on the financial strength of the State of New Jersey
and its localities. Characteristically the State has
demonstrated solid financial performance, but operations
suffered as the State's economy stagnated during the recession of
the early 1990's. In fiscal 1990 through 1994 New Jersey
utilized non-recurring revenues and expenditure deferrals and a
large tax increase to achieve balance. Utilizing cost controls
and a slightly improved economy, the State concluded fiscal year
1995 with an unreserved general fund balance of $569 million
(3.6% of general fund expenses). Effective January 1996, the
State completed the last stage of a 30% reduction in personal
income tax rates.
Sectors. Certain areas of potential investment
concentration present unique risks. In 1995, 7% of tax-exempt
debt issued in New Jersey was for public or non-profit hospitals.
A significant portion of the Fund's assets may be invested in
health care issues. For over a decade, the hospital industry has
been under significant pressure to reduce expenses and shorten
length of stay, a phenomenon which has negatively affected the
financial health of many hospitals. While each hospital bond
issue is separately secured by the individual hospital's
revenues, third party reimbursement sources such as the federal
Medicare and state Medicaid programs or private insurers are
common to all hospitals. To the extent these payors reduce
reimbursement levels, the individual hospitals may be
affected.
PAGE 25
In May 1996, the State of New Jersey reauthorized the
funding of charity care subsidies to eligible hospitals. The new
authorization runs through December 31, 1997. The failure of the
State to renew this program or put in place a permanent funding
mechanism may affect the financial performance of certain New
Jersey hospitals in future years.
The Fund may from time to time invest in electric revenue
issues which have exposure to or participate in nuclear power
plants which could affect the issuers' financial performance.
Such risks include delay in construction and operation due to
increased regulation, unexpected outages or plant shutdowns,
increased Nuclear Regulatory Commission surveillance or
inadequate rate relief. In addition, the financial performance
of electric utilities may be impacted by increased competition
and deregulation in the industry.
The Fund may invest in private activity bond issues for
corporate and non-profit borrowers. These issues sold through
governmental conduits, such as the New Jersey Economic
Development Authority and various local issuers, are backed
solely by the revenues pledged by the respective borrowing
corporations. No governmental support is implied. This category
accounted for 2.3% of the tax-exempt debt issued in New Jersey
during 1995. In the past, a number of New Jersey Economic
Development Authority issues have defaulted as a result of
borrower financial difficulties.
RISK FACTORS ASSOCIATED WITH A GEORGIA PORTFOLIO
The Fund's concentration in the debt obligations of one
state carries a higher risk than a portfolio that is
geographically diversified. In addition to State of Georgia
general obligations and state agency issues, the fund will invest
in local bond issues, lease obligations and revenue bonds, the
credit quality and risk of which will vary according to each
security's own structure and underlying economics.
Debt. The State of Georgia and its local governments issued
$3.6 billion in municipal bonds in 1995, with approximately 48%
general obligation debt backed by the unlimited taxing power of
the issuer and 52% revenue bonds secured by specific pledged fees
or charges for an enterprise or project. As of June 1, 1996, the
State was rated Aaa by Moody's, AA+ by Standard & Poor's and AAA
by Fitch.
PAGE 26
As of January 31, 1996, the State of Georgia had net direct
obligations of $4.9 billion. Since 1973, when a Constitutional
Amendment authorizing the issuance of state general obligation
(GO) bonds was implemented, the State has funded most of its
capital needs through the issuance of general obligation (GO)
bonds. Previously, capital requirements were funded through the
issuance of bonds by ten separate authorities and secured by
lease rental agreements and annual state appropriations. The
State Constitution permits the State to issue bonds for two types
of public purposes: (1) general obligation debt and (2)
guaranteed revenue debt. The Constitution imposes certain debt
limits and controls. GO debt service cannot exceed 10% of total
revenue receipts less refunds of the state treasury. GO bonds
have a maximum maturity of 25 years. Currently, maximum GO debt
service requirements are well below the legal limit at 5.5% of
Fiscal Year 1995 treasury receipts. Debt service payments on all
general obligation bonds accounted for 5.3% of budget allotments
for fiscal year 1995. Debt levels are expected to increase in
fiscal 1995 due to the planned issuance of additional G.O.
bonds.
In addition to the general obligation and lease backed debt
described above, an additional $199 million bonds have been
issued by the Georgia World Congress Authority and $691 million
bonds have been issued and are outstanding by the Georgia Housing
and Finance Authority, none of which represent direct obligations
of the State.
Economy. The State of Georgia has a population of
approximately 7.2 million, making it the 11th largest state.
Since the 1960s, the State's population has grown at a rate
exceeding the national average, with the growth rate during the
1980s nearly twice that of the entire country. Stable to strong
economic growth during the 1980s was led by the Atlanta
metropolitan statistical area, where approximately 45% of the
State's population is located. This area includes the capital
city of Atlanta, and 18 surrounding counties. The next largest
metropolitan area is the Columbus-Muscogee area followed by the
Macon area.
The State's economy is well diversified. The current labor
force of 3.6 million is largely concentrated in wholesale/retail
trade and service jobs, followed by lesser amounts in
manufacturing and government. Employment gains have
substantially exceeded the region and the U.S. since 1980. The
State's economy should continue to grow, boosted by the upcoming
PAGE 27
Summer Olympics and the continued demand for consumer durables.
Georgia's per capita income has steadily improved against the
national average since the 1960s and currently is 93% of the U.S,
ranking it 28th among the states.
Financial. To a large degree, the creditworthiness of the
portfolio is dependent on the financial strength of the State of
Georgia and its localities. During the 1980s, the State's strong
economic performance translated into solid financial performance
and the accumulation of substantial governmental fund balances.
During fiscal 1989 to 1991, the State's financial condition
was affected by three years of revenue shortfalls brought on by
recession. During these periods, the Governor called special
legislative sessions to enact sizeable spending cuts to achieve
budget balance. Economic conditions improved in 1992, allowing
the State to restore its financial cushion. Results for fiscal
1995 showed a continuation of this positive trend with an ending
unreserved general fund balance of $374 million, or 2.7% of
revenues.
A significant portion of the portfolio's assets is expected
to be invested in the debt obligations of local governments and
public authorities with investment grade ratings of BBB or
higher. While local governments in Georgia are primarily reliant
on independent revenue sources, such as property taxes, they are
not immune to budget shortfalls caused by cutbacks in State aid.
The Fund may purchase obligations issued by public authorities in
Georgia which are not backed by the full faith and credit of the
State and may or may not be subject to annual appropriations from
the State's General Fund. Likewise, certain enterprises such as
water and sewer systems or hospitals may be affected by changes
in economic activity.
Sectors. Certain areas of potential investment
concentration present unique risks. In 1995, $143 million of
tax-exempt debt issued in Georgia was for public or non-profit
hospitals. A significant portion of the Fund's assets may be
invested in health care issues. For over a decade, the hospital
industry has been under significant pressure to reduce expenses
and shorten length of stay, a phenomenon which has negatively
affected the financial health of many hospitals. While each
hospital bond issue is separately secured by the individual
hospital's revenues, third party reimbursement sources such as
the federal Medicare and state Medicaid programs or private
insurers are common to all hospitals. To the extent these payors
PAGE 28
reduce reimbursement levels, the individual hospitals may be
affected.
The Fund may from time to time invest in electric revenue
issues which have exposure to or participate in nuclear power
plants which could affect the issuers' financial performance.
Such risks include delay in construction and operation due to
increased regulation, unexpected outages or plant shutdowns,
increased Nuclear Regulatory Commission surveillance or
inadequate rate relief. In addition, the financial performance
of electric utilities may be impacted by increased competition
and deregulation of the electric utility industry.
The Fund may invest in private activity bond issues for
corporate and non-profit borrowers. These issues sold through
various governmental conduits, are backed solely by the revenues
pledged by the respective borrowing corporations. No
governmental support is implied. This category accounted for
3.8% of the tax-exempt debt issued in Georgia during 1995.
RISK FACTORS ASSOCIATED WITH A FLORIDA PORTFOLIO
The Fund's program of investing primarily in insured, AAA-
rated Florida municipal bonds should significantly lessen the
credit risks which would be associated with a portfolio of
uninsured Florida bonds. Nevertheless, to a certain degree, the
Fund's concentration in securities issued by the State of Florida
and its political subdivisions involves greater risk than a fund
broadly invested in insured bonds across many states and
municipalities. The credit quality of the Fund will depend upon
the continued financial strength of the insurance companies
insuring the bonds purchased by the Fund as well as the State of
Florida and the numerous public bodies, municipalities and other
issuers of debt securities in Florida.
Debt. The State of Florida and its local governments issue
three basic types of debt, with varying degrees of credit risk:
general obligation bonds backed by the unlimited taxing power of
the issuer, revenue bonds secured by specific pledged funds or
charges for a related project, and tax-exempt lease obligations,
supported by annual appropriations from the issuer, usually with
no implied tax or specific revenue pledge. During 1995, $9.2
billion in state and local debt was issued in Florida, with
approximately 28% representing general obligation debt and 72%
representing revenue bonds and lease-backed obligations. Debt
issued in 1995 was for a wide variety of public purposes,
PAGE 29
including transportation, housing, education, health care and
industrial development.
As of June 30, 1995, the State of Florida had $6.8 billion
outstanding general obligation bonds secured by the State's full
faith and credit and taxing power. General bonded debt service
accounted for a modest 2.2% of all governmental expenditures in
fiscal year 1995. An additional $3.0 billion in bonds, issued by
the State and secured by limited state tax and revenue sources
was outstanding as of June 30, 1995. General obligation debt of
the State of Florida is rated Aa by Moody's, AA by Standard &
Poor's and AA by Fitch as of June 1, 1996. State debt may only
be used to fund capital outlay projects; Florida is not
authorized to issue obligations to fund operations.
Several agencies of the State are also authorized to issue
debt which does not represent a pledge of the state's credit.
The Florida Housing Finance Authority and Florida Board of
Regents are the largest issuers of this type. The principal and
interest on bonds issued by these bodies are payable solely from
specified sources such as mortgage repayments and university
tuition and fees.
Economy. The State of Florida has a population of
approximately 14.1 million, making it the fourth largest state.
Due to a large immigration of residents, the State's population
has grown at a rate exceeding the nation for four decades.
Florida's economy is broadly based with a large concentration in
the service and trade sectors. Tourism is one of Florida's most
important industries. Visitor traffic grew by 2.5% in 1995 to
40.7 million people, following a decline in 1994.
During most of the 1980's, as Florida's population and
employment base grew, its job growth rate was double that of the
nation. However, beginning in 1988, job grown slowed and
unemployment rates began trending above national levels. During
1995, Florida's unemployment rate was 8.2% versus 7.4% for the
U.S. In 1995, Florida's unemployment rate has fallen back into
line with the national average. Total non-farm jobs grew by 3.5%
despite contraction in the manufacturing and government sectors.
State per capita income is 101% of the national average, well
above norms for the Southeast.
Legislative. The State of Florida does not have a personal
income tax. A constitutional amendment would be required in
order to implement such a tax. Although the probability appears
very low, the Fund cannot rule out the possibility that a
PAGE 30
personal income tax may be implemented at some time in the
future. If such a tax were to be imposed, there is no assurance
that interest earned on Florida Municipal Obligations would be
exempt from this tax.
Under current Florida law, shares of the Fund will be exempt
from the State's intangible personal property tax to the extent
that on the annual assessment date (January 1) its assets are
solely invested in Florida Municipal Obligations and U.S.
government securities, certain short-term cash investments, or
other exempt securities. There can be no assurance that this
exemption for Florida securities will be maintained. Also, the
constitutionality of the intangibles tax has been challenged in
court.
The Florida Constitution limits the total ad valorem
property tax that may be levied by each county, municipality and
school district to ten mills (1.0% of value). The limit applies
only to taxes levied for operating purposes and excludes taxes
levied for the payment of bonds. This restricts the operating
flexibility of local governments in the State and may result from
time to time in budget deficits for some local units.
Financial. The Florida Constitution and Statutes mandate
that the State budget as a whole, and each separate fund within
the State budget, be kept in balance from currently available
revenues each State fiscal year (July 1 - June 30.) The Governor
and Comptroller are responsible for insuring that sufficient
revenues are collected to meet appropriations and that no deficit
occurs in any State fund.
The State's revenue structure is narrowly based, relying on
the sales and use tax for 67% of its general revenues. This
structure, combined with the effects of the recession and heavy
spending demands, created budget shortfalls in fiscal years 1991
and 1992. Through mid-year spending adjustments and a draw upon
its reserves, the State was able to achieve budget balance for
both fiscal years. The State's finances received a substantial
boost in fiscal 1993 as a result of increased economic activity
associated with rebuilding efforts after Hurricane Andrew, which
hit south Florida on August 24, 1992. At the end of 1995, the
State had reserves of $411 million in the General Revenue Fund
(3.0% of revenues).
PAGE 31
In November 1994, State voters passed a proposal to limit
State revenue growth to the average annual growth in personal
income over the previous five years. The cap excludes revenue to
pay certain expenditures, including debt service. The limitation
should no pose an onerous burden on State finance. However, the
demand for governmental services continues to grow because of
above average population growth and demographics.
Sectors. Certain areas of potential investment
concentration present unique risks. In 1995, $600 million of
tax-exempt debt issued in Florida was for public or non-profit
hospitals. A significant portion of the Fund's assets may be
invested in health care issues.
For over a decade, the hospital industry has been under
significant pressure to reduce expenses and shorten length of
stay, a phenomenon which has negatively affected the financial
health of many hospitals. While each hospital bond issue is
separately secured by the individual hospital's revenues, third
party reimbursement sources such as the federal Medicare and
state Medicaid programs or private insurers are common to all
hospitals. To the extent these payors reduce reimbursement
levels, the individual hospitals may be affected. Due to the
high proportion of elderly residents, Florida hospitals tend to
be highly dependent on Medicare. In addition to the regulation
imposed by Medicare, the State also regulates healthcare. A
State board must approve the budgets of all Florida hospitals;
certificates of need are required for all significant capital
expenditures. The primary management objective is cost control.
The inability of some hospitals to achieve adequate cost control
while operating in a competitive environment has led to a number
of hospital bond defaults.
The Fund may from time to time invest in electric revenue
issues which have exposure to or participate in nuclear power
plants which could affect the issuers' financial performance.
Such risks include delay in construction and operation due to
increased regulation, unexpected outages or plant shutdowns,
increased Nuclear Regulatory Commission surveillance or
inadequate rate relief. In addition, the financial performance
of electric utilities may be impacted by increased competition
and deregulation in the electric utility industry.
The Fund may invest in private activity bond issues for
corporate and non-profit borrowers. These issues, sold through
various governmental conduits, are backed solely by the revenues
pledged by the respective borrowing corporations. No government
PAGE 32
support is implied. This category accounted for only 1.5% of the
tax-exempt debt issued in Florida during 1995.
All Funds
Puerto Rico
From time to time the Funds invest in obligations of the
Commonwealth of Puerto Rico and its public corporations which are
exempt from federal, state and city or local income taxes. The
majority of the Commonwealth's debt is issued by ten of the major
public agencies that are responsible for many of the islands'
public functions, such as water, wastewater, highways,
telecommunications, education, and public construction. As of
December 31, 1995, public sector debt issued by the Commonwealth
and its public corporations totaled $16.2 billion.
Since the 1980s, Puerto Rico's economy and financial
operations have paralleled the economic cycles of the United
States. The island's economy, particularly the manufacturing
sector, has experienced substantial gains in employment. Much of
these economic gains are attributable in part to favorable
treatment under Section 936 of the Federal Internal Revenue Code
for United States corporations doing business in Puerto Rico.
The number of persons employed in Puerto Rico during fiscal 1994
averaged 1 million persons -- a record level. Unemployment,
however, still remains high at 13.8 percent.
Debt ratios for the Commonwealth are high as it assumes much
of the responsibility for local infrastructure. Sizeable
infrastructure improvements are ongoing to upgrade the island's
water, sewer, and road systems. The Commonwealth's general
obligation debt is secured by a first lien on all available
revenues. The Commonwealth has maintained a fiscal policy which
seeks to correlate the growth in public sector debt to the growth
of the economic base available to service that debt. Between
fiscal years 1991 and 1995, debt increased 25% while gross
product rose 24%. Short term debt remains a modest 8% of total
debt outstanding as of June 30, 1995. The maximum annual debt
service requirement on Commonwealth general obligation debt
totalled 7.9% of governmental revenues for fiscal 1995. This is
well below the 15% limit imposed by the Constitution of Puerto
Rico.
PAGE 33
After recording 3 years of positive operating results in the
1989 to 1991 period, the Commonwealth's General Fund moved into a
deficit position, with a $62 million cash deficit for fiscal 1992
and a $116.5 million deficit for fiscal 1993. The fiscal 1994
budget was balanced with an increase in the "tollgate" tax on
Section 936 companies and improved revenue collections, which
enabled the Commonwealth to record a strong turnaround in the
General Fund balance to $309 million (6.8% of general fund
expenses). A General Fund balance of $534 million was recorded
for the end of fiscal year 1995.
The Commonwealth's economy remains vulnerable to changes in
oil prices, American trade, foreign policy, and levels of federal
assistance. Per capita income levels, while being the highest in
the Caribbean, lag far behind the United States. In November
1993, the voters of Puerto Rico were asked in a non-binding
referendum to consider the options of statehood, continued
Commonwealth status, or independence. 48.4% of the voters
favored continuation of Commonwealth status, 46.2% were for
statehood, and 4.4% were for independence. The status question
appears to be settled for the time being. Any conversion to
statehood or independence in the future would likely have an
adverse effect on the continuation of the Section 936 federal tax
credit program, which has been the principal stimulus for the
growth in Puerto Rico's manufacturing base.
Federal tax legislation was passed in 1993 which revised the
tax benefits received by U.S. corporations (Section 936 firms)
that operate manufacturing facilities in Puerto Rico. The
legislation provides these firms with two options: a 5 year
phased reduction of the income based tax credit to 40% of the
previously allowable credit or the conversion to a wage based
standard, allowing a tax credit for the first 60% of qualified
compensation paid to employees as defined in the IRS Code.
Studies indicate that there have been no reductions in the
economic growth rate or employment in industries which were
expected to be impacted by the 1993 amendments. In 1995 and
1996, there have been a number of proposals in Congress to
completely phase out the Section 936 tax credit. At present, it
is difficult to forecast what the short and long term effects of
a phase-out of the Section 936 credit would have on the economy
of Puerto Rico.
A final risk factor with the Commonwealth is the large
amount of unfunded pension liabilities. The two main public
pension systems are largely underfunded. The employees
PAGE 34
retirement system has a funded ratio of 18% and an unfunded
liability of $4.6 billion. The teachers retirement system has a
funded ratio of 46% and an unfunded liability of $1.3 billion. A
measure enacted by the legislature in 1990 is designed to address
the solvency of the plans over a 50 year period.
INVESTMENT PROGRAMS
(Throughout the discussion on Investments, the term "the Fund" is
intended to refer to each of the Funds eligible to invest in the
security or engage in the practice being described.)
Municipal Securities
All Funds
Subject to the investment objective and program described in
the prospectus and the additional investment restrictions
described in this Statement of Additional Information, each
Fund's portfolio may consist of any combination of the various
types of municipal securities described below or others that may
be developed. The amount of each Fund's assets invested in any
particular type of municipal security can be expected to vary.
The term "municipal securities" means obligations issued by
or on behalf of states, territories, and possessions of the
United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities, as well as certain
other persons and entities, the interest from which is exempt
from federal, state, and/or city or local, if applicable, income
tax. In determining the tax-exempt status of a municipal
security, the Funds rely on the opinion of the issuer's bond
counsel at the time of the issuance of the security. However, it
is possible this opinion could be overturned, and as a result,
the interest received by the Funds from such a security might not
be exempt from federal, state, and/or city or local income tax.
Municipal securities are classified by maturity as notes,
bonds, or adjustable rate securities.
Municipal Notes. Municipal notes generally are used to
provide for short-term operating or capital needs and generally
have maturities of one year or less. Municipal notes include:
PAGE 35
Tax Anticipation Notes. Tax anticipation notes are
issued to finance working capital needs of
municipalities. Generally, they are issued in
anticipation of various seasonal tax revenue, such as
income, property, use and business taxes, and are
payable from these specific future taxes.
Revenue Anticipation Notes. Revenue anticipation
notes are issued in expectation of receipt of other
types of revenue, such as federal or state revenues
available under the revenue sharing or grant programs.
Bond Anticipation Notes. Bond anticipation notes are
issued to provide interim financing until long-term
financing can be arranged. In most cases, the
long-term bonds then provide the money for the
repayment of the notes.
Tax-Exempt Commercial Paper. Tax-exempt commercial
paper is a short-term obligation with a stated
maturity of 270 days or less. It is issued by state
and local governments or their agencies to finance
seasonal working capital needs or as short-term
financing in anticipation of longer term financing.
Municipal Bonds. Municipal bonds, which meet longer
term capital needs and generally have maturities of
more than one year when issued, have two principal
classifications: general obligation bonds and revenue
bonds. Two additional categories of potential
purchases are lease revenue bonds and
pre-refunded/escrowed to maturity bonds. Another type
of municipal bond is referred to as an Industrial
Development Bond.
General Obligation Bonds. Issuers of general
obligation bonds include states, counties, cities,
towns, and special districts. The proceeds of these
obligations are used to fund a wide range of public
projects, including construction or improvement of
schools, public buildings, highways and roads, and
general projects not supported by user fees or
specifically identified revenues. The basic security
behind general obligation bonds is the issuer's pledge
of its full faith and credit and taxing power for the
payment of principal and interest. The taxes that can
be levied for the payment of debt service may be
PAGE 36
limited or unlimited as to the rate or amount of
special assessments. In many cases voter approval is
required before an issuer may sell this type of bond.
Revenue Bonds. The principal security for a revenue
bond is generally the net revenues derived from a
particular facility, or enterprise, or in some cases,
the proceeds of a special charge or other pledged
revenue source. Revenue bonds are issued to finance a
wide variety of capital projects including: electric,
gas, water and sewer systems; highways, bridges, and
tunnels; port and airport facilities; colleges and
universities; and hospitals. Revenue bonds are
sometimes used to finance various privately operated
facilities provided they meet certain tests
established for tax-exempt status.
Although the principal security behind these bonds may
vary, many provide additional security in the form of
a mortgage or debt service reserve fund. Some
authorities provide further security in the form of
the state's ability (without obligation) to make up
deficiencies in the debt service reserve fund.
Revenue bonds usually do not require prior voter
approval before they may be issued.
Lease Revenue Bonds. Municipal borrowers may also
finance capital improvements or purchases with
tax-exempt leases. The security for a lease is
generally the borrower's pledge to make annual
appropriations for lease payments. The lease payment
is treated as an operating expense subject to
appropriation risk and not a full faith and credit
obligation of the issuer. Lease revenue bonds are
generally considered less secure than a general
obligation or revenue bond and often do not include a
debt service reserve fund. To the extent the Board
determines such securities are illiquid, they will be
subject to the Funds' 15% limit on illiquid securities
(10% limit for the Money Funds). There have also been
certain legal challenges to the use of lease revenue
bonds in various states.
The liquidity of such securities will be determined
based on a variety of factors which may include, among
others: (1) the frequency of trades and quotes for the
obligation; (2) the number of dealers willing to
PAGE 37
purchase or sell the security and the number of other
potential buyers; (3) the willingness of dealers to
undertake to make a market in the security; (4) the
nature of the marketplace trades, including, the time
needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer; and
(5) the rating assigned to the obligation by an
established rating agency or T. Rowe Price.
Pre-refunded/Escrowed to Maturity Bonds. Certain
municipal bonds have been refunded with a later bond
issue from the same issuer. The proceeds from the
later issue are used to defease the original issue.
In many cases the original issue cannot be redeemed or
repaid until the first call date or original maturity
date. In these cases, the refunding bond proceeds
typically are used to buy U.S. Treasury securities
that are held in an escrow account until the original
call date or maturity date. The original bonds then
become "pre-refunded" or "escrowed to maturity" and
are considered as high quality investments. While
still tax-exempt, the security is the proceeds of the
escrow account. To the extent permitted by the
Securities and Exchange Commission and the Internal
Revenue Service, a Fund's investment in such
securities refunded with U.S. Treasury securities
will, for purposes of diversification rules applicable
to the Fund, be considered as an investment in the
U.S. Treasury securities.
Private Activity Bonds. Under current tax law all
municipal debt is divided broadly into two groups:
governmental purpose bonds and private activity bonds.
Governmental purpose bonds are issued to finance
traditional public purpose projects such as public
buildings and roads. Private activity bonds may be
issued by a state or local government or public
authority but principally benefit private users and
are considered taxable unless a specific exemption is
provided.
The tax code currently provides exemptions for certain
private activity bonds such as not-for-profit hospital
bonds, small-issue industrial development revenue
bonds and mortgage subsidy bonds, which may still be
issued as tax-exempt bonds. Some, but not all,
PAGE 38
private activity bonds are subject to alternative
minimum tax.
Industrial Development Bonds. Industrial development
bonds are considered Municipal Bonds if the interest
paid is exempt from federal income tax. They are
issued by or on behalf of public authorities to raise
money to finance various privately operated facilities
for business and manufacturing, housing, sports, and
pollution control. These bonds are also used to
finance public facilities such as airports, mass
transit systems, ports, and parking. The payment of
the principal and interest on such bonds is dependent
solely on the ability of the facility's user to meet
its financial obligations and the pledge, if any, of
real and personal property so financed as security for
such payment.
Adjustable Rate Securities. Municipal securities may
be issued with adjustable interest rates that are
reset periodically by pre-determined formulas or
indexes in order to minimize movements in the
principal value of the investment. Such securities
may have long-term maturities, but may be treated as a
short-term investment under certain conditions.
Generally, as interest rates decrease or increase, the
potential for capital appreciation or depreciation on
these securities is less than for fixed-rate
obligations. These securities may take the following
forms:
Variable Rate Securities. Variable rate instruments
are those whose terms provide for the adjustment of
their interest rates on set dates and which, upon such
adjustment, can reasonably be expected to have a
market value that approximates its par value. Subject
to the provisions of Rule 2a-7 under the Investment
Company Act of 1940 (1940 Act): (1) a variable rate
instrument, the principal amount of which is scheduled
to be paid in 397 days or less, is deemed to have a
maturity equal to the period remaining until the next
readjustment of the interest; (2) a variable rate
instrument which is subject to a demand feature
entitles the purchaser to receive the principal amount
of the underlying security or securities either (i)
upon notice of usually 30 days, or (ii) at specified
PAGE 39
intervals not exceeding 397 days and upon no more than
30 days' notice is deemed to have a maturity equal to
the longer of the period remaining until the next
readjustment of the interest rate or the period
remaining until the principal amount can be recovered
through demand; and (3) an instrument that is issued
or guaranteed by the U.S. Government or any agency
thereof which has a variable rate of interest
readjusted no less frequently than every 762 days may
be deemed to have a maturity equal to the period
remaining until the next readjustment of the interest
rate. Should the provisions of Rule 2a-7 change, the
Fund will determine the maturity of these securities
in accordance with the amended provisions of such
Rule.
Floating Rate Securities. Floating rate instruments
are those whose terms provide for the adjustment of
their interest rates whenever a specified interest
rate changes and which, at any time, can reasonably be
expected to have a market value that approximates its
par value. Subject to the provisions of Rule 2a-7
under the 1940 Act: (1) the maturity of a floating
rate instrument is deemed to be the period remaining
until the date (noted on the face of the instrument)
on which the principal amount must be paid, or in the
case of an instrument called for redemption, the date
on which the redemption payment must be made and (2)
floating rate instruments with demand features are
deemed to have a maturity equal to the period
remaining until the principal amount can be recovered
through demand. Should the provisions of Rule 2a-7
change, the Fund will determine the maturity of these
securities in accordance with the amended provisions
of such Rule.
Put Option Bonds. Long-term obligations with
maturities longer than one year may provide purchasers
an optional or mandatory tender of the security at par
value at predetermined intervals, often ranging from
one month to several years (e.g., a 30-year bond with
a five-year tender period). These instruments are
deemed to have a maturity equal to the period
remaining to the put date.
PAGE 40
Residual Interest Bonds (These are a type of
potentially high-risk derivative)(Bond Funds only).
The Funds may purchase municipal bond issues that are
structured as two-part, residual interest bond and
variable rate security offerings. The issuer is
obligated only to pay a fixed amount of tax-free
income that is to be divided among the holders of the
two securities. The interest rate for the holders of
the variable rate securities will be determined by an
auction process held approximately every 35 days while
the bond holders will receive all interest paid by the
issuer minus the amount given to the variable rate
security holders and a nominal auction fee.
Therefore, the coupon of the residual interest bonds,
and thus the income received, will move inversely with
respect to short-term, 35 day tax-exempt interest
rates. There is no assurance that the auction will be
successful and that the variable rate security will
provide short-term liquidity. The issuer is not
obligated to provide such liquidity. In general,
these securities offer a significant yield advantage
over standard municipal securities, due to the
uncertainty of the shape of the yield curve (i.e.,
short-term versus long-term rates)and consequent
income flows. Unlike many adjustable rate securities,
residual interest bonds are not necessarily expected
to trade at par and in fact present significant market
risks. In certain market environments, residual
interest bonds may carry substantial premiums or be at
deep discounts. This is a relatively new product in
the municipal market with limited liquidity to date.
Participation Interests. The Funds may purchase, from
third parties, participation interests in all or part
of specific holdings of municipal securities. The
purchase may take different forms: in the case of
short-term securities, the participation may be backed
by a liquidity facility that allows the interest to be
sold back to the third party (such as a trust, broker
or bank) for a predetermined price of par at stated
intervals. The seller may receive a fee from the
Funds in connection with the arrangement.
In the case of longer-term bonds, the Funds may
purchase interests in a pool of municipal bonds or a
single municipal bond or lease without the right to
sell the interest back to the third party.
PAGE 41
The Funds will not purchase participation interests
unless a satisfactory opinion of counsel or ruling of
the Internal Revenue Service has been issued that the
interest earned from the municipal securities on which
the Funds holds participation interests is exempt from
federal, state, and/or city or local income tax to the
Funds. However, there is no guarantee the IRS would
treat such interest income as tax-exempt.
Embedded Interest Rate Swaps and Caps (Bond Funds).
In a fixed-rate, long-term municipal bond with an
interest rate swap attached to it, the bondholder
usually receives the bond's fixed-coupon payment as
well as a variable rate payment that represents the
difference between a fixed rate for the term of the
swap (which is typically shorter than the bond it is
attached to) and a variable rate short-term municipal
index. The bondholder receives excess income when
short-term rates remain below the fixed interest rate
swap rate. If short-term rates rise above the fixed-
income swap rate, the bondholder's income is reduced.
At the end of the interest rate swap term, the bond
reverts to a single fixed-coupon payment. Embedded
interest rate swaps enhance yields, but also increase
interest rate risk.
An embedded interest rate cap allows the bondholder to
receive payments whenever short-term rates rise above
a level established at the time of purchase. They
normally are used to hedge against rising short-term
interest rates.
Both instruments may be volatile and of limited
liquidity and their use may adversely affect a Fund's
total return.
The Funds may invest in other types of derivative
instruments as they become available.
There are, of course, other types of municipal
securities that are, or may become, available, and the
Funds reserve the right to invest in them.
For the purpose of the Funds' investment restrictions,
the identification of the "issuer" of municipal
securities which are not general obligation bonds is
PAGE 42
made by the Funds' investment manager, T. Rowe Price,
on the basis of the characteristics of the obligation
as described above, the most significant of which is
the source of funds for the payment of principal and
interest on such securities.
When-Issued Securities
All Funds
New issues of municipal securities are often offered on a
when-issued basis; that is, delivery and payment for the
securities normally takes place 15 to 45 days or more after the
date of the commitment to purchase. The payment obligation and
the interest rate that will be received on the securities are
each fixed at the time the buyer enters into the commitment. A
Fund will only make a commitment to purchase such securities with
the intention of actually acquiring the securities. However, a
Fund may sell these securities before the settlement date if it
is deemed advisable as a matter of investment strategy. Each
Fund will establish a segregated account in which it will
maintain cash and high-grade marketable debt securities equal in
value to commitments for when-issued securities. Such segregated
securities either will mature or, if necessary, be sold on or
before the settlement date. Securities purchased on a
when-issued basis and the securities held in a Fund's portfolio
are subject to changes in market value based upon the public
perception of the creditworthiness of the issuer and changes in
the level of interest rates (which will generally result in
similar changes in value; i.e., both experiencing appreciation
when interest rates decline and depreciation when interest rates
rise). Therefore, to the extent a Fund remains substantially
fully invested at the same time that it has purchased securities
on a when-issued basis, there will be greater fluctuations in its
net asset value than if it solely set aside cash to pay for
when-issued securities. In the case of the Money Funds, this
could increase the possibility that the market value of a Fund's
assets could vary from $1.00 per share.
In addition, there will be a greater potential for the
realization of capital gains, which are not exempt from federal,
state and/or city or local income tax. When the time comes to
pay for when-issued securities, a Fund will meet its obligations
from then-available cash flow, sale of securities or, although it
would not normally expect to do so, from sale of the when-issued
securities themselves (which may have a value greater or less
than the payment obligation). The policies described in this
PAGE 43
paragraph are not fundamental and may be changed by a Fund upon
notice to its shareholders.
Forwards
Bond Funds
The Funds also may purchase bonds on a when-issued basis
with longer than standard settlement dates, in some cases
exceeding one to two years. In such cases, the Funds must
execute a receipt evidencing the obligation to purchase the bond
on the specified issue date, and must segregate cash internally
to meet that forward commitment. Municipal "forwards" typically
carry a substantial yield premium to compensate the buyer for the
risks associated with a long when-issued period, including:
shifts in market interest rates that could materially impact the
principal value of the bond, deterioration in the credit quality
of the issuer, loss of alternative investment options during the
when-issued period, changes in tax law or issuer actions that
would affect the exempt interest status of the bonds and prevent
delivery, failure of the issuer to complete various steps
required to issue the bonds, and limited liquidity for the buyer
to sell the escrow receipts during the when-issued period. Each
Fund will not invest more than 10% of its total assets in
forwards.
Investment in Taxable Money Market Securities
Although the Funds expect to be invested solely in municipal
securities, it is anticipated that, when it is deemed to be in
the best interests of each Fund's shareholders to do so, the
Funds may also invest a portion of their respective assets on a
temporary basis, in the taxable money market instruments set
forth below. The interest earned on these money market
securities is not exempt from federal, state, and/or city or
local income tax and may be taxable to shareholders as ordinary
income.
U.S. Government Obligations - direct obligations of the
government and its agencies and instrumentalities;
U.S. Government Agency Securities - obligations issued or
guaranteed by U.S. government sponsored enterprises, federal
agencies and international institutions. Some of these
securities are supported by the full faith and credit of the U.S.
Treasury; others are supported by the right of the issuer; and
PAGE 44
the remainder are supported only by the credit of the
instrumentality;
Bank Obligations - certificates of deposit, bankers'
acceptances, and other short-term obligations of U.S. and
Canadian banks and their foreign branches;
Commercial Paper - paper rated A-2 or better by S&P, Prime-2
or better by Moody's, or F-2 or better by Fitch or, if not rated,
is issued by a corporation having an outstanding debt
issue rated A or better by Moody's, S&P or Fitch, and, with
respect to the Money Funds, is of equivalent investment quality
as determined by the Board of Trustees; and
Short-Term Corporate Debt Securities - short-term corporate
debt securities rated at least AA by S&P, Moody's or Fitch.
Determination of Maturity of Money Market Securities
The Money Funds may only purchase securities which at the
time of investment have remaining maturities of 397 calendar days
or less, or with respect to U.S. government securities, have
remaining maturities of 762 calendar days or less. The Bond
Funds may also purchase money-market securities. In determining
the maturity of money market securities, the Funds will follow
the provisions of Rule 2a-7 under the 1940 Act.
PORTFOLIO MANAGEMENT PRACTICES
Futures Contracts (Bond Funds only)
Futures are a type of potentially high-risk derivative.
Transactions in Futures
The Fund may enter into interest rate futures contracts
("futures" or "futures contracts"). Interest rate futures
contracts may be used as a hedge against changes in prevailing
levels of interest rates in order to establish more definitely
the effective return on securities held or intended to be
acquired by the Fund. The Fund could sell interest rate futures
as an offset against the effect of expected increases in interest
rates and purchase such futures as an offset against the effect
of expected declines in interest rates. Futures can also be used
as an efficient means of regulating a Fund's exposure to the
market.
PAGE 45
The Fund will enter into futures contracts which are traded
on national futures exchanges and are standardized as to maturity
date and underlying financial instrument. A public market exists
in futures contracts covering various taxable fixed income
securities as well as municipal bonds. Futures exchanges and
trading in the United States are regulated under the Commodity
Exchange Act by the Commodity Futures Trading Commission
("CFTC"). Although techniques other than the sale and purchase
of futures contracts could be used for the above-referenced
purposes, futures contracts offer an effective and relatively low
cost means of implementing the Fund's objectives in these areas.
Regulatory Limitations
The Fund will engage in futures contracts and options
thereon only for bona fide hedging, yield enhancement, and risk
management purposes, in each case in accordance with rules and
regulations of the CFTC and applicable state law.
The Fund may not purchase or sell futures contracts or
related options if, with respect to positions which do not
quality as bona fide hedging under applicable CFTC rules, the sum
of the amounts of initial margin deposits and premiums paid on
those positions would exceed 5% of the net asset value of the
Fund after taking into account unrealized profits and unrealized
losses on any such contracts it has entered into; provided,
however, that in the case of an option that is in-the-money at
the time of purchase, the in-the-money amount may be excluded in
calculating the 5% limitation. For purposes of this policy,
options on futures contracts and options traded on a commodities
exchange will be considered "related options." This policy may
be modified by the Board of Trustees without a shareholder vote
and does not limit the percentage of the Fund's assets at risk to
5%.
In accordance with the rules of the State of California, the
Fund will apply the above 5% test without excluding the value of
initial margin and premiums paid for bona fide hedging purposes.
The Fund's use of futures will not result in leverage.
Therefore, to the extent necessary, in instances involving the
purchase of futures contracts or the writing of calls or put
options thereon by the Fund, an amount of cash, U.S. government
securities or other liquid, high-grade debt obligations, equal to
the market value of the futures contracts and options thereon
(less any related margin deposits), will be identified in an
PAGE 46
account with the Fund's custodian to cover the position, or
alternative cover (such as owning an offsetting position) will be
employed. Assets used as cover or held in an identified account
cannot be sold while the position in the corresponding option or
future is open, unless they are replaced with similar assets. As
a result, the commitment of a large portion of a Fund's assets to
cover or identified accounts could impede portfolio management or
the Fund's ability to meet redemption requests or other current
obligations.
If the CFTC or other regulatory authorities adopt different
(including less stringent) or additional restrictions, the Fund
would comply with such new restrictions.
Trading in Futures Contracts
A futures contract provides for the future sale by one party
and purchase by another party of a specified amount of a specific
financial instrument (e.g., units of a debt security) for a
specified price, date, time and place designated at the time the
contract is made. Brokerage fees are incurred when a futures
contract is bought or sold and margin deposits must be
maintained. Entering into a contract to buy is commonly referred
to as buying or purchasing a contract or holding a long position.
Entering into a contract to sell is commonly referred to as
selling a contract or holding a short position.
It is possible that the Fund's hedging activities will occur
primarily through the use of municipal bond index futures
contracts since the uniqueness of that index contract should
better correlate with the Fund's portfolio and thereby be more
effective. However, there may be times when it is deemed in the
best interest of shareholders to engage in the use of Treasury
bond futures, and the Fund reserves to right to use Treasury bond
futures at any time. Use of these futures could occur, as an
example, when both the Treasury bond contract and municipal bond
index futures contract are correlating well with municipal bond
prices, but the Treasury bond contract is trading at a more
advantageous price making the hedge less expensive with the
Treasury bond contract than would be obtained with the municipal
bond index futures contract. The Fund's activity in futures
contracts generally will be limited to municipal bond index
futures contracts and Treasury bond and note contracts.
Unlike when the Fund purchases or sells a security, no price
would be paid or received by the Fund upon the purchase or sale
of a futures contract. Upon entering into a futures contract,
PAGE 47
and to maintain the Fund's open positions in futures contracts,
the Fund would be required to deposit with its custodian in a
segregated account in the name of the futures broker an amount of
cash, U.S. government securities, suitable money market
instruments, or liquid, high-grade debt securities, known as
"initial margin." The margin required for a particular futures
contract is set by the exchange on which the contract is traded,
and may be significantly modified from time to time by the
exchange during the term of the contract. Futures contracts are
customarily purchased and sold on margins that may range upward
from less than 5% of the value of the contract being traded.
If the price of an open futures contract changes (by
increase in the case of a sale or by decrease in the case of a
purchase) so that the loss on the futures contract reaches a
point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin.
However, if the value of a position increases because of
favorable price changes in the futures contract so that the
margin deposit exceeds the required margin, the broker will pay
the excess to the Fund.
These subsequent payments, called "variation margin," to and
from the futures broker, are made on a daily basis as the price
of the underlying assets fluctuate making the long and short
positions in the futures contract more or less valuable, a
process known as "marking to the market." The Fund expects to
earn interest income on its margin deposits.
Although certain futures contracts, by their terms, require
actual future delivery of and payment for the underlying
instruments, in practice most futures contracts are usually
closed out before the delivery date. Closing out an open futures
contract purchase or sale is effected by entering into an
offsetting futures contract sale or purchase, respectively, for
the same aggregate amount of the identical securities and the
same delivery date. If the offsetting purchase price is less
than the original sale price, the Fund realizes a gain; if it is
more, the Fund realizes a loss. Conversely, if the offsetting
sale price is more than the original purchase price, the Fund
realizes a gain; if it is less, the Fund realizes a loss. The
transaction costs must also be included in these calculations.
There can be no assurance, however, that the Fund will be able to
enter into an offsetting transaction with respect to a particular
futures contract at a particular time. If the Fund is not able
to enter into an offsetting transaction, the Fund will continue
PAGE 48
to be required to maintain the margin deposits on the futures
contract.
As an example of an offsetting transaction in which the
underlying instrument is not delivered, the contractual
obligations arising from the sale of one contract of September
municipal bond index futures on an exchange may be fulfilled at
any time before delivery of the contract is required (i.e., on a
specified date in September, the "delivery month") by the
purchase of one contract of September municipal bond index
futures on the same exchange. In such instance, the difference
between the price at which the futures contract was sold and the
price paid for the offsetting purchase, after allowance for
transaction costs, represents the profit or loss to the Fund.
Special Risks of Transactions in Futures Contracts
Volatility and Leverage. The prices of futures contracts
are volatile and are influenced, among other things, by actual
and anticipated changes in the market and interest rates, which
in turn are affected by fiscal and monetary policies and national
and international political and economic events.
Most United States futures exchanges limit the amount of
fluctuation permitted in futures contract prices during a single
trading day. The daily limit establishes the maximum amount that
the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of a trading
session. Once the daily limit has been reached in a particular
type of futures contract, no trades may be made on that day at a
price beyond that limit. The daily limit governs only price
movement during a particular trading day and therefore does not
limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices
have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting
some futures traders to substantial losses.
Because of the low margin deposits required, futures trading
involves an extremely high degree of leverage. As a result, a
relatively small price movement in a futures contract may result
in immediate and substantial loss, as well as gain, to the
investor. For example, if at the time of purchase, 10% of the
value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract
would result in a total loss of the margin deposit, before any
PAGE 49
deduction for the transaction costs, if the account were then
closed out. A 15% decrease would result in a loss equal to 150%
of the original margin deposit, if the contract were closed out.
Thus, a purchase or sale of a futures contract may result in
losses in excess of the amount invested in the futures contract.
However, the Fund would presumably have sustained comparable
losses if, instead of the futures contract, it had invested in
the underlying financial instrument and sold it after the
decline. Furthermore, in the case of a futures contract
purchase, in order to be certain that the Fund has sufficient
assets to satisfy its obligations under a futures contract, the
Fund earmarks to the futures contract money market instruments
equal in value to the current value of the underlying instrument
less the margin deposit.
Liquidity. The Fund may elect to close some or all of its
futures positions at any time prior to their expiration. The
Fund would do so to reduce exposure represented by long futures
positions or short futures positions. The Fund may close its
positions by taking opposite positions which would operate to
terminate the Fund's position in the futures contracts. Final
determinations of variation margin would then be made, additional
cash would be required to be paid by or released to the Fund, and
the Fund would realize a loss or a gain.
Futures contracts may be closed out only on the exchange or
board of trade where the contracts were initially traded.
Although the Fund intends to purchase or sell futures contracts
only on exchanges or boards of trade where there appears to be an
active market, there is no assurance that a liquid market on an
exchange or board of trade will exist for any particular contract
at any particular time. In such event, it might not be possible
to close a futures contract, and in the event of adverse price
movements, the Fund would continue to be required to make daily
cash payments of variation margin. However, in the event futures
contracts have been used to hedge the underlying instruments, the
Fund would continue to hold the underlying instruments subject to
the hedge until the futures contracts could be terminated. In
such circumstances, an increase in the price of underlying
instruments, if any, might partially or completely offset losses
on the futures contract. However, as described below, there is
no guarantee that the price of the underlying instruments will,
in fact, correlate with the price movements in the futures
contract and thus provide an offset to losses on a futures
contract.
PAGE 50
Hedging Risk. A decision of whether, when, and how to hedge
involves skill and judgment, and even a well-conceived hedge may
be unsuccessful to some degree because of unexpected market
behavior, market or interest rate trends. There are several
risks in connection with the use by the Fund of futures contracts
as a hedging device. One risk arises because of the imperfect
correlation between movements in the prices of the futures
contracts and movements in the prices of the underlying
instruments which are the subject of the hedge. T. Rowe Price
will, however, attempt to reduce this risk by entering into
futures contracts whose movements, in its judgment, will have a
significant correlation with movements in the prices of the
Fund's underlying instruments sought to be hedged.
Successful use of futures contracts by the Fund for hedging
purposes is also subject to T. Rowe Price's ability to correctly
predict movements in the direction of the market. It is possible
that, when the Fund has sold futures to hedge its portfolio
against a decline in the market, the index, indices, or
instruments underlying futures are written might advance and the
value of the underlying instruments held in the Fund's portfolio
might decline. If this were to occur, the Fund would lose money
on the futures and also would experience a decline in value in
its underlying instruments. However, while this might occur to a
certain degree, T. Rowe Price believes that over time the value
of the Fund's portfolio will tend to move in the same direction
as the market indices used to hedge the portfolio. It is also
possible that if the Fund were to hedge against the possibility
of a decline in the market (adversely affecting the underlying
instruments held in its portfolio) and prices instead increased,
the Fund would lose part or all of the benefit of increased value
of those underlying instruments that it has hedged, because it
would have offsetting losses in its futures positions. In
addition, in such situations, if the Fund had insufficient cash,
it might have to sell underlying instruments to meet daily
variation margin requirements. Such sales of underlying
instruments might be, but would not necessarily be, at increased
prices (which would reflect the rising market). The Fund might
have to sell underlying instruments at a time when it would be
disadvantageous to do so.
In addition to the possibility that there might be an
imperfect correlation, or no correlation at all, between price
movements in the futures contracts and the portion of the
portfolio being hedged, the price movements of futures contracts
might not correlate perfectly with price movements in the
PAGE 51
underlying instruments due to certain market distortions. First,
all participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors might close
futures contracts through offsetting transactions, which could
distort the normal relationship between the underlying
instruments and futures markets. Second, the margin requirements
in the futures market are less onerous than margin requirements
in the securities markets, and as a result the futures market
might attract more speculators than the securities markets do.
Increased participation by speculators in the futures market
might also cause temporary price distortions. Due to the
possibility of price distortion in the futures market and also
because of the imperfect correlation between price movements in
the underlying instruments and movements in the prices of futures
contracts, even a correct forecast of general market trends by T.
Rowe Price might not result in a successful hedging transaction
over a very short time period.
Options on Futures Contracts
The Fund might trade in municipal bond index option futures
or similar options on futures developed in the future. In
addition, the Fund may also trade in options on futures contracts
on U.S. government securities and any U.S. government securities
futures index contract which might be developed. In the opinion
of T. Rowe Price, there is a high degree of correlation in the
interest rate, and price movements of U.S. government securities
and municipal securities. However, the U.S. government
securities market and municipal securities markets are
independent and may not move in tandem at any point in time.
The Fund will purchase put options on futures contracts to
hedge its portfolio of municipal securities against the risk of
rising interest rates, and the consequent decline in the prices
of the municipal securities it owns. The Funds will also write
call options on futures contracts as a hedge against a modest
decline in prices of the municipal securities held in the Fund's
portfolio. If the futures price at expiration of a written call
option is below the exercise price, the Fund will retain the full
amount of the option premium, thereby partially hedging against
any decline that may have occurred in the Fund's holdings of debt
securities. If the futures price when the option is exercised is
above the exercise price, however, the Fund will incur a loss,
which may be wholly or partially offset by the increase of the
value of the securities in the Fund's portfolio which were being
hedged.
PAGE 52
Writing a put option on a futures contract serves as a
partial hedge against an increase in the value of securities the
Fund intends to acquire. If the futures price at expiration of
the option is above the exercise price, the Fund will retain the
full amount of the option premium which provides a partial hedge
against any increase that may have occurred in the price of the
debt securities the Fund intends to acquire. If the futures
price when the option is exercised is below the exercise price,
however, the Fund will incur a loss, which may be wholly or
partially offset by the decrease in the price of the securities
the Fund intends to acquire.
Options on futures are similar to options on underlying
instruments except that options on futures give the purchaser the
right, in return for the premium paid, to assume a position in a
futures contract (a long position if the option is a call and a
short position if the option is a put), rather than to purchase
or sell the futures contract, at a specified exercise price at
any time during the period of the option. Upon exercise of the
option, the delivery of the futures position by the writer of the
option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's futures
margin account which represents the amount by which the market
price of the futures contract, at exercise, exceeds (in the case
of a call) or is less than (in the case of a put) the exercise
price of the option on the futures contract. Purchasers of
options who fail to exercise their options prior to the exercise
date suffer a loss of the premium paid.
From time to time a single order to purchase or sell futures
contracts (or options thereon) may be made on behalf of the Fund
and other T. Rowe Price Funds. Such aggregated orders would be
allocated among the Fund and the other T. Rowe Price Funds in a
fair and non-discriminatory manner.
Special Risks of Transactions in Options on Futures Contracts
The risks described under "Special Risks of Transactions on
Futures Contracts" are substantially the same as the risks of
using options on futures. In addition, where the Fund seeks to
close out an option position by writing or buying an offsetting
option covering the same index, underlying instrument or contract
and having the same exercise price and expiration date, its
ability to establish and close out positions on such options will
be subject to the maintenance of a liquid secondary market.
Reasons for the absence of a liquid secondary market on an
PAGE 53
exchange include the following: (i) there may be insufficient
trading interest in certain options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing
transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or
series of options, or underlying instruments; (iv) unusual or
unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that
exchange (or in the class or series of options) would cease to
exist, although outstanding options on the exchange that had been
issued by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with
their terms. There is no assurance that higher than anticipated
trading activity or other unforeseen events might not, at times,
render certain of the facilities of any of the clearing
corporations inadequate, and thereby result in the institution by
an exchange of special procedures which may interfere with the
timely execution of customers' orders. In the event no such
market exists for a particular contract in which the Fund
maintains a position, in the case of a written option, the Fund
would have to wait to sell the underlying securities or futures
positions until the option expires or is exercised. The Fund
would be required to maintain margin deposits on payments until
the contract is closed. Options on futures are treated for
accounting purposes in the same way as the analogous option on
securities are treated.
In addition, the correlation between movements in the price
of options on futures contracts and movements in the price of the
securities hedged can only be approximate. This risk is
significantly increased when an option on a U.S. government
securities future or an option on a municipal securities index
future is used to hedge a municipal bond portfolio. Another risk
is that the movements in the price of options on futures
contracts may not move inversely with changes in interest rates.
If the Fund has written a call option on a futures contract and
the value of the call increases by more than the increase in the
value of the securities held as cover, the Fund may realize a
loss on the call which is not completely offset by the
appreciation in the price of the securities held as cover and the
premium received for writing the call.
PAGE 54
The successful use of options on futures contracts requires
special expertise and techniques different from those involved in
portfolio securities transactions. A decision of whether, when
and how to hedge involves skill and judgment, and even a well-
conceived hedge may be unsuccessful to some degree because of
unexpected market behavior or interest rate trends. During
periods when municipal securities market prices are appreciating,
the Fund may experience poorer overall performance than if it had
not entered into any options on futures contracts.
General Considerations
Transactions by the Fund in options on futures will be
subject to limitations established by each of the exchanges,
boards of trade or other trading facilities governing the maximum
number of options in each class which may be written or purchased
by a single investor or group of investors acting in concert,
regardless of whether the options are written on the same or
different exchanges, boards of trade or other trading facilities
or are held or written in one or more accounts or through one or
more brokers. Thus, the number of contracts which the Fund may
write or purchase may be affected by contracts written or
purchased by other investment advisory clients of T. Rowe Price.
An exchange, board of trade or other trading facility may order
the liquidations of positions found to be in excess of these
limits, and it may impose certain other sanctions.
Additional Futures and Options Contracts
Although the Funds have no current intention of engaging in
futures and options on futures transactions other than those
described above, they reserve the right to do so. Such futures
and options trading might involve risks which differ from those
involved in the futures and options described above.
Federal Tax Treatment of Futures Contracts
Although the Fund invests almost exclusively in securities
which generate income which is exempt from federal income taxes,
the instruments described above are not exempt from such taxes.
Therefore, use of the investment techniques described above could
result in taxable income to shareholders of the Fund.
Generally, the Fund is required, for federal income tax
purposes, to recognize as income for each taxable year its net
unrealized gains and losses on futures contracts as of the end of
the year as well as those actually realized during the year.
PAGE 55
Gain or loss recognized with respect to a futures contract will
generally be 60% long-term capital gain or loss and 40% short-
term capital gain or loss, without regard to the holding period
of the contract.
Futures contracts which are intended to hedge against a
change in the value of securities may be classified as "mixed
straddles," in which case the recognition of losses may be
deferred to a later year. In addition, sales of such futures
contracts on securities may affect the holding period of the
hedged security and, consequently, the nature of the gain or loss
on such security on disposition.
In order for the Fund to continue to qualify for federal
income tax treatment as a regulated investment company, at least
90% of its gross income for a taxable year must be derived from
qualifying income; i.e., dividends, interest, income derived from
loans of securities, and gains from the sale of securities.
Gains realized on the sale or other disposition of securities,
including futures contracts on securities held for less than
three months, must be limited to less than 30% of the Fund's
annual gross income. In order to avoid realizing excessive gains
on securities held less than three months, the Fund may be
required to defer the closing out of futures contracts beyond the
time when it would otherwise be advantageous to do so. It is
anticipated that unrealized gains on futures contracts, which
have been open for less than three months as of the end of the
Fund's fiscal year and which are recognized for tax purposes,
will not be considered gains on securities held less than three
months for purposes of the 30% test.
The Fund will distribute to shareholders annually any net
gains which have been recognized for federal income tax purposes
from futures transactions (including unrealized gains at the end
of the Fund's fiscal year). Such distributions will be combined
with distributions of ordinary income or capital gains realized
on the Fund's other investments. Shareholders will be advised of
the nature of the payments. The Fund's ability to enter into
transactions in options on futures contracts may be limited by
the Internal Revenue Code's requirements for qualification as a
regulated investment company.
Options on Securities
Options are another type of potentially high-risk
derivative.
PAGE 56
Bond Funds
The Funds have no current intention of investing in options
on securities, although they reserve the right to do so.
Appropriate disclosure would be added to the Funds' prospectus
and Statement of Additional Information when and if the Funds
decide to invest in options.
INVESTMENT RESTRICTIONS
Fundamental policies of the Funds may not be changed without
the approval of the lesser of (1) 67% of a Fund's shares present
at a meeting of shareholders if the holders of more than 50% of
the outstanding shares are present in person or by proxy or (2)
more than 50% of a Fund's outstanding shares. Other
restrictions, in the form of operating policies, are subject to
change by the Trusts' Board of Trustees without shareholder
approval. Any investment restriction which involves a maximum
percentage of securities or assets shall not be considered to be
violated unless an excess over the percentage occurs immediately
after, and is caused by, an acquisition of securities or assets
of, or borrowings by, a Fund.
Fundamental Policies
As a matter of fundamental policy, the Fund may not:
(1) Borrowing. Borrow money except that the Fund may (i)
borrow for non-leveraging, temporary or emergency
purposes and (ii) engage in reverse repurchase
agreements and make other investments or engage in
other transactions, which may involve a borrowing, in a
manner consistent with the Fund's investment objective
and program, provided that the combination of (i) and
(ii) shall not exceed 33 1/3% of the value of the
Fund's total assets (including the amount borrowed)
less liabilities (other than borrowings) or such other
percentage permitted by law. Any borrowings which come
to exceed this amount will be reduced in accordance
with applicable law. The Fund may borrow from banks,
other Price Funds or other persons to the extent
permitted by applicable law.
(2) Commodities. Purchase or sell physical commodities;
except that the Fund (other than the Money Funds) may
enter into futures contracts and options thereon;
PAGE 57
(3) Industry Concentration. Purchase the securities of any
issuer if, as a result, more than 25% of the value of
the Fund's total assets would be invested in the
securities of issuers having their principal business
activities in the same industry;
(4) Loans. Make loans, although the Fund may (i) lend
portfolio securities and participate in an interfund
lending program with other Price Funds provided that no
such loan may be made if, as a result, the aggregate of
such loans would exceed 33 1/3% of the value of the
Fund's total assets; (ii) purchase money market
securities and enter into repurchase agreements; and
(iii) acquire publicly-distributed or privately-placed
debt securities and purchase debt;
(5) Percent Limit on Assets Invested in Any One Issuer
(California Funds only). Purchase a security if, as a
result, with respect to 75% of the value of its total
assets, more than 5% of the value of the Fund's total
assets would be invested in the securities of a single
issuer, except securities issued or guaranteed by the
U.S. Government or any of its agencies or
instrumentalities;
(6) Percent Limit on Share Ownership of Any One Issuer
(California Funds only). Purchase a security if, as a
result, with respect to 75% of the value of the Fund's
total assets, more than 10% of the outstanding voting
securities of any issuer would be held by the Fund
(other than obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities);
(7) Real Estate. Purchase or sell real estate, including
limited partnership interests therein, unless acquired
as a result of ownership of securities or other
instruments (but this shall not prevent the Fund from
investing in securities or other instruments backed by
real estate or securities of companies engaged in the
real estate business);
(8) Senior Securities. Issue senior securities except in
compliance with the Investment Company Act of 1940;
PAGE 58
(9) Taxable Securities. During periods of normal market
conditions, purchase any security if, as a result, less
than 80% of the Fund's income would be exempt from
federal and, if applicable, state, city or local income
tax. The income included under the 80% test does not
include income from securities subject to the
alternative minimum tax (AMT); or
(10) Underwriting. Underwrite securities issued by other
persons, except to the extent that the Fund may be
deemed to be an underwriter within the meaning of the
Securities Act of 1933 in connection with the purchase
and sale of its portfolio securities in the ordinary
course of pursuing its investment program.
NOTES
The following Notes should be read in connection with
the above-described fundamental policies. The Notes
are not fundamental policies.
With respect to investment restrictions (1) and (4) the
Fund will not borrow from or lend to any other T. Rowe
Price Fund unless they apply for and receive an
exemptive order from the SEC or the SEC issues rules
permitting such transactions. The Fund has no current
intention of engaging in any such activity and there is
no assurance the SEC would grant any order requested by
the Fund or promulgate any rules allowing the
transactions.
With respect to investment restriction (1), the Money
Funds have no current intention of engaging in any
borrowing transactions. With respect to investment
restriction (2), the Fund does not consider hybrid
instruments to be commodities.
For purposes of investment restriction (3), U.S., state
or local governments, or related agencies or
instrumentalities, are not considered an industry.
Industrial development bonds issued by nongovernmental
users are not considered municipal securities for
purposes of this exception.
PAGE 59
Operating Policies
As a matter of operating policy, the Fund may not:
(1) Borrowing. The Fund will not purchase additional
securities when money borrowed exceeds 5% of its total
assets.
(2) Control of Portfolio Companies. Invest in companies
for the purpose of exercising management or control;
(3) Equity Securities. Purchase any equity security or
security convertible into an equity security provided
that the Fund (other than the Money Funds) may invest
up to 10% of its total assets in equity securities
which pay tax-exempt dividends and which are otherwise
consistent with the Fund's investment objective and,
further provided, that the Money Funds may invest up to
10% of their total assets in equity securities of other
tax-free open-end money market funds;
(4) Futures Contracts. Purchase a futures contract or an
option thereon if, with respect to positions in futures
or options on futures which do not represent bona fide
hedging, the aggregate initial margin and premiums on
such positions would exceed 5% of the Fund's net asset
value.
(5) Illiquid Securities. Purchase illiquid securities if,
as a result, more than 15% (10% for the Money Funds) of
its net assets would be invested in such securities;
(6) Investment Companies. Purchase securities of open-end
or closed-end investment companies except in compliance
with the Investment Company Act of 1940 and applicable
state law provided that, the Money Funds may only
purchase the securities of other tax-free open-end
money market investment companies;
(7) Margin. Purchase securities on margin, except (i) for
use of short-term credit necessary for clearance of
purchases of portfolio securities and (ii) it may make
margin deposits in connection with futures contracts or
other permissible investments;
PAGE 60
(8) Mortgaging. Mortgage, pledge, hypothecate or, in any
manner, transfer any security owned by the Fund as
security for indebtedness except as may be necessary in
connection with permissible borrowings or investments
and then such mortgaging, pledging or hypothecating may
not exceed 33 1/3% of the Fund's total assets at the
time of borrowing or investment;
(9) Oil and Gas Programs. Purchase participations or other
direct interests or enter into leases with respect to,
oil, gas, or other mineral exploration or development
programs;
(10) Options, Etc. Invest in puts, calls, straddles,
spreads, or any combination thereof, except to the
extent permitted by the prospectus and Statement of
Additional Information;
(11) Ownership of Portfolio Securities by Officers and
Directors. Purchase or retain the securities of any
issuer if, those officers and directors of the Fund,
and of its investment manager, who each own
beneficially more than .5% of the outstanding
securities of such issuer, together own beneficially
more than 5% of such securities.
(12) Short Sales. Effect short sales of securities;
(13) Unseasoned Issuers. Purchase a security (other than
obligations issued or guaranteed by the U.S., any
foreign, state or local government, their agencies or
instrumentalities) if, as a result, more than 5% of the
value of the Fund's total assets would be invested in
the securities issuers which at the time of purchase
had been in operation for less than three years (for
this purpose, the period of operation of any issuer
shall include the period of operation of any
predecessor or unconditional guarantor of such issuer).
This restriction does not apply to securities of pooled
investment vehicles or mortgage or asset-backed
securities; or
(14) Warrants. Invest in warrants if, as a result thereof,
more than 2% of the value of the net assets of the Fund
would be invested in warrants which are not listed on
the New York Stock Exchange, the American Stock
Exchange, or a recognized foreign exchange, or more
PAGE 61
than 5% of the value of the net assets of the Fund
would be invested in warrants whether or not so listed.
For purposes of these percentage limitations, the
warrants will be valued at the lower of cost or market
and warrants acquired by the Fund in units or attached
to securities may be deemed to be without value.
For purposes of investment restriction (6), the Fund has no
current intention of purchasing the securities of other
investment companies. Duplicate fees could result from any
such purchases.
For purposes of investment restriction (13), the Fund will
not consider industrial development bonds issued by
nongovernmental users as municipal securities.
RATINGS OF MUNICIPAL DEBT SECURITIES
Moody's Investors Service, Inc.
Aaa - Bonds rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edge."
Aa - Bonds rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds.
A - Bonds rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations.
Baa - Bonds rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba - Bonds rated Ba are judged to have speculative elements:
their futures cannot be considered as well assured. Often the
protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and
PAGE 62
bad times over the future. Uncertainty of position characterize
bonds in this class.
B - Bonds rated B generally lack the characteristics of a
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with
respect to principal or interest.
Ca - Bonds rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked short-comings.
C - Lowest-rated; extremely poor prospects of ever attaining
investment standing.
Standard & Poor's Corporation
AAA - This is the highest rating assigned by Standard &
Poor's to a debt obligation and indicates an extremely strong
capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt
obligations. Capacity to pay principal and interest is very
strong.
A - Bonds rated A have a strong capacity to pay principal
and interest, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions.
BBB - Bonds rated BBB are regarded as having an adequate
capacity to pay principal and interest. Whereas they normally
exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to pay principal and interest for bonds in this
category than for bonds in the A category.
BB, C, CCC, CC - Bonds rated BB, B, CCC, and CC are regarded
on balance, as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal. BB
indicates the lowest degree of speculation and CC the highest
degree of speculation. While such bonds will likely have some
quality and protective characteristics, these are outweighed by
PAGE 63
large uncertainties or major risk exposures to adverse
conditions.
D - In default.
Fitch Investors Service, Inc.
AAA - Bonds rated AAA are considered to be investment grade and
of the highest credit quality. The obligor has an exceptionally
strong ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events.
AA - Bonds rated AA are considered to be investment grade and of
very high credit quality. The obligor's ability to pay interest
and repay principal is very strong, although not quite as strong
as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rate
F-1+.
A - Bonds rated A are considered to be investment grade and of
high credit quality. The obligor's ability to pay interest and
repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB - Bonds rated BBB are considered to be investment grade and
of satisfactory credit quality. The obligor's ability to pay
interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
BB, B, CCC, CC, and C are regarded on balance as predominantly
speculative with respect to the issuer's capacity to repay
interest and repay principal in accordance with the terms of the
obligation for bond issues not in default. BB indicates the
lowest degree of speculation and C the highest degree of
speculation. The rating takes into consideration special
features of the issue, its relationship to other obligations of
the issuer, and the current and prospective financial condition
and operating performance of the issuer.
PAGE 64
RATINGS OF MUNICIPAL NOTES AND VARIABLE SECURITIES
Moody's Investors Services, Inc.
VMIG-1/MIG-1: the best quality. VMIG-2/MIG-2: high quality,
with margins of protection ample though not so large as in the
preceding group.
VMIG-3/MIG-3: favorable quality, with all security elements
accounted for, but lacking the undeniable strength of the
preceding grades. Market access for refinancing, in particular,
is likely to be less well established. VMIG-4/MIG-4: adequate
quality but there is specific risk.
Standard & Poor's Corporation
SP-1: very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation. SP-2:
satisfactory capacity to pay principal and interest.
SP-3: speculative capacity to pay principal and interest.
Fitch Investors Service, Inc.
F-1+: exceptionally strong credit quality, strongest degree of
assurance for timely payment. F-1: very strong credit quality.
F-2: good credit quality, having a satisfactory degree of
assurance for timely payment. F-3: fair credit quality,
assurance for timely payment is adequate but adverse changes
could cause the securities to be rated below investment grade.
F-S: weak credit quality, having characteristics suggesting a
minimal degree of assurance for timely payment.
RATINGS OF COMMERCIAL PAPER
Moody's Investors Service, Inc.
P-1: Superior capacity for repayment. P-2: strong capacity for
repayment.
P-3: acceptable capacity for repayment of short-term promissory
obligations.
PAGE 65
Standard & Poor's Corporation
A-1: highest category, degree of safety regarding timely payment
is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+)
designation. A-2: satisfactory capacity to pay principal and
interest.
A-3: adequate capacity for timely payment, but are vulnerable to
adverse effects of changes in circumstances than higher rated
issues. B, and C: speculative capacity to pay principal and
interest.
Fitch Investors Service, Inc.
F-1+: exceptionally strong credit quality, strongest degree of
assurance for timely payment. F-1: very strong credit quality.
F-2: good credit quality, having a satisfactory degree of
assurance for timely payment. F-3: fair credit quality,
assurance for timely payment is adequate but adverse changes
could cause the securities to be rated below investment grade.
F-5: weak credit quality, having characteristics suggesting a
minimal degree of assurance for timely payment.
MANAGEMENT OF THE TRUSTS
The officers and trustees of each Trust are listed below.
Unless otherwise noted, the address of each is 100 East Pratt
Street, Baltimore, Maryland 21202. Except as indicated, each has
been an employee of T. Rowe Price for more than five years. In
the list below, the trustees who are considered "interested
persons" of T. Rowe Price or the Funds as defined under Section
2(a)(19) of the Investment Company Act of 1940 are noted with an
asterisk (*). These trustees are referred to as inside trustees
by virtue of their officership, directorship, and/or employment
with T. Rowe Price.
ROBERT P. BLACK, Trustee--Retired; formerly President, Federal
Reserve Bank of Richmond; Address: 10 Dahlgren Road, Richmond,
Virginia 23233
CALVIN W. BURNETT, PH.D., Trustee--President, Coppin State
College; Board of Directors, McDonogh School, Inc. and Provident
Bank of Maryland; Past President, Baltimore Area Council Boy
Scouts of America; Vice President, Board of Directors, The
PAGE 66
Walters Art Gallery; Address: 2000 North Warwick Avenue,
Baltimore, Maryland 21216
GEORGE J. COLLINS, Trustee--President, Chief Executive Officer
and Managing Director, T. Rowe Price; Director, Price-Fleming, T.
Rowe Price Retirement Plan Services, Inc. and T. Rowe Price Trust
Company; Chartered Investment Counselor
ANTHONY W. DEERING, Trustee--Director, President and Chief
Executive Officer, The Rouse Company, real estate developers,
Columbia, Maryland; Advisory Director, Kleinwort, Benson (North
America) Corporation, a registered broker-dealer; Address: 10275
Little Patuxent Parkway, Columbia, Maryland 21044
F. PIERCE LINAWEAVER, Trustee--President, F. Pierce Linaweaver &
Associates, Inc., Consulting Environmental & Civil Engineer(s);
formerly (1987-1991) Executive Vice President, EA Engineering,
Science, and Technology, Inc., and (1987-1990) President, EA
Engineering, Inc., Baltimore, Maryland; Address: The Legg Mason
Tower, 111 South Calvert Street, Suite 2700, Baltimore, Maryland
21202
*WILLIAM T. REYNOLDS, Chairman of the Board--Managing Director,
T. Rowe Price
*JAMES S. RIEPE, Vice President and Trustee--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., T. Rowe Price Retirement Plan Services, Inc., and T. Rowe
Price Investment Services, Inc.; President and Trust Officer, T.
Rowe Price Trust Company; Director, Price-Fleming and Rhone-
Poulenc Rorer, Inc.
JOHN G. SCHREIBER, Trustee--President, Schreiber Investments,
Inc., a real estate investment company; Director and formerly
(1/80-12/90) Executive Vice President, JMB Realty Corporation, a
national real estate investment manager and developer; Address:
1115 East Illinois Road, Lake Forest, Illinois 60045
MARY J. MILLER, President--Managing Director, T. Rowe Price
JANET G. ALBRIGHT, Vice President--Vice President, T. Rowe Price
PATRICE L. BERCHTENBREITER, Vice President--Vice President, T.
Rowe Price
A. GENE CAPONI(a), Vice President--Vice President and Analyst, T.
Rowe Price
PATRICIA S. DEFORD, Vice President--Vice President, T. Rowe Price
CHARLES B. HILL, Vice President--Assistant Vice President, T.
Rowe Price; formerly (9/86-11/91) managed municipal bonds at
Riggs National Bank, Washington, D.C.
CHARLES O. HOLLAND, Vice President--Vice President, T. Rowe Price
HENRY H. HOPKINS, Vice President--Managing Director, T. Rowe
Price; Vice President and Director, T. Rowe Price Investment
Services, Inc., T. Rowe Price Services, Inc., and T. Rowe Price
Trust Company; Vice President, Price-Fleming and T. Rowe Price
Retirement Plan Services, Inc.
PAGE 67
KONSTANTINE B. MALLAS, Vice President--Assistant Vice President,
T. Rowe Price
LAURA MCAREE(b), Vice President--Assistant Vice President, T.
Rowe Price; formerly (4/90-11/90) trader, Boeing Company,
Seattle, Washington and (8/87-3/90) financial analyst, Harvard
Management Company, Boston, Massachusetts
HUGH D. MCGUIRK(c), Vice President--Vice President, T. Rowe
Price; formerly (1991-1993) municipal underwriter, Alex. Brown &
Sons, Inc., Baltimore, Maryland
ALAN P. RICHMAN, Vice President--Vice President, T. Rowe Price;
formerly (10/89-6/91) Manager, Public Finance, Credit Local de
France, New York, New York and Public Finance, Tokai Bank, New
York, New York
THEODORE E. ROBSON(a), Vice President--Employee, T. Rowe Price
WILLIAM F. SNIDER, JR.(c), Vice President--Vice President, T.
Rowe Price
GWENDOLYN G. WAGNER(a), Vice President--Vice President and
Economist, T. Rowe Price
C. STEPHEN WOLFE II, Vice President--Vice President, T. Rowe
Price
LENORA V. HORNUNG, Secretary--Vice President, T. Rowe Price
PATRICIA S. BUTCHER, Assistant Secretary--Assistant Vice
President, T. Rowe Price and T. Rowe Price Investment Services,
Inc.
CARMEN F. DEYESU, Treasurer--Vice President, T. Rowe Price, T.
Rowe Price Services, Inc., and T. Rowe Price Trust Company
DAVID S. MIDDLETON, Controller--Vice President, T. Rowe Price, T.
Rowe Price Services, Inc., and T. Rowe Price Trust Company
JOSEPH LYNAGH(a), Assistant Vice President--Assistant Vice
President, T. Rowe Price
EDWARD T. SCHNEIDER, Assistant Vice President--Assistant Vice
President, T. Rowe Price and T. Rowe Price Services, Inc.
INGRID I. VORDEMBERGE, Assistant Vice President--Employee, T.
Rowe Price
(a) Messrs. Caponi, Robson, Lynagh and Ms. Wagner are only
officers for the State Tax-Free Income Trust.
(b) Ms. McAree is Vice President of the State Tax-Free Income
Trust and Assistant Vice President of the California Tax-
Free Income Trust.
(c) Messrs. McGuirk and Snider are Vice Presidents of the State
Tax-Free Income Trust and Assistant Vice Presidents of the
California Tax-Free Income Trust.
Each Trust's Executive Committee, comprised of Messrs.
Collins, Reynolds, and Riepe, has been authorized by its Board of
Trustees to exercise all powers of the Board to manage the Funds
PAGE 68
in the intervals between meetings of the Board, except the powers
prohibited by statute from being delegated.
COMPENSATION TABLE
The Funds do not pay pension or retirement benefits to its
officers or directors/trustees. Also, any director/trustee of a
Fund who is an officer or employee of T. Rowe Price does not
receive any remuneration from a Fund.
_________________________________________________________________
Total Compensation
Aggregate from Fund and
Name of Compensation Fund Complex
Person, from Paid to
Position Fund(a) Trustees(b)
_________________________________________________________________
California Tax-Free Bond Fund
Robert P. Black,
Trustee $1,139 $56,000
Calvin W. Burnett,
Trustee 1,139 56,000
Anthony W. Deering,
Trustee 1,139 68,250
F. Pierce Linaweaver,
Trustee 1,139 56,000
John Schreiber,
Trustee 1,139 56,000
_________________________________________________________________
California Tax-Free Money Fund
Robert P. Black,
Trustee $1,029 $56,000
Calvin W. Burnett,
Trustee 1,029 56,000
Anthony W. Deering,
Trustee 1,029 68,250
PAGE 69
F. Pierce Linaweaver,
Trustee 1,029 56,000
John Schreiber,
Trustee 1,029 56,000
_________________________________________________________________
Florida Insured Intermediate Tax-Free Fund
Robert P. Black,
Trustee $999 $56,000
Calvin W. Burnett,
Trustee 999 56,000
Anthony W. Deering,
Trustee 999 68,250
F. Pierce Linaweaver,
Trustee 999 56,000
John Schreiber,
Trustee 999 56,000
_________________________________________________________________
Georgia Tax-Free Bond Fund
Robert P. Black,
Trustee $945 $56,000
Calvin W. Burnett,
Trustee 945 56,000
Anthony W. Deering,
Trustee 945 68,250
F. Pierce Linaweaver,
Trustee 945 56,000
John Schreiber,
Trustee 945 56,000
_________________________________________________________________
Maryland Tax-Free Bond Fund
Robert P. Black,
Trustee $2,177 $56,000
Calvin W. Burnett,
Trustee 2,177 56,000
PAGE 70
Anthony W. Deering,
Trustee 2,177 68,250
F. Pierce Linaweaver,
Trustee 2,177 56,000
John Schreiber,
Trustee 2,177 56,000
_________________________________________________________________
Maryland Short-Term Tax-Free Bond Fund
Robert P. Black,
Trustee $1,043 $56,000
Calvin W. Burnett,
Trustee 1,043 56,000
Anthony W. Deering,
Trustee 1,043 68,250
F. Pierce Linaweaver,
Trustee 1,043 56,000
John Schreiber,
Trustee 1,043 56,000
_________________________________________________________________
New Jersey Tax-Free Bond Fund
Robert P. Black,
Trustee $921 $56,000
Calvin W. Burnett,
Trustee 921 56,000
Anthony W. Deering,
Trustee 921 68,250
F. Pierce Linaweaver,
Trustee 921 56,000
John Schreiber,
Trustee 921 56,000
PAGE 71
_________________________________________________________________
New York Tax-Free Bond Fund
Robert P. Black,
Trustee $1,115 $56,000
Calvin W. Burnett,
Trustee 1,115 56,000
Anthony W. Deering,
Trustee 1,115 68,250
F. Pierce Linaweaver,
Trustee 1,115 56,000
John Schreiber,
Trustee 1,115 56,000
_________________________________________________________________
New York Tax-Free Money Fund
Robert P. Black,
Trustee $1,022 $56,000
Calvin W. Burnett,
Trustee 1,022 56,000
Anthony W. Deering,
Trustee 1,022 68,250
F. Pierce Linaweaver,
Trustee 1,022 56,000
John Schreiber,
Trustee 1,022 56,000
_________________________________________________________________
Virginia Tax-Free Bond Fund
Robert P. Black,
Trustee $1,188 $56,000
Calvin W. Burnett,
Trustee 1,188 56,000
Anthony W. Deering,
Trustee 1,188 68,250
PAGE 72
F. Pierce Linaweaver,
Trustee 1,188 56,000
John Schreiber,
Trustee 1,188 56,000
_________________________________________________________________
Virginia Short-Term Tax-Free Bond Fund
Robert P. Black,
Trustee $933 $56,000
Calvin W. Burnett,
Trustee 933 56,000
Anthony W. Deering,
Trustee 933 68,250
F. Pierce Linaweaver,
Trustee 933 56,000
John Schreiber,
Trustee 933 56,000
(a) Amounts in this Column are for the period March 1, 1995 to
February 29, 1996.
(b) Amounts in this column are for calendar year 1995. The T.
Rowe Price complex included 72 funds as of February 29,
1996.
PRINCIPAL HOLDERS OF SECURITIES
As of the date of the prospectus, the officers and trustees
of the Funds, as a group, owned less than 1% of the outstanding
shares of each Fund.
As of May 31, 1996, the following shareholders of the New
York Money Fund beneficially owned more than 5% of the
outstanding shares of beneficial interest of the Fund:
Coleman M. Brandt and Grace L. Brandt JT TEN, 330 West 72nd
Street, Apt. 10A, New York, New York 10023-2649.
H. Mark Glasberg and Paula D. Glasberg, Jt. Ten., 205 West
End Avenue, New York, New York 10023-4804.
PAGE 73
INVESTMENT MANAGEMENT SERVICES
Services
Under the Management Agreement with each Trust relating to
its Funds, T. Rowe Price provides each Fund with discretionary
investment services. Specifically, T. Rowe Price is responsible
for supervising and directing the investments of each Fund in
accordance with each Fund's investment objective, program, and
restrictions as provided in its prospectus and this Statement of
Additional Information. T. Rowe Price is also responsible for
effecting all security transactions on behalf of each Fund,
including the allocation of principal business and portfolio
brokerage and the negotiation of commissions. In addition to
these services, T. Rowe Price provides each Fund with certain
administrative services, including: maintaining each Trust's
existence and records; registering and qualifying each Fund's
shares of beneficial interest under federal and state laws;
monitoring the financial, accounting, and administrative
functions of each Fund; maintaining liaison with the agents
employed by each Trust such as the Funds' custodian and transfer
agent; assisting the Funds in the coordination of such agents'
activities; and permitting T. Rowe Price employees to serve as
officers, trustees, and committee members of the Funds without
cost to the Funds.
The Management Agreements also provide that T. Rowe Price,
its directors, officers, employees, and certain other persons
performing specific functions for the Funds will only be liable
to the Funds for losses resulting from willful misfeasance, bad
faith, gross negligence, or reckless disregard of duty.
Management Fee
Each Fund pays T. Rowe Price a fee ("Fee") which consists of
two components: a Group Management Fee ("Group Fee") and an
Individual Fund Fee ("Fund Fee"). The Fee is paid monthly to T.
Rowe Price on the first business day of the next succeeding
calendar month and is calculated as described below.
The monthly Group Fee ("Monthly Group Fee") is the sum of
the daily Group Fee accruals ("Daily Group Fee Accruals") for
each month. The Daily Group Fee Accrual for any particular day
is computed by multiplying the Price Funds' group fee accrual as
determined below ("Daily Price Funds' Group Fee Accrual") by the
ratio of each Fund's net assets for that day to the sum of the
aggregate net assets of the Price Funds for that day. The Daily
PAGE 74
Price Funds' Group Fee Accrual for any particular day is
calculated by multiplying the fraction of one (1) over the number
of calendar days in the year by the annualized Daily Price Funds'
Group Fee Accrual for that day as determined in accordance with
the following schedule:
Price Funds'
Annual Group Base Fee
Rate for Each Level of Assets
_____________________________
0.480% First $1 billion
0.450% Next $1 billion
0.420% Next $1 billion
0.390% Next $1 billion
0.370% Next $1 billion
0.360% Next $2 billion
0.350% Next $2 billion
0.340% Next $5 billion
0.330% Next $10 billion
0.320% Next $10 billion
0.310% Next $16 billion
0.305% Thereafter
For the purpose of calculating the Group Fee, the Price
Funds include all the mutual funds distributed by T. Rowe Price
Investment Services, Inc. (excluding T. Rowe Price Spectrum Fund,
Inc. and Equity Index Fund and any institutional or private label
mutual funds). For the purpose of calculating the Daily Price
Funds' Group Fee Accrual for any particular day, the net assets
of each Price Fund are determined in accordance with each Fund's
prospectus as of the close of business on the previous business
day on which the Fund was open for business.
The monthly Fund Fee ("Monthly Fund Fee") is the sum of the
daily Fund Fee accruals ("Daily Fund Fee Accruals") for each
month. The Daily Fund Fee Accrual for any particular day is
computed by multiplying the fraction of one (1) over the number
of calendar days in the year by the Individual Fund Fee Rate of
0.10% (0.05% for the Florida Insured Intermediate Fund) and
multiplying this product by the net assets of each Fund for that
day, as determined in accordance with each Fund's prospectus as
of the close of business on the previous business day on which
the Funds were open for business.
PAGE 75
The following chart sets forth the total management fees, if
any, paid to T. Rowe Price by the Funds for each of the last
three fiscal years:
New York Money New York Bond
1996 $172,000 1996 $550,000
1995 122,000 1995 392,000
1994 77,000 1994 410,000
California Money California Bond
1996 $175,000 1996 $609,000
1995 169,000 1995 492,000
1994 127,000 1994 575,000
Maryland Bond Maryland Short-Term Bond
1996 $3,352,000 1996 $326,000
19953,243,000 1995 242,000
19943,517,000 1994 59,000
Virginia Bond Virginia Short-Term Bond
1996 $770,000 1996 $0+
1995 611,000 1995 +
1994 532,000 1994 *
Florida Tax-Free Georgia Bond
1996 $153,000 1996 $13,000
1995 13,000 1995 +
1994 + 1994 +
New Jersey Bond
1996 $206,000
1995 135,000
1994 87,000
+ Due to effect of expense limitation discussed below, the
Virginia Short-Term and Georgia Bond Funds did not pay T. Rowe
Price an investment management fee.
* Prior to commencement of operations.
PAGE 76
Limitation on Fund Expenses
All Funds
The Management Agreements between each Fund and T. Rowe
Price provides that each Fund will bear all expenses of its
operations not specifically assumed by T. Rowe Price. However,
in compliance with certain state regulations, T. Rowe Price will
reimburse each Fund for any expenses (excluding interest, taxes,
brokerage, other expenditures which are capitalized in accordance
with generally accepted accounting principles, and extraordinary
expenses) which in any year exceed the limits prescribed by any
state in which that Fund's shares are qualified for sale.
Currently, the State Tax-Free Income Trust has not qualified any
Fund's shares for sale in any state which prescribes such expense
ratio limitations. However, the California Tax-Free Income Trust
is subject to the most restrictive expense limitation imposed by
any state, which is 2.5% of the first $30 million of each Fund's
average daily net assets, 2.0% of the next $70 million of each
Fund's assets, and 1.5% of net assets in excess of $100 million.
For the purpose of determining whether a Fund is entitled to
reimbursement, the expenses of the Fund are calculated on a
monthly basis. If a Fund is entitled to reimbursement, that
month's management fee will be reduced or postponed, with any
adjustment made after the end of the year.
New York and California Funds
Pursuant to its present expense limitation, $141,000, of
management fees were not accrued for the year ended February 29,
1996 and $256,000 and $404,000 remain unaccrued from prior
periods for the California Bond and Money Funds, respectively.
Pursuant to these present expense limitations, $5,000 and
$131,000 of management fees for the New York Bond and Money
Funds, respectively, were not accrued for the year ended February
29, 1996 and $359,000 and $535,000 remain unaccrued from prior
periods for the New York Bond and Money Funds, respectively.
Subject to shareholder approval, these expenses may be reimbursed
to T. Rowe Price, provided that the recapture of fees would not
cause the ratio of expenses to average net assets to exceed the
above-mentioned ratios.
Maryland Short-Term Tax-Free Bond Fund
Pursuant to its present expense limitation, $33,000 of
management fees were not accrued by the Maryland Short-Term Fund
for the year ended February 29, 1996. Additionally, $262,000 of
PAGE 77
unaccrued fees and expenses from the prior period are subject to
future reimbursement.
Virginia Tax-Free and New Jersey Funds
Pursuant to the present expense limitation, $77,000 of
management fees were not accrued by the New Jersey Fund for the
year ended February 29, 1996. Pursuant to Virginia Bond Fund's
past expense limitation, $69,000 of management fees were not
accrued by the Fund for the year ended February 28, 1995.
Additionally, $267,000 and $156,000 of unaccrued fees and
expenses for the New Jersey and Virginia Funds, respectively,
from the prior period are subject to future reimbursement.
Pursuant to a previous agreement, $31,000 of unaccrued fees were
repaid by the Virginia Bond Fund during the year ended February
29, 1996.
Georgia Fund
Pursuant to the present expense limitations, $108,000 of
management fees for the Georgia Bond Fund were not accrued for
the year ended February 29, 1996. Additionally, $285,000 of
unaccrued fees and expenses from the prior period are subject to
future reimbursement.
Florida Insured Intermediate Fund
Pursuant to the present expense limitation, $70,000 of
management fees for the Florida Insured Fund were not accrued for
the year ended February 29, 1996. Additionally, $277,000 of
unaccrued fees and expenses related to a previous expense
limitation are subject to future reimbursement.
Virginia Short-Term Bond Fund
Pursuant to the present expense limitation, $43,000 of
management fees for the Virginia Short-Term Bond Fund were not
accrued for the year ended February 29, 1996, and $69,000 of
other Fund expenses for the Virginia Short-Term Bond Fund were
borne by T. Rowe Price and are subject to future reimbursement.
Additionally, $25,000 of unaccrued fees and expenses remain
subject to future reimbursement.
PAGE 78
DISTRIBUTOR FOR THE TRUSTS
T. Rowe Price Investment Services, Inc. (Investment
Services), a Maryland corporation formed in 1980 as a
wholly-owned subsidiary of T. Rowe Price, serves as the
distributor of each Trust. Investment Services is registered as
a broker-dealer under the Securities Exchange Act of 1934 and is
a member of the National Association of Securities Dealers, Inc.
The offering of shares of beneficial interest pertaining to each
Fund is continuous.
Investment Services is located at the same address as the
Trusts and T. Rowe Price Associates -- 100 East Pratt Street,
Baltimore, Maryland 21202.
Investment Services serves as distributor to the Trusts
pursuant to an Underwriting Agreement ("Underwriting Agreement"),
which provides that each Fund will pay all fees and expenses in
connection with: registering and qualifying its shares under the
various state "blue sky" laws; preparing, setting in type,
printing, and mailing its prospectuses and reports to
shareholders; and issuing its shares, including expenses of
confirming purchase orders.
The Underwriting Agreement provides that Investment Services
will pay all fees and expenses in connection with: printing and
distributing prospectuses and reports for use in offering and
selling Fund shares; preparing, setting in type, printing, and
mailing all sales literature and advertising; Investment
Services' federal and state registrations as a broker-dealer; and
offering and selling Fund shares, except for those fees and
expenses specifically assumed by the Funds. Investment Services'
expenses are paid by T. Rowe Price.
Investment Services acts as the agent of the Trusts in
connection with the sale of the Funds' shares in all states in
which the shares are qualified and in which Investment Services
is qualified as a broker-dealer. Under the Underwriting
Agreement, Investment Services accepts orders for Fund shares at
net asset value. No sales charges are paid by investors or the
Funds.
CUSTODIAN
State Street Bank and Trust Company (the "Bank") is the
custodian for each Fund's securities and cash, but it does not
PAGE 79
participate in the Funds' investment decisions. Each Trust, on
behalf of the Funds, has authorized the Bank to deposit certain
portfolio securities in central depository systems as allowed by
Federal law. In addition, the Funds are authorized to maintain
certain of its securities, in particular variable rate demand
notes, in uncertificated form in the proprietary deposit systems
of various dealers in municipal securities. State Street Bank's
main office is 225 Franklin Street, Boston, Massachusetts 02110.
CODE OF ETHICS
The Fund's investment adviser (T. Rowe Price) has a written
Code of Ethics which requires all employees to obtain prior
clearance before engaging in personal securities transactions.
Transactions must be executed within three business days of their
clearance. In addition, all employees must report their personal
securities transactions within ten days of their execution.
Employees will not be permitted to effect transactions in a
security: If there are pending client orders in the security; the
security has been purchased or sold by a client within seven
calendar days; the security is being considered for purchase for
a client; a change has occurred in T. Rowe Price's rating of the
security within seven calendar days prior to the date of the
proposed transaction; or the security is subject to internal
trading restrictions. In addition, employees are prohibited from
profiting from short-term trading (e.g., purchases and sales
involving the same security within 60 days). Any material
violation of the Code of Ethics is reported to the Board of the
Fund. The Board also reviews the administration of the Code of
Ethics on an annual basis.
PORTFOLIO TRANSACTIONS
Investment or Brokerage Discretion
Decisions with respect to the purchase and sale of portfolio
securities on behalf of the Fund are made by T. Rowe Price. T.
Rowe Price is also responsible for implementing these decisions,
including the negotiation of commissions and the allocation of
portfolio brokerage and principal business. The Fund's purchases
and sales of portfolio securities are normally done on a
principal basis and do not involve the payment of a commission
although they may involve the designation of selling concessions.
That part of the discussion below relating solely to brokerage
commissions would not normally apply to the Funds. However, it
PAGE 80
is included because T. Rowe Price does manage a significant
number of common stock portfolios which do engage in agency
transactions and pay commissions and because some research and
services resulting from the payment of such commissions may
benefit the Fund.
How Brokers and Dealers are Selected
Fixed Income Securities
Fixed income securities are generally purchased from the
issuer or a primary market-maker acting as principal for the
securities on a net basis, with no brokerage commission being
paid by the client although the price usually includes an
undisclosed compensation. Transactions placed through dealers
serving as primary market-makers reflect the spread between the
bid and asked prices. Securities may also be purchased from
underwriters at prices which include underwriting fees.
T. Rowe Price may effect principal transactions on behalf of
the Fund with a broker or dealer who furnishes brokerage and/or
research services, designate any such broker or dealer to receive
selling concessions, discounts or other allowances, or otherwise
deal with any such broker or dealer in connection with the
acquisition of securities in underwritings. T. Rowe Price may
receive brokerage and research services in connection with such
designations in fixed price underwritings.
How Evaluations are Made of the Overall Reasonableness of
Brokerage Commissions Paid
On a continuing basis, T. Rowe Price seeks to determine what
levels of commission rates are reasonable in the marketplace for
transactions executed on behalf of the Fund. In evaluating the
reasonableness of commission rates, T. Rowe Price considers: (a)
historical commission rates, both before and since rates have
been fully negotiable; (b) rates which other institutional
investors are paying, based on available public information; (c)
rates quoted by brokers and dealers; (d) the size of a particular
transaction, in terms of the number of shares, dollar amount, and
number of clients involved; (e) the complexity of a particular
transaction in terms of both execution and settlement; (f) the
level and type of business done with a particular firm over a
period of time; and (g) the extent to which the broker or dealer
has capital at risk in the transaction.
PAGE 81
Description of Research Services Received from Brokers and
Dealers
T. Rowe Price receives a wide range of research services
from brokers and dealers. These services include information on
the economy, industries, groups of securities, individual
companies, statistical information, accounting and tax law
interpretations, political developments, legal developments
affecting portfolio securities, technical market action, pricing
and appraisal services, credit analysis, risk measurement
analysis, performance analysis and analysis of corporate
responsibility issues. These services provide both domestic and
international perspective. Research services are received
primarily in the form of written reports, computer generated
services, telephone contacts and personal meetings with security
analysts. In addition, such services may be provided in the form
of meetings arranged with corporate and industry spokespersons,
economists, academicians and government representatives. In some
cases, research services are generated by third parties but are
provided to T. Rowe Price by or through broker-dealers.
Research services received from brokers and dealers are
supplemental to T. Rowe Price's own research effort and, when
utilized, are subject to internal analysis before being
incorporated by T. Rowe Price into its investment process. As a
practical matter, it would not be possible for T. Rowe Price to
generate all of the information presently provided by brokers and
dealers. T. Rowe Price pays cash for certain research services
received from external sources. T. Rowe Price also allocates
brokerage for research services which are available for cash.
While receipt of research services from brokerage firms has not
reduced T. Rowe Price's normal research activities, the expenses
of T. Rowe Price could be materially increased if it attempted to
generate such additional information through its own staff. To
the extent that research services of value are provided by
brokers or dealers, T. Rowe Price may be relieved of expenses
which it might otherwise bear.
T. Rowe Price has a policy of not allocating brokerage
business in return for products or services other than brokerage
or research services. In accordance with the provisions of
Section 28(e) of the Securities Exchange Act of 1934, T. Rowe
Price may from time to time receive services and products which
serve both research and non-research functions. In such event,
T. Rowe Price makes a good faith determination of the anticipated
research and non-research use of the product or service and
allocates brokerage only with respect to the research component.
PAGE 82
Commissions to Brokers who Furnish Research Services
Certain brokers and dealers who provide quality brokerage
and execution services also furnish research services to T. Rowe
Price. With regard to the payment of brokerage commissions, T.
Rowe Price has adopted a brokerage allocation policy embodying
the concepts of Section 28(e) of the Securities Exchange Act of
1934, which permits an investment adviser to cause an account to
pay commission rates in excess of those another broker or dealer
would have charged for effecting the same transaction, if the
adviser determines in good faith that the commission paid is
reasonable in relation to the value of the brokerage and research
services provided. The determination may be viewed in terms of
either the particular transaction involved or the overall
responsibilities of the adviser with respect to the accounts over
which it exercises investment discretion. Accordingly, while T.
Rowe Price cannot readily determine the extent to which
commission rates or net prices charged by broker-dealers reflect
the value of their research services, T. Rowe Price would expect
to assess the reasonableness of commissions in light of the total
brokerage and research services provided by each particular
broker. T. Rowe Price may receive research, as defined in
Section 28(e), in connection with selling concessions and
designations in fixed price offerings in which the Funds
participate.
Internal Allocation Procedures
T. Rowe Price has a policy of not precommitting a specific
amount of business to any broker or dealer over any specific time
period. Historically, the majority of brokerage placement has
been determined by the needs of a specific transaction such as
market-making, availability of a buyer or seller of a particular
security, or specialized execution skills. However, T. Rowe
Price does have an internal brokerage allocation procedure for
that portion of its discretionary client brokerage business where
special needs do not exist, or where the business may be
allocated among several brokers or dealers which are able to meet
the needs of the transaction.
Each year, T. Rowe Price assesses the contribution of the
brokerage and research services provided by brokers or dealers,
and attempts to allocate a portion of its brokerage business in
response to these assessments. Research analysts, counselors,
various investment committees, and the Trading Department each
PAGE 83
seek to evaluate the brokerage and research services they receive
from brokers or dealers and make judgments as to the level of
business which would recognize such services. In addition,
brokers or dealers sometimes suggest a level of business they
would like to receive in return for the various brokerage and
research services they provide. Actual brokerage received by any
firm may be less than the suggested allocations but can, and
often does, exceed the suggestions, because the total business is
allocated on the basis of all the considerations described above.
In no case is a broker or dealer excluded from receiving business
from T. Rowe Price because it has not been identified as
providing research services.
Miscellaneous
T. Rowe Price's brokerage allocation policy is consistently
applied to all its fully discretionary accounts, which represent
a substantial majority of all assets under management. Research
services furnished by brokers or dealers through which T. Rowe
Price effects securities transactions may be used in servicing
all accounts (including non-Fund accounts) managed by T. Rowe
Price. Conversely, research services received from brokers or
dealers which execute transactions for the Fund are not
necessarily used by T. Rowe Price exclusively in connection with
the management of the Fund.
From time to time, orders for clients may be placed through
a computerized transaction network. The Fund does not allocate
business to any broker-dealer on the basis of its sales of the
Fund's shares. However, this does not mean that broker-dealers
who purchase Fund shares for their clients will not receive
business from the Fund.
Some of T. Rowe Price's other clients have investment
objectives and programs similar to those of the Fund. T. Rowe
Price may occasionally make recommendations to other clients
which result in their purchasing or selling securities
simultaneously with the Fund. As a result, the demand for
securities being purchased or the supply of securities being sold
may increase, and this could have an adverse effect on the price
of those securities. It is T. Rowe Price's policy not to favor
one client over another in making recommendations or in placing
orders. T. Rowe Price frequently follows the practice of
grouping orders of various clients for execution which generally
results in lower commission rates being attained. In certain
cases, where the aggregate order is executed in a series of
PAGE 84
transactions at various prices on a given day, each participating
client's proportionate share of such order reflects the average
price paid or received with respect to the total order. T. Rowe
Price has established a general investment policy that it will
ordinarily not make additional purchases of a common stock of a
company for its clients (including the T. Rowe Price Funds) if,
as a result of such purchases, 10% or more of the outstanding
common stock of such company would be held by its clients in the
aggregate.
To the extent possible, T. Rowe Price intends to recapture
solicitation fees paid in connection with tender offers through
T. Rowe Price Investment Services, Inc., the Fund's distributor.
At the present time, T. Rowe Price does not recapture commissions
or underwriting discounts or selling group concessions in
connection with taxable securities acquired in underwritten
offerings. T. Rowe Price does, however, attempt to negotiate
elimination of all or a portion of the selling-group concession
or underwriting discount when purchasing tax-exempt municipal
securities on behalf of its clients in underwritten offerings.
Other
The Funds engaged in portfolio transactions involving
broker-dealers in the following amounts for the fiscal years
ended February 29, 1996, February 28, 1995, and February 28,
1994:
1996 1995 1994
New York Tax-Free
Money Fund $323,642,000 $318,998,000 $314,975,000
New York Tax-Free
Bond Fund 479,720,000 523,495,000 443,455,000
California Tax-Free
Money Fund 451,803,000 531,661,000 142,908,000
California Tax-Free
Bond Fund 321,786,000 360,305,000 544,865,000
Maryland Tax-Free
Bond Fund 608,562,000 1,004,363,000 815,516,000
Maryland Short-Term
Tax-Free Bond 181,246,000 318,873,000 232,994,000
Virginia Tax-Free
Bond Fund 586,982,000 513,098,000 477,407,000
New Jersey Tax-Free
Bond Fund 244,765,000 295,898,000 201,915,000
PAGE 85
Georgia Tax-Free
Bond Fund 101,969,000 117,380,000 112,606,000*
Florida Insured
Intermediate
Tax-Free Fund 244,903,000 116,527,000 142,908,000*
Virginia Short-Term
Tax-Free Bond Fund 33,183,000 10,600,000 **
The following amounts consisted of principal transactions as
to which the Funds have no knowledge of the profits or losses
realized by the respective broker-dealers for the fiscal years
ended February 29, 1996, February 28, 1995, and February 28,
1994:
1996 1995 1994
New York Tax-Free
Money Fund $323,642,000 $318,998,000 $314,975,000
New York Tax-Free
Bond Fund 465,446,000 510,410,000 413,748,000
California Tax-Free
Money Fund 449,790,000 531,661,000 340,724,000
California Tax-Free
Bond Fund 298,191,000 351,902,000 492,219,000
Maryland Tax-Free
Bond Fund 530,615,000 969,185,000 667,535,000
Maryland Short-Term
Tax-Free Bond Fund 178,280,000 313,554,000 221,759,000
Virginia Tax-Free
Bond Fund 550,422,000 484,867,000 430,706,000
New Jersey Tax-Free
Bond Fund 232,059,000 288,542,000 192,008,000
Georgia Tax-Free
Bond Fund 95,309,000 109,324,000 108,245,000
Florida Insured
Intermediate
Tax-Free Fund 234,913,000 114,179,000 136,112,000
Virginia Short-Term
Tax-Free Bond Fund 32,888,000 10,550,000 **
The following amounts involved trades with brokers
acting as agents or underwriters for the fiscal years ended
February 29, 1996, February 28, 1995, and February 28, 1994:
PAGE 86
1996 1995 1994
New York Tax-Free
Money Fund $ 0 $ 0 $ 0
New York Tax-Free
Bond Fund 14,274,000 13,085,000 29,707,000
California Tax-Free
Money Fund 2,013,000 0 0
California Tax-Free
Bond Fund 23,595,000 8,403,000 52,646,000
Maryland Tax-Free
Bond Fund 77,947,000 35,178,000 147,981,000
Maryland Short-Term
Tax-Free Bond Fund 2,966,000 5,319,000 11,235,000
Virginia Tax-Free
Bond Fund 36,560,000 28,231,000 46,702,000
New Jersey Tax-Free
Bond Fund 12,706,000 7,356,000 9,907,000
Georgia Tax-Free
Bond Fund 6,660,000 8,056,000 4,360,000*
Florida Insured
Intermediate
Tax-Free Fund 9,990,000 2,348,000 6,796,000*
Virginia Short-Term
Tax-Free Bond Fund 295,000 50,000 **
The following amounts involved trades with brokers acting as
agents or underwriters, in which such brokers received total
commissions, including discounts received in connection with
underwritings for the fiscal years ended February 29, 1996,
February 28, 1995, and February 28, 1994:
1996 1995 1994
New York Tax-Free Money Fund $ 0 $ 0 $ 0
New York Tax-Free Bond Fund 92,000 51,875 150,000
California Tax-Free Money Fund 6,000 0 0
California Tax-Free Bond Fund 152,000 43,750 323,000
Maryland Tax-Free Bond Fund 243,000 204,475 990,000
Maryland Short-Term Tax-Free
Bond Fund 10,000 17,620 55,000
Virginia Tax-Free Bond Fund 188,000 38,201 332,000
New Jersey Tax-Free Bond Fund 62,000 43,375 70,000
Georgia Tax-Free Bond Fund 30,000 52,475 25,000 *
Florida Insured Intermediate
Tax-Free Fund 42,000 11,625 64,000
PAGE 87
Virginia Short-Term Tax-Free
Bond Fund 1,000 188 **
* For the 11-month fiscal period ended February 28, 1994.
** Prior to commencement of operations.
+ For the one-month fiscal period ended February 28, 1993.
++ For the 10-month fiscal period ended February 29, 1992.
Of all such portfolio transactions, none were placed with
firms which provided research, statistical, or other services to
T. Rowe Price in connection with the management of the Funds, or
in some cases, to the Funds.
The portfolio turnover rates of the Funds for the fiscal
years ended February 29, 1996, February 28, 1995, and February
28, 1994, have been as follows:
1996 1995 1994
New York Tax-Free Money Fund N/A N/A N/A
New York Tax-Free Bond Fund 116.0% 134.3% 84.9%
California Tax-Free Money Fund N/A N/A N/A
California Tax-Free Bond Fund 61.9% 78.0% 73.4%
Maryland Tax-Free Bond Fund 23.9% 28.9% 24.3%
Maryland Short-Term
Tax-Free Bond Fund 39.3% 105.3% 20.5%
Virginia Tax-Free Bond Fund 93.7% 89.1% 61.8%
New Jersey Tax-Free Bond Fund 98.4% 139.1% 68.8%
Georgia Tax-Free Bond Fund 71.5% 170.2% 154.8%*
Florida Insured Intermediate
Tax-Free Fund 98.7% 140.5% 70.6%*
Virginia Short-Term Tax-Free
Bond Fund 36.4% 14.8% **
* Figure is annualized and is for the 11-month fiscal period
ended February 28, 1994.
** Prior to commencement of operations.
PRICING OF SECURITIES BEING OFFERED
Fixed income securities are generally traded in the over-
the-counter market. With the exception of the Money Market Funds,
investments in securities are stated at fair value using a bid-
side valuation 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,
PAGE 88
and type, as well as prices quoted by dealers who make markets in
such securities. Securities held by the Money Market Funds are
valued at amortized cost.
There are a number of pricing services available, and the
Directors of the Funds, on the basis of ongoing evaluation of
these services, may use or may discontinue the use of any pricing
service in whole or in part.
Securities or other assets for which the above valuation
procedures are inappropriate or are deemed not to reflect fair
value will be appraised at prices deemed best to reflect their
fair value. Such determinations will be made in good faith by or
under the supervision of officers of each Fund, as authorized by
the Board of Directors.
Maintenance of New York and California Money Funds' Net Asset
Value Per Share at $1.00
It is the policy of the Funds to attempt to maintain a net
asset value of $1.00 per share by using the amortized cost method
of valuation permitted by Rule 2a-7 under the Investment Company
Act of 1940. Under this method, securities are valued by
reference to the Fund's acquisition cost as adjusted for
amortization of premium or accumulation of discount rather than
by reference to their market value. Under Rule 2a-7:
(a) The Board of Trustees must establish written procedures
reasonably designed, taking into account current market
conditions and the fund's investment objectives, to stabilize
the fund's net asset value per share, as computed for the
purpose of distribution, redemption and repurchase, at a
single value;
(b) Each Fund must (i) maintain a dollar-weighted average
portfolio maturity appropriate to its objective of
maintaining a stable price per share, (ii) not purchase any
instrument with a remaining maturity greater than 397 days,
and (iii) maintain a dollar-weighted average portfolio
maturity of 90 days or less;
(c) Each Fund must limit its purchase of portfolio
instruments, including repurchase agreements, to those U.S.
dollar-denominated instruments which a Fund's Board of
Trustees determines present minimal credit risks, and which
are eligible securities as defined by Rule 2a-7. Eligible
PAGE 89
securities are generally securities which have been rated (or
whose issuer has been rated or whose issuer has comparable
securities rated) in or of the two highest rating categories
by nationally recognized statistical rating organizations or,
in the case of any instrument that is not so rated, is of
comparable quality as determined by procedures adopted by the
Funds' Board of Trustees; and
(d) Each Board of Trustees must determine that (i) it is in
the best interest of a Fund and its shareholders to maintain
a stable net asset value per share under the amortized cost
method; and (ii) a Fund will continue to use the amortized
cost method only so long as each Board of Trustees believes
that it fairly reflects the Fund's market based net asset
value per share.
Although the Funds believe that it will be able to maintain
its net asset value at $1.00 per share under most conditions,
there can be no absolute assurance that it will be able to do so
on a continuous basis. If a Fund's net asset value per share
declined, or was expected to decline, below $1.00 (rounded to the
nearest one cent), the Board of Trustees of a Fund might
temporarily reduce or suspend dividend payments in an effort to
maintain the net asset value at $1.00 per share. As a result of
such reduction or suspension of dividends, an investor would
receive less income during a given period than if such a
reduction or suspension had not taken place. Such action could
result in an investor receiving no dividend for the period during
which he holds his shares and in his receiving, upon redemption,
a price per share lower than that which he paid. On the other
hand, if a Fund's net asset value per share were to increase, or
were anticipated to increase above $1.00 (rounded to the nearest
one cent), the Board of Trustees of a Fund might supplement
dividends in an effort to maintain the net asset value at $1.00
per share.
NET ASSET VALUE PER SHARE
The purchase and redemption price of each Fund's shares is
equal to that Fund's net asset value per share (or share price).
Each Fund determines its net asset value per share by subtracting
its liabilities (including accrued expenses and dividends
payable) from its total assets (the market value of the
securities a Fund holds plus cash and other assets, including
income accrued but not yet received) and dividing the result by
PAGE 90
the total number of shares outstanding. The net asset value per
share of each Fund is calculated as of the close of trading on
the New York Stock Exchange ("NYSE") every day the NYSE is open
for trading. The NYSE is closed on the following days: New
Year's Day, Washington's Birthday, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Determination of net asset value (and the offering, sale,
redemption and repurchase of shares) for a Fund may be suspended
at times (a) during which the NYSE is closed, other than
customary weekend and holiday closings, (b) during which trading
on the NYSE is restricted (c) during which an emergency exists as
a result of which disposal by a Fund of securities owned by it is
not reasonably practicable or it is not reasonably practicable
for a Fund fairly to determine the value of its net assets, or
(d) during which a governmental body having jurisdiction over the
Funds may by order permit such a suspension for the protection of
the Funds' shareholders; provided that applicable rules and
regulations of the Securities and Exchange Commission (or any
succeeding governmental authority) shall govern as to whether the
conditions prescribed in (b), (c), or (d) exist.
DIVIDENDS
Unless you elect otherwise, each Fund's annual capital gain
distribution, if any, will be reinvested on the reinvestment date
using the NAV per share of that date. The reinvestment date
normally precedes the payment date by about 10 days although the
exact timing is subject to change.
TAX STATUS
Each Fund intends to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986,
as amended ("Code").
Dividends and distributions paid by the Funds are not
eligible for the dividends-received deduction for corporate
shareholders. For tax purposes, it does not make any difference
whether dividends and capital gain distributions are paid in cash
or in additional shares. Each Fund must declare by its year end
dividends equal to at least 90% of net tax-exempt income (as of
its tax year-end) to permit the pass-through of tax-exempt income
to shareholders, and declare by December 31, 98% of capital gains
(as of October 31) in order to avoid a federal excise tax and
PAGE 91
distribute within 12 months, 100% of capital gains (as of its tax
year-end) to avoid federal income tax.
At the time of your purchase, each Fund's net asset value may
reflect undistributed capital gains or net unrealized
appreciation of securities held by the Funds. A subsequent
distribution to you of such amounts, although constituting a
return of your investment, would be taxable as a capital gain
distribution. For federal income tax purposes, the Funds are
permitted to carry forward its net realized capital losses, if
any, for eight years and realize net capital gains up to the
amount of such losses without being required to pay taxes on, or
distribute such gains. On April 30, 1996, the books of each Fund
indicated that the Fund's aggregate net assets included:
Realized Capital Unrealized
Gains/(Losses) Appreciation
(Depreciation)
________________ ____________
New York Tax-Money Fund $ 0 $ 0
New York Tax-Free Bond Fund (1,417,462) 4,524,349
California Tax-Free Money Fund (111,763) 0
California Tax-Free Bond Fund (1,177,183) 4,443,186
Maryland Tax-Free Bond Fund (5,083,765) 32,131,631
Maryland Short-Term Tax-Free
Bond Fund (865,478) 1,004,768
Virginia Tax-Free Bond Fund (3,011,554) 4,342,683
New Jersey Tax-Free Bond Fund (1,640,167) 1,712,912
Georgia Tax-Free Bond Fund (1,263,314) 915,482
Florida Insured Intermediate
Tax-Free Fund (329,859) 949,609
Virginia Short-Term Tax-Free
Bond Fund 9,157 74,741
If, in any taxable year, a Fund should not qualify as a
regulated investment company under the Code: (i) the Fund would
be taxed at normal corporate rates on the entire amount of its
taxable income, if any, without deduction for dividends or other
distributions to shareholders and (ii) the Fund's distributions
to the extent made out of the Fund's current or accumulated
earnings and profits would be taxable to shareholders as ordinary
dividends (regardless of whether they would otherwise have been
considered capital gain dividends or tax-exempt dividends).
PAGE 92
The Funds anticipate acquiring bonds after initial issuance
at a price less than the principal amount of such bonds ("market
discount bonds"). Gain on the disposition of such bonds is
treated as taxable ordinary income to the extent of accrued
market discount. Such gains cannot be offset by losses on the
sale of other securities but must be distributed to shareholders
annually and taxed as ordinary income.
Each year, the Funds will mail you information on the tax
status of dividends and distributions. The Funds anticipate that
substantially all of the dividends to be paid by each Fund will
be exempt from federal, state, and/or city or local income taxes,
as applicable. However, due to seasonal variations in the supply
of short-term investments, there may be periods when it would not
be unusual for a certain percentage of dividends of a Fund to be
derived from out of state securities. Any such dividends would
be subject to state and local income taxes (if any). If any
portion of a Fund's dividends is not exempt from federal income
taxes, you will receive a Form 1099 stating the taxable portion.
The Funds will also advise you of the percentage of your
dividends, if any, which should be included in the computation of
alternative minimum tax. Social security recipients who receive
interest from tax-exempt securities may have to pay taxes on a
portion of their social security benefits.
Because the interest on municipal securities is tax exempt,
any interest on money you borrow that is directly or
indirectly used to purchase shares of a Fund is not deductible.
(See Section 265(a)(2) of the Internal Revenue Code.) Further,
entities or persons who are "substantial users" (or persons
related to "substantial users") of facilities financed by
industrial development bonds should consult their tax advisers
before purchasing shares of a Fund. The income from such bonds
may not be tax exempt for such substantial users.
Florida Insured Intermediate Tax-Free Fund
Although Florida does not have a state income tax, it does
impose an intangible personal property tax (intangibles tax) on
assets, including shares of mutual funds. This tax is based on
the net asset value of shares owned on January 1.
Under Florida law, shares of the Fund will be exempt from
the intangibles tax to the extent that, on January 1, the Fund's
assets are solely invested in certain exempt Florida securities,
U.S. government securities, certain short-term cash investments,
or other exempt securities. If, on January 1, the Fund's assets
PAGE 93
are invested in these tax-exempt securities and other non-tax-
exempt securities, only that portion of a share's net asset value
represented by U.S. government securities will be exempt from the
intangibles tax. Because the Fund will make every effort to have
its portfolio invested exclusively in exempt Florida municipal
obligations (and other qualifying investments) on January 1,
shares of the Fund should be exempt from the intangibles tax.
However, under certain circumstances, the Fund may invest in
securities other than Florida municipal obligations and there can
be no guarantee that such non-exempt investments would not be in
the Fund's portfolio on January 1. In such cases, all or a
portion of the value of the Fund's shares may be subject to the
intangibles tax, and a portion of the Fund's income may be
subject to federal income taxes.
YIELD INFORMATION
Bond Funds
From time to time, the Funds may advertise a yield figure
calculated in the following manner:
An income factor is calculated for each security in the
portfolio based upon the security's market value at the beginning
of the period and yield as determined in conformity with
regulations of the Securities and Exchange Commission. The
income factors are then totalled for all securities in the
portfolio. Next, expenses of each Fund for the period net of
expected reimbursements are deducted from the income to arrive at
net income, which is then converted to a per-share amount by
dividing net income by the average number of shares outstanding
during the period. The net income per share is divided by the
net asset value on the last day of the period to produce a
monthly yield which is then annualized. A taxable equivalent
yield is calculated by dividing this yield by one minus the sum
of the effective federal, state, and/or city or local income tax
rates. Quoted yield factors are for comparison purposes only,
and are not intended to indicate future performance or forecast
the dividend per share of each Fund.
The yield of each Fund calculated under the above-described
method for the month ended February 29, 1996, was as follows:
New York Tax-Free Bond Fund 4.73%
California Tax-Free Bond Fund 4.78%
Maryland Tax-Free Bond Fund 4.78%
PAGE 94
Maryland Short-Term Tax-Free Bond Fund 3.14%
Virginia Tax-Free Bond Fund 4.85%
Virginia Short-Term Tax-Free Bond Fund(d) 3.24%
New Jersey Tax-Free Bond Fund 4.71%
Georgia Tax-Free Bond Fund 4.63%
Florida Insured Intermediate
Tax-Free Fund 3.94%
The tax equivalent yields (assuming a federal tax bracket of
31.0%) for each Fund for the same period were as follows:
New York Tax-Free Bond Fund(a) 7.65%
California Tax-Free Bond Fund(b) 7.70%
Maryland Tax-Free Bond Fund(c) 7.53%
Maryland Short-Term Tax-Free
Bond Fund(c) 4.94%
Virginia Tax-Free Bond Fund(d) 7.46%
Virginia Short-Term Tax-Free Bond Fund(d) 4.98%
New Jersey Tax-Free Bond Fund(e) 7.29%
Georgia Tax-Free Bond Fund(f) 7.13%
Florida Insured Intermediate
Tax-Free Fund(g) 5.91%
(a) Assumes a state tax bracket of 7.0% and a local tax bracket
of 3.4%
(b) Assumes a state tax bracket of 10.0%.
(c) Assumes a state tax bracket of 5.0% and a local tax bracket
of 3.0%.
(d) Assumes a state tax bracket of 5.75%.
(e) Assumes a state tax bracket of 6.37%.
(f) Assumes a state tax bracket of 6.0%.
(g) Assumes an intangible tax rate of 0.2%.
The tax equivalent yields (assuming a federal tax bracket of
28.0%) for each Fund for the same period were as follows:
New York Tax-Free Bond Fund(a) 7.33%
California Tax-Free Bond Fund(b) 7.32%
Maryland Tax-Free Bond Fund(c) 7.22%
Maryland Short-Term Tax-Free Bond Fund(c) 4.74%
Virginia Tax-Free Bond Fund(d) 7.14%
Virginia Short-Term Tax-Free Bond Fund(d) 4.77%
New Jersey Tax-Free Bond Fund(e) 6.93%
Georgia Tax-Free Bond Fund(f) 6.84%
Florida Insured Intermediate 5.67%
Tax-Free Fund(g) 5.67%
PAGE 95
(a) Assumes a state tax bracket of 7.0% and a local tax bracket
of 3.35%
(b) Assumes a state tax bracket of 9.3%.
(c) Assumes a state tax bracket of 5.0% and a local tax bracket
of 3.0%.
(d) Assumes a state tax bracket of 5.75%.
(e) Assumes a state tax bracket of 5.525%.
(f) Assumes a state tax bracket of 6.0%.
(g) Assumes an intangible tax rate of 0.2%.
New York Money and California Money Funds
Each Fund's current and historical yield for a period is
calculated by dividing the net change in value of an account
(including all dividends accrued and dividends reinvested in
additional shares) by the account value at the beginning of the
period to obtain the base period return. This base period return
is divided by the number of days in the period then multiplied by
365 to arrive at the annualized yield for that period. Each
Fund's annualized compound yield for such period is compounded by
dividing the base period return by the number of days in the
period, and compounding that figure over 365 days.
The Money Funds' current yield and compound yield for the
seven days ended February 29, 1996 were:
Current Compound
Yield Yield
_______ ________
New York Tax-Free Money Fund 2.79% 2.83%
California Tax-Free Money Fund 2.67% 2.70%
From time to time, a Fund may also illustrate the effect of
tax equivalent yields using information such as that set forth
below:
PAGE 96
TAX-EXEMPT VS. TAXABLE YIELDS
New York Funds
_________________________________________________________________
Your Taxable Income (1996)(a) Marginal Tax Rates
Joint Return Single Return Federal(d)State Local(b) Comb-
ined
Margin-
al(c)
_________________________________________________________________
$ 27,001- $ 40,100 $ 15,001-$ 24,000 15.0 7.00 3.30 23.8
40,101- 45,000 24,001- 25,000 28.0 7.00 3.30 35.4
45,001- 96,900 25,001- 58,150 28.0 7.00 3.35 35.5
96,901- 108,000 58,151- 60,000 31.0 7.00 3.35 38.1
108,001- 147,700 60,001- 121,300 31.0 7.00 3.40 38.2
147,701- 263,750 121,301- 263,750 36 7.00 3.40 42.7
263,751 and above 263,751 and above 39.6 7.00 3.40 45.9
_________________________________________________________________
A Tax-Exempt Yield Of:
3% 4% 5% 6% 7% 8% 9% 10%
Is Equivalent to a Taxable Yield of:
_________________________________________________________________
3.94 5.25 6.56 7.87 9.19 10.50 11.81 13.12
4.64 6.19 7.74 9.29 10.84 12.38 13.93 15.48
4.65 6.20 7.75 9.30 10.85 12.40 13.95 15.50
4.85 6.46 8.08 9.69 11.31 12.92 14.54 16.16
4.85 6.47 8.09 9.71 11.33 12.94 14.56 16.18
5.24 6.98 8.73 10.47 12.22 13.96 15.71 17.45
5.55 7.39 9.24 11.09 12.94 14.79 16.64 18.48
_________________________________________________________________
(a) Net amount subject to federal income tax after deductions
and exemptions.
(b) Tax rates are for New York City Residents.
(c) Combined marginal rate assumes the deduction of state and
local income taxes on the federal return.
(d) Marginal rates may vary depending on family size and nature
and amount of itemized deductions.
PAGE 97
California Funds
_________________________________________________________________
Your Taxable Income (1996)(a) Marginal Tax Rates
Joint Return Single Return Federal(c) State Comb-
ined
Margin-
al(b)
_________________________________________________________________
$ 36,136- $ 40,100 $ 18,068- $ 24,000 15.0 6.0 20.1
40,101- 50,166 24,001- 25,083 28.0 6.0 32.3
50,167- 63,400 25,084- 31,700 28.0 8.0 33.8
63,401- 96,900 31,701- 58,150 28.0 9.3 34.7
96,901- 147,700 58,151- 109,936 31.0 9.3 37.4
109,937- 121,300 31.0 10.0 37.9
147,701- 219,872 36.0 9.3 42.0
219,873- 263,750 121,301- 219,872 36.0 10.0 42.4
219,873- 263,750 36.0 11.0 43.0
263,751- 439,744 39.6 10.0 45.6
439,745 and above 263,751 and above 39.6 11.0 46.2
_________________________________________________________________
A Tax-Exempt Yield Of:
3% 4% 5% 6% 7% 8% 9% 10%
Is Equivalent to a Taxable Yield of:
_________________________________________________________________
3.75 5.01 6.26 7.51 8.76 10.01 11.26 12.52
4.43 5.91 7.39 8.86 10.34 11.82 13.29 14.77
4.53 6.04 7.55 9.06 10.57 12.08 13.60 15.11
4.59 6.13 7.66 9.19 10.72 12.25 13.78 15.31
4.79 6.39 7.99 9.58 11.18 12.78 14.38 15.97
4.83 6.44 8.05 9.66 11.27 12.88 14.49 16.10
5.17 6.90 8.62 10.34 12.07 13.79 15.52 17.24
5.21 6.94 8.68 10.42 12.15 13.89 15.63 17.36
5.26 7.02 8.77 10.53 12.28 14.04 15.79 17.54
5.51 7.35 9.19 11.03 12.87 14.71 16.54 18.38
5.58 7.43 9.29 11.15 13.01 14.87 16.73 18.59
_________________________________________________________________
(a) Net amount subject to federal income tax after deductions
and exemptions.
(b) Combined marginal rate assumes the deduction of state income
taxes on the federal return.
(c) Marginal rates may vary depending on family size and nature
and amount of itemized deductions.
PAGE 98
Maryland Funds
_________________________________________________________________
Your Taxable Income (1996)(a) Marginal Tax Rates
Joint Return Single Return Federal(d)State Local(b)Comb-
ined
Margin-
al(c)
_________________________________________________________________
$ 40,101-$ 96,900$ 24,001- $ 58,150 28.0 5.0 3.0 33.8
96,901- 147,700 58,151- 100,000 31.0 5.0 3.0 36.5
100,001- 121,300 31.0 5.0 3.0 36.5
147,701- 150,000 36.0 5.0 3.0 41.1
150,001- 263,750 121,301- 253,750 36.0 5.0 3.0 41.1
263,751 and above 263,751 and above 39.6 5.0 3.0 44.4
_________________________________________________________________
A Tax-Exempt Yield Of:
3% 4% 5% 6% 7% 8% 9% 10%
Is Equivalent to a Taxable Yield of:
_________________________________________________________________
4.53 6.04 7.55 9.06 10.57 12.08 13.60 15.11
4.72 6.30 7.87 9.45 11.02 12.60 14.17 15.75
4.72 6.30 7.87 9.45 11.02 12.60 14.17 15.75
5.09 6.79 8.49 10.19 11.88 13.58 15.28 16.98
5.09 6.79 8.49 10.19 11.88 13.58 15.28 16.98
5.40 7.19 8.99 10.79 12.59 14.39 16.19 17.99
_________________________________________________________________
(a) Net amount subject to federal income tax after deductions
and exemptions.
(b) Assumes a local tax rate equal to 60% of the state rate for
residents in the 5% state bracket.
(c) Combined marginal rate assumes the deduction of state and
local income taxes on the federal return.
(d) Marginal rates may vary depending on family size and nature
and amount of itemized deductions.
PAGE 99
New Jersey Fund
_________________________________________________________________
Your Taxable Income (1996)(a) Marginal Tax Rates
Joint Return Single Return Federal(c)State Comb-
ined
Margin-
al(b)
_________________________________________________________________
$ 0- $ 20,000 $ 0- $ 20,000 15.0 1.400 16.2
20,001- 40,100 20,001- 24,000 15.0 1.750 16.5
40,101- 50,000 24,001- 35,000 28.0 1.750 29.3
50,001- 70,000 28.0 2.450 29.8
70,001- 80,000 35,001- 40,000 28.0 3.500 30.5
80,001- 96,900 40,001- 58,150 28.0 5.525 32.0
96,901- 147,700 58,151- 75,000 31.0 5.525 34.8
75,001- 121,300 31.0 6.370 35.4
147,701- 150,000 36.0 5.525 39.5
150,001- 263,750 121,301- 263,750 36.0 6.370 40.1
263,751 and above 263,751 and above 39.6 6.370 43.4
_________________________________________________________________
A Tax-Exempt Yield Of:
3% 4% 5% 6% 7% 8% 9% 10%
Is Equivalent to a Taxable Yield of:
_________________________________________________________________
3.58 4.77 5.97 7.16 8.35 9.55 10.74 11.93
3.59 4.79 5.99 7.19 8.38 9.58 10.78 11.98
4.24 5.66 7.07 8.49 9.90 11.32 12.73 14.14
4.27 5.70 7.12 8.55 9.97 11.40 12.82 14.25
4.32 5.76 7.19 8.63 10.07 11.51 12.95 14.39
4.41 5.88 7.35 8.82 10.29 11.76 13.24 14.71
4.60 6.13 7.67 9.20 10.74 12.27 13.80 15.34
4.64 6.19 7.74 9.29 10.84 12.38 13.93 15.48
4.96 6.61 8.26 9.92 11.57 13.22 14.88 16.53
5.01 6.68 8.35 10.02 11.69 13.36 15.03 16.69
5.30 7.07 8.83 10.60 12.37 14.13 15.90 17.67
_________________________________________________________________
(a) Net amount subject to federal income tax after deductions
and exemptions.
(b) Combined marginal rate assumes the deduction of state income
taxes on the federal return.
(c) Marginal rates may vary depending on family size and nature
and amount of itemized deductions.
PAGE 100
Virginia Funds
_________________________________________________________________
Your Taxable Income (1996)(a) Marginal Tax Rates
Joint Return Single Return Federal(c) State Comb-
ined
Margin-
al(b)
_________________________________________________________________
$ 40,101- $ 94,900 $ 24,001- $ 58,150 28.0 5.75 32.1
96,901- 147,700 58,151- 121,300 31.0 5.75 35.0
147,701- 263,750 121,301- 263,750 36.0 5.75 39.7
263,751 and above 263,751 and above 39.6 5.75 43.1
_________________________________________________________________
A Tax-Exempt Yield Of:
3% 4% 5% 6% 7% 8% 9% 10%
Is Equivalent to a Taxable Yield of:
_________________________________________________________________
4.42 5.89 7.36 8.84 10.31 11.78 13.2514.73
4.62 6.15 7.69 9.23 10.77 12.31 13.85 15.38
4.98 6.63 8.29 9.95 11.61 13.27 14.93 16.58
5.27 7.03 8.79 10.54 12.30 14.06 15.82 17.57
_________________________________________________________________
(a) Net amount subject to federal income tax after deductions
and exemptions.
(b) Combined marginal rate assumes the deduction of state income
taxes on the federal return.
(c) Marginal rates may vary depending on family size and nature
and amount of itemized deductions.
Georgia Tax-Free Bond Fund
_________________________________________________________________
Your Taxable Income (1996)(a) Marginal Tax Rates
Joint Return Single Return Federal(c) State Comb-
ined
Margin-
al(b)
_________________________________________________________________
$ 40,101-$ 96,900 $ 24,001-$ 58,150 28.0 6.00 32.3
96,901-147,700 58,151- 121,300 31.0 6.00 35.1
147,701-263,750 121,301- 263,750 36.0 6.00 39.8
263,751 and above 263,751 and above 39.6 6.00 43.2
_________________________________________________________________
PAGE 101
A Tax-Exempt Yield Of:
3% 4% 5% 6% 7% 8% 9% 10%
Is Equivalent to a Taxable Yield of:
_________________________________________________________________
4.43 5.91 7.39 8.86 10.34 11.82 13.29 14.77
4.62 6.16 7.70 9.24 10.79 12.33 13.87 15.41
4.98 6.64 8.31 9.97 11.63 13.29 14.95 16.61
5.28 7.04 8.80 10.56 12.32 14.08 15.85 17.61
_________________________________________________________________
(a) Net amount subject to federal income tax after deductions
and exemptions.
(b) Combined marginal rate assumes the deduction of state income
taxes on the federal return.
(c) Marginal rates may vary depending on family size and nature
and amount of itemized deductions.
Florida Fund
EFFECTIVE YIELD FACTORING IN INTANGIBLES TAX
_________________________________________________________________
Your Taxable Income (1996)(a)
Joint Return Single Return Federal Intangible
Tax Rate(c) Tax Rate
_________________________________________________________________
$ 40,101-$ 96,900 $ 24,001- $ 58,150
And Your Intangible Assets on 1/1/96 Total:
____________________________________________
40,000 or less 20,000 or less 28 N/A
40,001- 200,000 20,001- 100,000 28 0.1
200,001 and above 100,001 and above 28 0.2
_________________________________________________________________
$ 96,901-$147,700 $ 58,151- $121,300
And Your Intangible Assets on 1/1/96 Total:
____________________________________________
40,000 or less 20,000 or less 31 N/A
40,001- 200,000 20,001- 100,000 31 0.1
200,001 and above 100,001 and above 31 0.2
_________________________________________________________________
$147,701-$263,750 $121,301- $263,750
PAGE 102
And Your Intangible Assets on 1/1/96 Total:
____________________________________________
40,000 or less 20,000 or less 36 N/A
40,001- 200,000 20,001- 100,000 36 0.1
200,001 and above 100,001 and above 36 0.2
_________________________________________________________________
$253,751 and above+ $263,751 and above+
And Your Intangible Assets on 1/1/95 Total:
____________________________________________
40,000 or less 20,000 or less 39.6 N/A
40,001- 200,000 20,001- 100,000 39.6 0.1
200,001 and above 100,001 and above 39.6 0.2
_________________________________________________________________
A Tax-Exempt Yield Of (b):
3% 4% 5% 6% 7% 8% 9% 10% 11%
Is Equivalent to a Taxable Yield of:
_________________________________________________________________
4.17 5.56 6.94 8.33 9.72 11.11 12.50 13.89 15.28
4.27 5.66 7.04 8.43 9.82 11.21 12.60 13.99 15.38
4.37 5.76 7.14 8.53 9.92 11.31 12.70 14.09 15.48
_________________________________________________________________
4.35 5.80 7.25 8.70 10.14 11.59 13.04 14.49 15.94
4.45 5.90 7.35 8.80 10.24 11.69 13.14 14.59 16.04
4.55 6.00 7.45 8.90 10.34 11.79 13.24 14.69 16.14
_________________________________________________________________
4.69 6.25 7.81 9.38 10.94 12.50 14.06 15.63 17.19
4.79 6.35 7.91 9.48 11.04 12.60 14.16 15.73 17.29
4.89 6.45 8.01 9.58 11.14 12.70 14.26 15.83 17.39
________________________________________________________________
4.97 6.62 8.28 9.93 11.59 13.25 14.90 16.56 18.21
5.07 6.72 8.38 10.03 11.69 13.35 15.00 16.66 18.31
5.17 6.82 8.48 10.13 11.79 13.45 15.10 16.76 18.41
_________________________________________________________________
(a) Net amount subject to federal income tax after deductions
and exemptions.
(b) Assumes 100% exemption from federal income and Florida
intangible property taxes.
(c) Federal rates may vary depending on family size and nature
and amount of itemized deductions.
PAGE 103
INVESTMENT PERFORMANCE
Total Return Performance
Each Fund's calculation of total return performance includes
the reinvestment of all capital gain distributions and income
dividends for the period or periods indicated, without regard to
tax consequences to a shareholder in each Fund. Total return is
calculated as the percentage change between the beginning value
of a static account in each Fund and the ending value of that
account measured by the then current net asset value, including
all shares acquired through reinvestment of income and capital
gains dividends. The results shown are historical and should not
be considered indicative of the future performance of each Fund.
Each average annual compound rate of return is derived from the
cumulative performance of each Fund over the time period
specified. The annual compound rate of return for each Fund over
any other period of time will vary from the average.
Cumulative Performance Percentage Change
Since
Inception
1 Yr. 5 Yrs. Date
Inception Ended Ended through
Date 2/29/96 2/29/96 2/29/96
________ ________ ________ ________
New York Tax-Free Bond Fund 8/28/86 10.44%(a) 51.57% 96.91%(b)
California Tax-Free Bond Fund 9/15/86 10.28%(c) 48.64% 86.50%(d)
Maryland Tax-Free Bond Fund 3/31/87 10.00%(e) 46.71% 80.51%(f)
Maryland Short-Term Tax-Free
Bond Fund 1/29/93 6.49%(g) N/A 15.01%(h)
Virginia Tax-Free Bond Fund 4/30/91 10.69%(i) N/A 46.92%(j)
Virginia Short-Term Tax-Free
Bond Fund 11/30/94 6.43%(k) N/A 8.86%(l)
New Jersey Tax-Free Bond Fund 4/30/91 10.67%(m) N/A 48.09%(n)
Florida Insured Intermediate
Bond Fund 3/31/93 9.41%(o) N/A 20.41%(p)
Georgia Tax-Free Bond Fund 3/31/93 10.62%(q) N/A 21.67%(r)
PAGE 104
Average Annual Compound Rates of Return
Since
Inception
1 Yr. 5 Yrs. Date
Inception Ended Ended through
Date 2/29/96 2/29/96 2/29/96
________ ________ ________ ________
New York Tax-Free Bond Fund 8/28/86 10.44%(a) 8.67% 7.39%(b)
California Tax-Free Bond Fund 9/15/86 10.28%(c) 8.25% 6.82%(d)
Maryland Tax-Free Bond Fund 3/31/87 10.00%(e) 7.97% 6.85%(f)
Maryland Short-Term Tax-Free
Bond Fund 1/29/93 6.49%(g) N/A 4.64%(h)
Virginia Tax-Free Bond Fund 4/30/91 10.69%(i) N/A 8.29%(j)
Virginia Short-Term Tax-Free
Bond Fund 11/30/94 6.43%(k) N/A 7.05%(l)
New Jersey Tax-Free Bond Fund 4/30/91 10.67%(m) N/A 8.46%(n)
Florida Insured Intermediate
Bond Fund 3/31/93 9.41%(o) N/A 6.58%(p)
Georgia Tax-Free Bond Fund 3/31/93 10.62%(q) N/A 6.96%(r)
(a) If you invested $1,000 on 2/28/95, the total return of the
New York Bond Fund on 2/29/96 would be $1,104.40 ($1,000 x
1.1044).
(b) Assumes purchase of one share of the New York Bond Fund at
the inception price of $10.00 on 8/28/86.
(c) If you invested $1,000 on 2/28/95, the total return of the
California Bond Fund on 2/29/96 would be $1,102.80 ($1,000 x
1.1028).
(d) Assumes purchase of one share of the California Bond Fund at
the inception price of $10.00 on 9/11/86.
(e) If you invested $1,000 on 2/28/95, the total return of the
Maryland Bond Fund on 2/29/96 would be $1,100.00 ($1,000 x
1.1000).
(f) Assumes purchase of one share of the Maryland Bond Fund at
the inception price of $10.00 on 3/31/87.
(g) If you invested $1,000 at the 2/28/95, the total return of
the Maryland Short-Term Fund on 2/29/96 would be $1,064.90
($1,000 x 1.0649).
(h) Assumes purchase of one share of the Maryland Short-Term
Fund at the inception price of $5.00 on 1/29/93.
(i) If you invested $1,000 on 2/28/95, the total return of the
Virginia Bond Fund on 2/29/96 would be $1,106.90 ($1,000 x
1.1069).
(j) Assumes purchase of one share of the Virginia Bond Fund at
the inception price of $10.00 on 4/30/91.
PAGE 105
(k) If you invested $1,000 on 2/28/95, the total return of the
Virginia Short-Term Fund on 2/29/96 would be $1,064.30
($1,000 x 1.0643).
(l) Assumes purchase of one share of the Virginia Short-Term
Fund at the inception price of $5.00 on 11/30/94.
(m) If you invested $1,000 on 2/28/95, the total return of the
New Jersey Bond Fund on 2/29/96 would be $1,106.70 ($1,000 x
1.1067).
(n) Assumes purchase of one share of the New Jersey Bond Fund at
the inception price of $10.00 on 4/30/91.
(o) If you invested $1,000 on 2/28/95, the total return of the
Florida Insured Fund on 2/29/96 would be $1,094.10 ($1,000 x
1.0941).
(p) Assumes purchase of one share of the Florida Insured Fund at
the inception price of $10.00 on 3/31/93.
(q) If you invested $1,000 on 2/28/95, the total return of the
Georgia Bond Fund on 2/29/96 would be $1,106.20 ($1,000 x
1.1062).
(r) Assumes purchase of one share of the Georgia Bond Fund at
the inception price of $10.00 on 3/31/93.
Outside Sources of Information
From time to time, in reports and promotional literature,
each Fund's performance will be compared to any one or
combination of the following: (1) indices of broad groups of
managed and unmanaged securities considered to be representative
of or similar to Fund portfolio holdings, (2) other mutual funds,
or (3) other measures of performance set forth in publications
such as:
Bond Buyer 20 - an estimation of the yield which would be offered
on 20-year general obligation bonds with a composite rating of
approximately "A." Published weekly by The Bond Buyer, a trade
paper of the municipal securities industry;
Donoghue's Tax-Exempt Money Fund Avg. - an average of municipal
money market funds as reported in Donoghue's Money Fund Report,
which tracks the performance of all money market mutual funds;
Lipper Analytical Services, Inc. - a widely used independent
research firm which ranks mutual funds by overall performance,
investment objectives, and assets;
Lipper General Purpose Municipal Bond Avg. - an average of
municipal mutual funds which invest 60% or more of their assets
in the top four tax-exempt credit ratings;
PAGE 106
Lipper High-Yield Municipal Bond Avg. - an average of municipal
mutual funds which may utilize lower rated bonds for 50% of their
portfolio;
Lipper Intermediate Municipal Avg. - an average of municipal
mutual funds which restrict their holdings to bonds with
maturities between 5 and 10 years;
Lipper Short Municipal Debt Avg. - an average of municipal funds
that invest in municipal debt issues with dollar-weighted average
maturities of less than five years;
Lipper State Municipal Bond Funds Average - an average of
municipal mutual funds which limit at least 80% of their
investments to those securities which are exempt from taxation of
state and/or city income taxation;
Morningstar, Inc. - a widely used independent research firm which
rates mutual funds by overall performance, investment objectives,
and assets;
Prime General Obligations - bonds with maturities from 1-30 years
which are secured by the full faith and credit of issuers with
taxing power; and
Shearson Lehman/American Express Municipal Bond Index - a
composite measure of the total return performance of the
municipal bond market. Based upon approximately 1500 bonds.
New York and California Funds only
Donoghue's Tax-Exempt State Money Fund Average - an average of
municipal money market funds which concentrate their investments
in securities which are exempt from state and/or city income
taxes, as reported in Donoghue's Money Fund Report, which tracks
the performance of all money market mutual funds; and
Lipper State Short-Term Municipal Funds Average - an average of
municipal mutual funds concentrating their investments in
securities which are exempt from state and/or city income taxes.
This average is compiled from the Lipper Short-Term Municipal
Bond Funds average which restricts inclusion to those funds with
an average weighted maturity of no more than 90 days. Most funds
restrict their longest maturity to one year.
PAGE 107
Indices prepared by the research departments of such a
financial organizations as Merrill Lynch, Pierce, Fenner & Smith,
Inc., will be used, as well as information provided by the
Federal Reserve Board.
Information reported in the Bank Rate Monitor, an
independent publication which tracks the performance of certain
bank products, such as money market deposit accounts and
certificates of deposit, will also be used. Bank Certificates of
Deposit differ from mutual funds in several ways: the interest
rate established by the sponsoring bank is fixed for the term of
a CD; there are penalties for early withdrawal from CDs; and the
principal on a CD is insured.
Performance rankings and ratings reported periodically in
national financial publications such as MONEY, FORBES, BUSINESS
WEEK, and BARRON'S may also be used.
Other Features and Benefits
The Fund is a member of the T. Rowe Price Family of Funds
and may help investors achieve various long-term investment
goals, such as investing money for retirement, saving for a down
payment on a home, or paying college costs. To explain how the
Fund could be used to assist investors in planning for these
goals and to illustrate basic principles of investing, various
worksheets and guides prepared by T. Rowe Price Associates, Inc.
and/or T. Rowe Price Investment Services, Inc. may be made
available. These currently include: the Asset Mix Worksheet
which is designed to show shareholders how to reduce their
investment risk by developing a diversified investment plan; the
College Planning Guide which discusses various aspects of
financial planning to meet college expenses and assists parents
in projecting the costs of a college education for their
children; the Retirement Planning Kit (also available in a PC
version) includes a detailed workbook to determine how much money
you may need for retirement and suggests how you might invest to
achieve your objectives; and the Retirees Financial Guide which
includes a detailed workbook to determine how much money you can
afford to spend and still preserve your purchasing power and
suggests how you might invest to reach your goal; Tax
Considerations for Investors discusses the tax advantages of
annuities and municipal bonds and how to access whether they are
suitable for your portfolio, reviews pros and cons of placing
assets in a gift to minors account and summarizes the benefits
and types of tax-deferred retirement plans currently available;
the Personal Strategy Planner simplifies investment decision
PAGE 108
making by helping investors define personal financial goals,
established length of time the investor intends to invest,
determine risk "comfort zone" and select a diversified investment
mix; and the How to Choose a Bond Fund guide which discusses how
to choose an appropriate bond fund for your portfolio. From time
to time, other worksheets and guides may be made available as
well. Of course, an investment in the Fund cannot guarantee that
such goals will be met.
To assist investors in understanding the different returns
and risk characteristics of various investments, the
aforementioned guides will include presentation of historical
returns of various investments using published indices. An
example of this is shown below.
Historical Returns for Different Investments
Annualized returns for periods ended 12/31/95
50 years 20 years 10 years 5 years
Small-Company Stocks 13.8% 19.6% 11.9% 24.5%
Large-Company Stocks 11.9 14.6 14.8 16.6
Foreign Stocks N/A 15.1 13.9 9.7
Long-Term Corporate Bonds 5.7 10.5 11.2 12.1
Intermediate-Term U.S.
Gov't. Bonds 5.9 9.7 9.1 8.8
Treasury Bills 4.8 7.3 5.5 4.3
U.S. Inflation 4.4 5.2 3.5 2.8
Sources: Ibbotson Associates, Morgan Stanley. Foreign stocks
reflect performance of The Morgan Stanley Capital International
EAFE Index, which includes some 1,000 companies representing the
stock markets of Europe, Australia, New Zealand, and the Far
East. This chart is for illustrative purposes only and should
not be considered as performance for, or the annualized return
of, any T. Rowe Price Fund. Past performance does not guarantee
future results.
Also included will be various portfolios demonstrating how
these historical indices would have performed in various
PAGE 109
combinations over a specified time period in terms of return. An
example of this is shown below.
Performance of Retirement Portfolios*
Asset Mix Average Annualized Value
Returns 20 Years of
Ended 12/31/95 $10,000
Investment
After Period
________________ __________________ ____________
Nominal Real BestWorst
Portfolio Growth IncomeSafety ReturnReturn** YearYear
I. Low
Risk 40% 40% 20% 11.8% 6.5% 24.9% 0.1% $ 92,675
II. Moderate
Risk 60% 30% 10% 13.1% 7.9% 29.1% -1.8%$116,826
III. High
Risk 80% 20% 0% 14.3% 9.1% 33.4% -5.2%$145,611
Source: T. Rowe Price Associates; data supplied by Lehman
Brothers, Wilshire Associates and Ibbotson Associates.
* Based on actual performance for the 20 years ended 1995 of
stocks (85% Wilshire 5000 and 15% Europe, Australia, Far
East [EAFE] Index), bonds (Lehman Brothers Aggregate Bond
Index from 1976-95 and 30-day Treasury bills from January
1976 through December 1995). Past performance does not
guarantee future results. Figures include changes in
principal value and reinvested dividends and assume the same
asset mix is maintained each year. This exhibit is for
illustrative purposes only and is not representative of the
performance of any T. Rowe Price fund.
** Based on inflation rate of 5.2% for the 20-year period ended
12/31/95.
Insights
From time to time, Insights, a T. Rowe Price publication of
reports on specific investment topics and strategies, may be
included in each Fund's fulfillment kit. Such reports may
include information concerning: calculating taxable gains and
PAGE 110
losses on mutual fund transactions, coping with stock market
volatility, benefiting from dollar cost averaging, understanding
international markets, investing in high-yield "junk" bonds,
growth stock investing, conservative stock investing, value
investing, investing in small companies, tax-free investing,
fixed income investing, investing in mortgage-backed securities,
as well as other topics and strategies. Personal Strategy Planner
simplifies investment decision making by helping investors define
personal financial goals, establish length of time the investor
intends to invest, determine risk "comfort zone" and select
diversified investment mix.
Other Publications
From time to time, in newsletters and other publications
issued by T. Rowe Price Investment Services, Inc., reference may
be made to economic, financial and political developments in the
U.S. and abroad and their effect on securities prices. Such
discussions may take the form of commentary on these developments
by T. Rowe Price mutual fund portfolio managers and their views
and analysis on how such developments could affect investments in
mutual funds.
No-Load Versus Load and 12b-1 Funds
Unlike the T. Rowe Price funds, many mutual funds charge
sales fees to investors or use fund assets to finance
distribution activities. These fees are in addition to the
normal advisory fees and expenses charged by all mutual funds.
There are several types of fees charged which vary in magnitude
and which may often be used in combination. A sales charge (or
"load") can be charged at the time the fund is purchased
(front-end load) or at the time of redemption (back-end load).
Front-end loads are charged on the total amount invested.
Back-end loads or "redemption fees" are charged either on the
amount originally invested or on the amount redeemed. 12b-1
plans allow for the payment of marketing and sales expenses from
fund assets. These expenses are usually computed daily as a
fixed percentage of assets.
The Funds are no-load funds which impose no sales charges or
12b-1 fees. No-load funds are generally sold directly to the
public without the use of commissioned sales representatives.
This means that 100% of your purchase is invested for you.
PAGE 111
Redemptions in Kind
In the unlikely event a shareholder were to receive an in
kind redemption of portfolio securities of the Funds, brokerage
fees could be incurred by the shareholder in a subsequent sale of
such securities.
Issuance of Fund Shares for Securities
Transactions involving issuance of Fund shares for
securities or assets other than cash will be limited to (1) bona
fide reorganizations; (2) statutory mergers; or (3) other
acquisitions of portfolio securities that: (a) meet the
investment objective and policies of a Fund; (b) are acquired for
investment and not for resale except in accordance with
applicable law; (c) have a value that is readily ascertainable
via listing on or trading in a recognized United States or
international exchange or market; and (d) are not illiquid.
ORGANIZATION OF THE TRUSTS
For tax and business reasons, the Trusts were organized in
1986 as Massachusetts Business Trusts. The State Tax-Free Income
Trust and California Tax-Free Income Trust are registered with
the Securities and Exchange Commission under the Investment
Company Act of 1940 as, respectively, a non-diversified and
diversified, open-end investment company, commonly known as a
"mutual fund."
The Declaration of Trust permits the Board of Trustees to
issue an unlimited number of full and fractional shares of
beneficial interest of a single class without par value.
Currently, the State Tax-Free Income Trust consists of nine
series (i.e., the New York Tax-Free Bond Fund, the New York
Tax-Free Money Fund, the Maryland Tax-Free Bond Fund, the
Maryland Short-Term Tax-Free Bond Fund, the Virginia Tax-Free
Bond Fund, Virginia Short-Term Tax-Free Bond Fund the New Jersey
Tax-Free Bond Fund, the Georgia Tax-Free Bond Fund, and the
Florida Insured Intermediate Tax-Free Fund), and the California
Tax-Free Income Trust consists of two series (i.e., the Bond Fund
and the Money Fund) each of which represents a separate class of
each Trust's shares and has different objectives and investment
policies. The Declaration of Trust also provides that the Board
of Trustees may issue additional series of shares. Each share of
each Fund represents an equal proportionate beneficial interest
in that Fund, with each other share, and is entitled to such
PAGE 112
dividends and distributions of income belonging to that fund as
are declared by the Trustees. In the event of the liquidation of
a Fund, each share is entitled to a pro rata share of the net
assets of that Fund.
Shareholders of each Fund are entitled to one vote for each
full share held (and fractional votes for fractional shares held)
irrespective of the relative net asset values of the Funds' share
and will vote in the election of or removal of trustees (to the
extent hereinafter provided); however, on matters affecting an
individual Fund, a separate vote of that Fund is required.
Shareholders of a Fund are not entitled to vote on any matter
which does not affect that Fund and which requires a separate
vote of the other Funds. There will normally be no meetings of
shareholders for the purpose of electing trustees unless and
until such time as less than a majority of the trustees holding
office have been elected by shareholders, at which time the
trustees then in office will call a shareholders' meeting for the
election of trustees. Pursuant to Section 16(c) of the
Investment Company Act of 1940, holders of record of not less
than two-thirds of the outstanding shares may remove a trustee by
a vote cast in person or by proxy at a meeting called for that
purpose. Except as set forth above, the trustees shall continue
to hold office and may appoint successor trustees. Voting rights
are not cumulative, so that the holders of more than 50% of the
shares voting in the election of trustees can, if they choose to
do so, elect all the trustees of each Trust, in which event the
holders of the remaining shares will be unable to elect any
person as a trustee.
Shares have no preemptive or conversion rights; the right of
redemption and the privilege of exchange are described in the
prospectus. Shares are fully paid and nonassessable, except as
set forth below. The Trusts may be terminated (i) upon the sale
of its assets to another diversified, open-end management
investment company, if approved by the vote of the holders of
two-thirds of the outstanding shares of each Trust, or (ii) upon
liquidation and distribution of the assets of each Trust, if
approved by the vote of the holders of a majority of the
outstanding shares of each Trust. If not so terminated, each
Trust will continue indefinitely. Under Massachusetts law,
shareholders could, under certain circumstances, be held
personally liable for the obligations of each Trust. However,
the Declarations of Trust disclaims shareholder liability for
acts or obligations of the Trusts and requires that notice of
such disclaimer be given in each agreement, obligation or
instrument entered into or executed by the Trusts or a Trustee.
PAGE 113
The Declarations of Trust provides for indemnification from Trust
property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trusts. Thus, the
risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which each
Trust itself would be unable to meet its obligations, a
possibility which Price Associates believes is remote. Upon
payment of any liability incurred by a Fund, the shareholders of
the Fund paying such liability will be entitled to reimbursement
from the general assets of the Fund. The Trustees intend to
conduct the operations of each Fund in such a way so as to avoid,
as far as possible, ultimate liability of the shareholders for
liabilities of such Fund.
FEDERAL AND STATE REGISTRATION OF SHARES
Each Fund's shares are registered for sale under the
Securities Act of 1933 and each Fund or their shares are
registered under the laws of all states which require
registration, as well as the District of Columbia and Puerto
Rico.
LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP whose address is
919 Third Avenue, New York, New York 10022, is legal counsel to
the Funds.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., 217 East Redwood Street,
Baltimore, Maryland 21202, are independent accountants to the
Trusts. The financial statements of the New York, California,
Maryland, Virginia Tax-Free Bond, New Jersey, Florida, and
Georgia Funds for the fiscal year ended February 29, 1996 and the
report of independent accountants, are included in each Fund's
Annual Report for the fiscal year ended February 29, 1996 on
pages 7-19, 7-19, 7-23, 7-19, 5-13, 5-12, and 4-11, respectively.
A copy of the Annual Report accompanies this Statement of
Additional Information. The following financial statements and
the report of independent accountants appearing in each Annual
Report for the fiscal year ended February 29, 1996 are
incorporated into this Statement of Additional Information by
reference:
PAGE 114
NEW YORK
FUNDS' ANNUAL
REPORT PAGE
____________
Report of Independent Accountants 19
Statement of Net Assets, February 29, 1996 7-12
Statement of Operations, year ended
February 29, 1996 13
Statement of Changes in Net Assets, years ended
February 29, 1996 and February 28, 1995 14
Notes to Financial Statements, February 29, 1996 15-16
Financial Highlights 17-18
CALIFORNIA
FUNDS' ANNUAL
REPORT PAGE
_____________
Report of Independent Accountants 19
Statement of Net Assets, February 29, 1996 7-12
Statement of Operations, year ended
February 29, 1996 13
Statement of Changes in Net Assets, years ended
February 29, 1996 and February 28, 1995 14
Notes to Financial Statements, February 29, 1996 15-16
Financial Highlights 17-18
MARYLAND
FUND'S ANNUAL
REPORT PAGE
______________
Report of Independent Accountants 23
Statement of Net Assets, February 29, 1996 7-16
Statement of Operations, year ended
February 29, 1996 17
Statement of Changes in Net Assets, years ended
February 29, 1996 and February 28, 1995 18
Notes to Financial Statements, February 29, 1996 19-20
Financial Highlights 21-22
PAGE 115
VIRGINIA
FUND'S ANNUAL
REPORT PAGE
_____________
Report of Independent Accountants 19
Statement of Net Assets, February 29, 1996 7-12
Statement of Operations, year ended
February 29, 1996 13
Statement of Changes in Net Assets, year ended
February 29, 1996 and period ended
February 28, 1995 14
Notes to Financial Statements, February 29, 1996 15-16
Financial Highlights 17-18
NEW JERSEY
FUND'S ANNUAL
REPORT PAGE
___________
Report of Independent Accountants 13
Statement of Net Assets, February 29, 1996 5-7
Statement of Operations, year ended
February 29, 1996 8
Statement of Changes in Net Assets, years ended
February 29, 1996 and February 28, 1995 9
Notes to Financial Statements, February 29, 1996 10-11
Financial Highlights 12
FLORIDA
FUND'S ANNUAL
REPORT PAGE
_____________
Report of Independent Accountants 12
Statement of Net Assets, February 29, 1996 5-6
Statement of Operations, year ended
February 29, 1996 7
Statement of Changes in Net Assets, years ended
February 29, 1996 and February 28, 1995 8
Notes to Financial Statements, February 29, 1996 9-10
Financial Highlights 11
PAGE 116
GEORGIA
FUND'S ANNUAL
REPORT PAGE
___________
Report of Independent Accountants 11
Statement of Net Assets, February 29, 1996 4-5
Statement of Operations, year ended
February 29, 1996 6
Statement of Changes in Net Assets, years
ended February 29, 1996 and February 28, 1995 7
Notes to Financial Statements, February 29, 1996 8-9
Financial Highlights 10
PAGE 22
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements.
Condensed Financial Information (Financial Highlights table)
is included in Part A of the Registration Statement.
Statement of Net Assets, Portfolio of Investments, Statement
of Assets and Liabilities, Statement of Operations, and
Statement of Changes in Net Assets are included in the
Annual Report to Shareholders, the pertinent portions of
which are incorporated by reference in Part B of the
Registration Statement.
(b) Exhibits.
(1)(a) Declaration of Trust of Registrant, dated June 13,
1986 (filed with Amendment No. 1)
(1)(b) Amendment No. 1 to Master Trust Agreement, dated
August 1, 1986 (filed with Amendment No. 1)
(1)(c) Amendment No. 2 to Master Trust Agreement, dated
January 21, 1987 (filed with Amendment No. 2)
(1)(d) Amendment No. 3 to Master Trust Agreement, dated
February 13, 1991 (filed with Amendment No. 10)
(1)(e) Amendment No. 4 to Master Trust Agreement, dated
December 22, 1992 (filed with Amendment No. 16)
(1)(f) Amendment No. 5 to Master Trust Agreement, dated
January 28, 1993 (filed with Amendment No. 18)
(1)(g) Amendment No. 6 to Master Trust Agreement, dated
November 25, 1994 (electronically filed with
Amendment No. 25)
(2) By-Laws of Registrant, dated July 23, 1986, as
amended to January 21, 1987
(3) Inapplicable
(4)(a) Specimen Stock Certificate for Maryland Tax-Free
Bond Fund (filed with Amendment No. 4)
PAGE 23
(5)(a) Investment Management Agreement between the
Registrant on behalf of the Maryland Tax-Free Bond
Fund and T. Rowe Price Associates, Inc.
(electronically filed with Amendment No. 30)
(5)(b) Investment Management Agreement between the
Registrant on behalf of the New York Tax-Free Money
Fund and T. Rowe Price Associates, Inc.
(electronically filed with Amendment No. 30)
(5)(c) Investment Management Agreement between the
Registrant on behalf of the New York Tax-Free Bond
Fund and T. Rowe Price Associates, Inc.
(electronically filed with Amendment No. 30)
(5)(d) Investment Management Agreement between the
Registrant on behalf of the Virginia Tax-Free Bond
Fund and T. Rowe Price Associates, Inc. (filed with
Amendment No. 11)
(5)(e) Investment Management Agreement between the
Registrant on behalf of the New Jersey Tax-Free Bond
Fund and T. Rowe Price Associates, Inc. (filed with
Amendment No. 11)
(5)(f) Investment Management Agreement between the
Registrant on behalf of the Maryland Short-Term Tax-
Free Bond Fund and T. Rowe Price Associates, Inc.
(filed with Amendment No. 17)
(5)(g) Investment Management Agreement between the
Registrant on behalf of the Georgia Tax-Free Bond
Fund and T. Rowe Price Associates, Inc. (filed with
Amendment No. 19)
(5)(h) Investment Management Agreement between the
Registrant on behalf of the Florida Insured
Intermediate Tax-Free Fund and T. Rowe Price
Associates, Inc. (filed with Amendment No. 19)
(5)(i) Investment Management Agreement between the
Registrant on behalf of the Virginia Short-Term Tax-
Free Bond Fund and T. Rowe Price Associates
(electronically filed with Amendment No. 25)
(6) Underwriting Agreement between Registrant and T.
Rowe Price Investment Services, Inc. (electronically
filed with Amendment No. 30)
(7) Inapplicable
PAGE 24
(8) Custodian Agreement between T. Rowe Price Funds and
State Street Bank and Trust Company, dated September
28, 1987, as amended to June 24, 1988, October 19,
1988, February 22, 1989, July 19, 1989, September
15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990,
July 18, 1990, October 15, 1990, February 13, 1991,
March 6, 1991, September 12, 1991, November 6, 1991,
April 23, 1992, September 2, 1992, November 3, 1992,
December 16, 1992, December 21, 1992, January 28,
1993, April 22, 1993, September 16, 1993, November
3, 1993, March 1, 1994, April 21, 1994, July 27,
1994, September 21, 1994, November 1, 1994, November
2, 1994, January 25, 1995, September 20, 1995,
November 1, 1995, December 11, 1995, and April 24,
1996
(9)(a) Transfer Agency and Service Agreement between T.
Rowe Price Services, Inc. and T. Rowe Price Funds,
dated January 1, 1996, as amended April 24, 1996
(9)(b) Agreement between T. Rowe Price Associates, Inc. and
T. Rowe Price Funds for Fund Accounting Services,
dated January 1, 1996, as amended April 24, 1996
(10) Opinion of Counsel, dated June 17, 1996
(11) Consent of Independent Accountants
(12) Inapplicable
(13) Inapplicable
(14) Inapplicable
(15) Inapplicable
(16) The Registrant hereby incorporates by reference the
methodology used in calculating the performance
information included in Post-Effective Amendment No.
36 and Amendment No. 20 of the T. Rowe Price Tax-
Free Income Fund, Inc. (SEC File Nos. 2-57265 and
811-2684 and CIK 202927) dated April 22, 1994
(17) Financial Data Schedules for New York Tax-Free Money
Fund, New York Tax-Free Bond Fund, Maryland Tax-Free
Bond Fund, Virginia Tax-Free Bond Fund, New Jersey
Tax-Free Bond Fund, Maryland Short-Term Tax-Free
Bond Fund, Florida Insured Intermediate Tax-Free
Fund, Georgia Tax-Free Bond Fund, and Virginia
PAGE 25
Short-Term Tax-Free Bond Fund, as of February 29,
1996.
(18) Inapplicable
(19) Power of Attorney for T. Rowe Price State Tax-Free
Income Trust
Item 25. Persons Controlled by or Under Common Control With
Registrant.
None.
Item 26. Number of Holders of Securities.
As of May 31, 1996, there were 2,261 shareholders in the New
York Tax-Free Money Fund.
As of May 31, 1996, there were 4,164 shareholders in the New
York Tax-Free Bond Fund.
As of May 31, 1996, there were 2,784 shareholders in the New
Jersey Tax-Free Bond Fund.
As of May 31, 1996, there were 6,609 shareholders in the
Virginia Tax-Free Bond Fund.
As of May 31, 1996, there were 515 shareholders in the
Virginia Short-Term Tax-Free Bond Fund.
As of May 31, 1996, there were 20,168 shareholders in the
Maryland Tax-Free Bond Fund.
As of May 31, 1996, there were 2,904 shareholders in the
Maryland Short-Term Tax-Free Bond Fund.
As of May 31, 1996, there were 1,501 shareholders in the
Georgia Tax-Free Bond Fund.
As of May 31, 1996, there were 1,702 shareholders in the
Florida Insured Intermediate Tax-Free Fund.
Item 27. Indemnification.
The Registrant maintains comprehensive Errors and Omissions
and Officers and Directors insurance policies written by the
Evanston Insurance Company, The Chubb Group and ICI Mutual.
These policies provide coverage for the named insureds, which
include T. Rowe Price Associates, Inc. ("Manager"), Rowe
PAGE 26
Price-Fleming International, Inc. ("Price-Fleming"), T. Rowe
Price Investment Services, Inc., T. Rowe Price Services, Inc., T.
Rowe Price Trust Company, T. Rowe Price Stable Asset Management,
Inc., RPF International Bond Fund and forty-one other investment
companies, namely, T. Rowe Price Growth Stock Fund, Inc., T. Rowe
Price New Horizons Fund, Inc., T. Rowe Price New Era Fund, Inc.,
T. Rowe Price New Income Fund, Inc., T. Rowe Price Prime Reserve
Fund, Inc., T. Rowe Price Tax-Free Income Fund, Inc., T. Rowe
Price Tax-Exempt Money Fund, Inc., T. Rowe Price International
Funds, Inc., T. Rowe Price Growth & Income Fund, Inc., T. Rowe
Price Tax-Free Short-Intermediate Fund, Inc., T. Rowe Price
Short-Term Bond Fund, Inc., T. Rowe Price High Yield Fund, Inc.,
T. Rowe Price Tax-Free High Yield Fund, Inc., T. Rowe Price New
America Growth Fund, T. Rowe Price Equity Income Fund, T. Rowe
Price GNMA Fund, T. Rowe Price Capital Appreciation Fund, T. Rowe
Price State Tax-Free Income Trust, T. Rowe Price Science &
Technology Fund, Inc., T. Rowe Price Small-Cap Value Fund, Inc.,
Institutional International Funds, Inc., T. Rowe Price U.S.
Treasury Funds, Inc., T. Rowe Price Index Trust, Inc., T. Rowe
Price Spectrum Fund, Inc., T. Rowe Price Balanced Fund, Inc., T.
Rowe Price Short-Term U.S. Government Fund, Inc., T. Rowe Price
Mid-Cap Growth Fund, Inc., T. Rowe Price OTC Fund, Inc., T. Rowe
Price Tax-Free Insured Intermediate Bond Fund, Inc., T. Rowe
Price Dividend Growth Fund, Inc., T. Rowe Price Blue Chip Growth
Fund, Inc., T. Rowe Price Summit Funds, Inc., T. Rowe Price
Summit Municipal Funds, Inc., T. Rowe Price Equity Series, Inc.,
T. Rowe Price International Series, Inc., T. Rowe Price Fixed
Income Series, Inc., T. Rowe Price Personal Strategy Funds, Inc.,
T. Rowe Price Value Fund, Inc., T. Rowe Price Capital Opportunity
Fund, Inc., T. Rowe Price Corporate Income Fund, Inc., and T.
Rowe Price Health Sciences Fund, Inc. The Registrant and the
forty-one investment companies listed above, with the exception
of Institutional International Funds, Inc., will be collectively
referred to as the Price Funds. The investment manager for the
Price Funds, excluding T. Rowe Price International Funds, Inc.
and T. Rowe Price International Series, Inc., is the Manager.
Price-Fleming is the manager to T. Rowe Price International
Funds, Inc., T. Rowe Price International Series, Inc. and
Institutional International Funds, Inc. and is 50% owned by TRP
Finance, Inc., a wholly-owned subsidiary of the Manager, 25%
owned by Copthall Overseas Limited, a wholly-owned subsidiary of
Robert Fleming Holdings Limited, and 25% owned by Jardine Fleming
International Holdings Limited. In addition to the corporate
insureds, the policies also cover the officers, directors, and
employees of each of the named insureds. The premium is
allocated among the named corporate insureds in accordance with
the provisions of Rule 17d-1(d)(7) under the Investment Company
Act of 1940.
PAGE 27
Article VI, Section 6.4 of the Registrant's Master Trust
Agreement provides as follows:
Section 6.4. Indemnification of Trustees, Officers,
etc. The Trust shall indemnify (from the assets of the Sub-
Trust or Sub-Trusts in question) each of its Trustees and
officers (including persons who serve at the Trust's request
as directors, officers or trustees of another organization
in which the Trust has any interest as a shareholder,
creditor or otherwise [ hereinafter referred to as a
"Covered Person" ]) against all liabilities, including but
not limited to amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and expenses,
including reasonable accountants' and counsel fees, incurred
by any Covered Person in connection with the defense or
disposition of any action, suit or other proceeding, whether
civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise or with which
such person may be or may have been threatened, while in
office or thereafter, by reason of being or having been such
a Trustee or officer, director or trustee, except with
respect to any matter as to which it has been determined
that such Covered Person (i) did not act in good faith in
the reasonable belief that such Covered Person's action was
in or not opposed to the best interests of the Trust or (ii)
had acted with wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in
the conduct of such Covered Person's office (either and both
of the conduct described in (i) and (ii) being referred to
hereafter as "Disabling Conduct"). A determination that the
Covered Person is entitled to indemnification may be made by
(i) a final decision on the merits by a court or other body
before whom the proceeding was brought that the person to be
indemnified was not liable by reason of Disabling Conduct,
(ii) dismissal of a court action or an administrative
proceeding against a Covered Person for insufficiency of
evidence of Disabling Conduct, or (iii) a reasonable
determination, based upon a review of the facts, that the
indemnitee was not liable by reason of Disabling Conduct by
(a) a vote of a majority of a quorum of Trustees who are
neither "interested persons" of the Trust as defined in
section 2(a)(19) of the 1940 Act nor parties to the
proceeding, or (b) an independent legal counsel in a written
opinion. Expenses, including accountants' and counsel fees
so incurred by any such Covered Person (but excluding
amounts paid in satisfaction of judgments, in compromise or
as fines or penalties), may be paid from time to time by the
Sub-Trust in question in advance of the final disposition of
any such action, suit or proceeding, provided that the
PAGE 28
Covered Person shall have undertaken to repay the amounts so
paid to the Sub-Trust in question if it is ultimately
determined that indemnification of such expenses is not
authorized under this Article VI and (i) the Covered Person
shall have provided security for such undertaking, (ii) the
Trust shall be insured against losses arising by reason of
any lawful advances, or (iii) a majority of a quorum of the
disinterested Trustees who are not a party to the
proceeding, or an independent legal counsel in a written
opinion, shall have determined, based on a review of readily
available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the Covered Person
ultimately will be found entitled to indemnification.
Section 6.6 of the Registrant's Master Trust Agreement
provides as follows:
Section 6.6 Indemnification Not Exclusive, etc. The
right of indemnification provided by this Article VI shall
not be exclusive of or affect any other rights to which any
such Covered Person may be entitled. As used in this
Article VI, "Covered Person" shall include such person's
heirs, executors and administrators, an "interested Covered
Person" is one against whom the action, suit or other
proceeding in question or another action, suit or other
proceeding on the same or similar grounds is then or has
been pending or threatened, and a "disinterested" person is
a person against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on
the same or similar grounds is then or has been pending or
threatened. Nothing contained in this article shall affect
any rights to indemnification to which personnel of the
Trust, other than Trustees and officers, and other persons
may be entitled by contract or otherwise under law, nor the
power of the Trust to purchase and maintain liability
insurance on behalf of any such person.
Article III, Section 3.2(l) of the Registrant's Master Trust
Agreement provides as follows:
Section 3.2(l) Insurance. To purchase and pay for
entirely out of Trust property such insurance as they may
deem necessary or appropriate for the conduct of the
business, including, without limitation, insurance policies
insuring the assets of the Trust and payment of
distributions and principal on its portfolio investments,
and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, consultants, investment
advisers, managers, administrators, distributors, principal
PAGE 29
underwriters, or independent contractors, or any thereof (or
any person connected therewith), of the Trust individually
against all claims and liabilities of every nature arising
by reason of holding, being or having held any such office
or position, or by reason of any action alleged to have been
taken or omitted by any such person in any such capacity,
including any action taken or omitted that may be determined
to constitute negligence, whether or not the Trust would
have the power to indemnify such person against such
liability.
Insofar as indemnification for liability under the
Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant
to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
Item 28. Business and Other Connections of Investment Manager.
Rowe Price-Fleming International, Inc. ("Price-Fleming"), a
Maryland corporation, is a corporate joint venture 50% owned by
TRP Finance, Inc., a wholly-owned subsidiary of the Manager.
Price-Fleming was organized in 1979 to provide investment counsel
service with respect to foreign securities for institutional
investors in the United States. In addition to managing private
counsel client accounts, Price-Fleming also sponsors registered
investment companies which invest in foreign securities, serves
as general partner of RPFI International Partners, Limited
Partnership, and provides investment advice to the T. Rowe Price
Trust Company, trustee of the International Common Trust Fund.
T. Rowe Price Investment Services, Inc. ("Investment Services"),
a wholly-owned subsidiary of the Manager, is a Maryland
corporation organized in 1980 for the purpose of acting as the
principal underwriter and distributor for the Price Funds.
PAGE 30
Investment Services is registered as a broker-dealer under the
Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. In 1984, Investment
Services expanded its activities to include a discount brokerage
service.
TRP Distribution, Inc., a wholly-owned subsidiary of Investment
Services, is a Maryland corporation organized in 1991. It was
organized for and engages in the sale of certain investment
related products prepared by Investment Services.
T. Rowe Price Associates Foundation, Inc., was organized in 1981
for the purpose of making charitable contributions to religious,
charitable, scientific, literary and educational organizations.
The Foundation (which is not a subsidiary of the Manager) is
funded solely by contributions from the Manager and income from
investments.
T. Rowe Price Services, Inc. ("Price Services"), a wholly-owned
subsidiary of the Manager, is a Maryland corporation organized in
1982 and is registered as a transfer agent under the Securities
Exchange Act of 1934. Price Services provides transfer agent,
dividend disbursing, and certain other services, including
shareholder services, to the Price Funds.
T. Rowe Price Retirement Plan Services, Inc. ("RPS"), a
wholly-owned subsidiary of the Manager, was incorporated in
Maryland in 1991 and is registered as a transfer agent under the
Securities Exchange Act of 1934. RPS provides administrative,
recordkeeping, and subaccounting services to administrators of
employee benefit plans.
T. Rowe Price Trust Company ("Trust Company"), a wholly-owned
subsidiary of the Manager, is a Maryland-chartered limited
purpose trust company, organized in 1983 for the purpose of
providing fiduciary services. The Trust Company serves as
trustee/custodian for employee benefit plans, individual
retirement accounts and common trust funds and as
trustee/investment agent for two trusts.
T. Rowe Price Threshold Fund Associates, Inc., a wholly-owned
subsidiary of the Manager, is a Maryland corporation organized in
1994 and serves as the general partner of T. Rowe Price Threshold
Fund III, L.P., a Delaware limited partnership established in
1994.
T. Rowe Price Threshold Fund II, L.P., a Delaware limited
partnership, was organized in 1986 by the Manager, and invests in
private financings of small companies with high growth potential;
the Manager is the General Partner of the partnership.
PAGE 31
T. Rowe Price Threshold Fund III, L.P., a Delaware limited
partnership was organized in 1994 by the Manager, and invests in
private financings of small companies with high growth potential;
T. Rowe Price Threshold Fund Associates, Inc. is the General
Partner of this partnership.
RPFI International Partners, L.P., is a Delaware limited
partnership organized in 1985 for the purpose of investing in a
diversified group of small and medium-sized non-U.S. companies.
Price-Fleming is the general partner of this partnership, and
certain institutional investors, including advisory clients of
Price-Fleming, are its limited partners.
T. Rowe Price Real Estate Group, Inc. ("Real Estate Group"),
is a Maryland corporation and a wholly-owned subsidiary of the
Manager established in 1986 to provide real estate services.
Subsidiaries of Real Estate Group are: T. Rowe Price Realty
Income Fund I Management, Inc., a Maryland corporation (General
Partner of T. Rowe Price Realty Income Fund I, A No-Load Limited
Partnership), T. Rowe Price Realty Income Fund II Management,
Inc., a Maryland corporation (General Partner of T. Rowe Price
Realty Income Fund II, America's Sales-Commission-Free Real
Estate Limited Partnership), T. Rowe Price Realty Income Fund III
Management, Inc., a Maryland corporation (General Partner of T.
Rowe Price Realty Income Fund III, America's
Sales-Commission-Free Real Estate Limited Partnership, and T.
Rowe Price Realty Income Fund IV Management, Inc., a Maryland
corporation (General Partner of T. Rowe Price Realty Income Fund
IV, America's Sales-Commission-Free Real Estate Limited
Partnership). Real Estate Group serves as investment manager to
T. Rowe Price Renaissance Fund, Ltd., A Sales-Commission-Free
Real Estate Investment, established in 1989 as a Maryland
corporation which qualifies as a REIT.
T. Rowe Price Stable Asset Management, Inc. ("Stable Asset
Management") is a Maryland corporation organized in 1988 as a
wholly-owned subsidiary of the Manager. Stable Asset Management,
which is registered as an investment adviser under the Investment
Advisers Act of 1940, specializes in the management of investment
portfolios which seek stable and consistent investment returns
through the use of guaranteed investment contracts, bank
investment contracts, structured investment contracts, and
short-term fixed-income securities.
T. Rowe Price Recovery Fund Associates, Inc., a Maryland
corporation, is a wholly-owned subsidiary of the Manager
organized in 1988 for the purpose of serving as the General
Partner of T. Rowe Price Recovery Fund, L.P., a Delaware limited
partnership which invests in financially distressed companies.
PAGE 32
T. Rowe Price (Canada), Inc. ("TRP Canada") is a Maryland
corporation organized in 1988 as a wholly-owned subsidiary of the
Manager. This entity is registered as an investment adviser
under the Investment Advisers Act of 1940, and as a non-Canadian
Adviser under the Securities Act (Ontario). TRP Canada provides
certain services to the RPF International Bond Fund, a trust
(whose shares are sold in Canada), and Price-Fleming serves as
investment adviser to TRP Canada.
T. Rowe Price Insurance Agency, Inc., is a wholly-owned
subsidiary of T. Rowe Price Associates, Inc. organized in
Maryland in 1994 and licensed to do business in several states to
act primarily as an insurance agency in connection with the sale
of the Price Funds' variable annuity products.
TRP Management, Inc., is a Maryland corporation wholly-owned
by T. Rowe Price Associates, Inc. which was originally organized
in 1990 as T. Rowe Price Industrial Advantage Fund I Management,
Inc. In 1993, the name was changed to TRP Management, Inc. The
subsidiary, in conjunction with CUNA Mutual Insurance Society and
CUNA Service Group, Inc., established a Maryland limited
liability company known as CMC--T. Rowe Price Management LLC.
This company sponsored a family of no-load mutual funds available
to members of credit unions in the United States ("CUNA Funds").
The CUNA Funds received on order from the SEC which withdrew
their registration under the Investment Company Act of 1940.
Since 1983, the Manager has organized several distinct Maryland
limited partnerships, which are informally called the Pratt
Street Ventures partnerships, for the purpose of acquiring
interests in growth-oriented businesses.
Tower Venture, Inc., a wholly-owned subsidiary of the Manager, is
a Maryland corporation organized in 1989 for the purpose of
serving as a general partner of 100 East Pratt St., L.P., a
Maryland limited partnership whose limited partners also include
the Manager. The purpose of the partnership is to further
develop and improve the property at 100 East Pratt Street, the
site of the Manager's headquarters, through the construction of
additional office, retail and parking space.
TRP Suburban, Inc. is a Maryland corporation organized in 1990 as
a wholly-owned subsidiary of the Manager. TRP Suburban has
entered into agreements with McDonogh School and
CMANE-McDonogh-Rowe Limited Partnership to construct an office
building in Owings Mills, Maryland, which houses the Manager's
transfer agent, plan administrative services, retirement plan
services and operations support functions.
PAGE 33
TRP Suburban Second, Inc., a wholly-owned Maryland subsidiary
of T. Rowe Price Associates, Inc., was incorporated in 1995 to
primarily engage in the development and ownership of real
property located in Owings Mills, Maryland.
TRP Finance, Inc., a wholly-owned subsidiary of the Manager,
is a Delaware corporation organized in 1990 to manage certain
passive corporate investments and other intangible assets.
T. Rowe Price Strategic Partners Fund, L.P. is a Delaware
limited partnership organized in 1990 for the purpose of
investing in small public and private companies seeking capital
for expansion or undergoing a restructuring of ownership. The
general partner of the Fund is T. Rowe Price Strategic Partners,
L.P., ("Strategic Partners"), a Delaware limited partnership
whose general partner is T. Rowe Price Strategic Partners
Associates, Inc., a Maryland corporation which is a wholly-owned
subsidiary of the Manager. Strategic Partners also serves as the
general partner of T. Rowe Price Strategic Partners Fund II,
L.P., a Delaware limited partnership established in 1992.
Listed below are the directors of the Manager who have other
substantial businesses, professions, vocations, or employment
aside from that of Director of the Manager:
JAMES E. HALBKAT, JR., Director of the Manager. Mr. Halbkat is
President of U.S. Monitor Corporation, a provider of public
response systems. Mr. Halbkat's address is: P.O. Box 23109,
Hilton Head Island, South Carolina 29925.
RICHARD L. MENSCHEL, Director of the Manager. Mr. Menschel is
a limited partner of The Goldman Sachs Group, L.P. Mr.
Menschel's address is 85 Broad Street, 2nd Floor, New York, New
York 10004.
JOHN W. ROSENBLUM, Director of the Manager. Mr. Rosenblum is
the Tayloe Murphy Professor, The Darden Graduate School of
Business Administration, University of Virginia, and a director
of: Chesapeake Corporation, a manufacturer of paper products,
Cadmus Communications Corp., a provider of printing and
communication services; Comdial Corporation, a manufacturer of
telephone systems for businesses; and Cone Mills Corporation, a
textiles producer. Mr. Rosenblum's address is: P.O. Box 6550,
Charlottesville, Virginia 22906.
ROBERT L. STRICKLAND, Director of the Manager. Mr. Strickland is
Chairman of Lowe's Companies, Inc., a retailer of specialty home
supplies and a Director of Hannaford Bros., Co., a food retailer.
Mr. Strickland's address is 604 Two Piedmont Plaza Building,
Winston-Salem, North Carolina 27104.
PAGE 34
PHILIP C. WALSH, Director of the Manager. Mr. Walsh is a
Consultant to Cyprus Amax Minerals Company, Englewood, Colorado.
Mr. Walsh's address is: 200 East 66th Street, Apt. A-1005, New
York, New York 10021.
ANNE MARIE WHITTEMORE, Director of the Manager. Mrs.
Whittemore is a partner of the law firm of McGuire, Woods, Battle
& Boothe and is a director of Owens & Minor, Inc.; USF&G
Corporation; and the James River Corporation. Mrs. Whittemore's
address is One James Center, Richmond, Virginia 23219.
With the exception of Messrs. Halbkat, Menschel, Rosenblum,
Strickland, Walsh, and Mrs. Whittemore, all of the directors of
the Manager are employees of the Manager.
George J. Collins, who is Chief Executive Officer, President, and
a Managing Director of the Manager, is a Director of
Price-Fleming.
George A. Roche, who is Chief Financial Officer and a Managing
Director of the Manager, is a Vice President and a Director of
Price-Fleming.
Carter O. Hoffman, who is a Managing Director of the Manager,
is also a Director of TRP Finance, Inc.
M. David Testa, who is a Managing Director of the Manager, is
Chairman of the Board of Price-Fleming.
Henry H. Hopkins, Charles P. Smith, and Peter Van Dyke, who are
Managing Directors of the Manager, are Vice Presidents of
Price-Fleming.
George A. Murnaghan, Vice President of the Manager, Executive
Vice President of Price-Fleming.
Robert P. Campbell, Roger L. Fiery, III, Veena A. Kutler,
Heather R. Landon, Nancy M. Morris, Robert W. Smith, William F.
Wendler, II, and Edward A. Wiese, who are Vice Presidents of the
Manager, are Vice Presidents of Price-Fleming.
Michael J. Conelius, who is a Vice President of the Manager,
is a Vice President of Price-Fleming.
R. Aran Gordon, an employee of the Manager, is a Vice
President of Price-Fleming.
Kimberly A. Haker, an Assistant Vice President of the Manager,
is Assistant Vice President and Controller of Price-Fleming.
PAGE 35
Todd J. Henry, an employee of the Manager, is a Vice President
of Price-Fleming.
Kathleen G. Polk, an employee of the Manager, is a Vice
President of Price-Fleming.
Alvin M. Younger, Jr., who is a Managing Director and the
Secretary and Treasurer of the Manager, is Secretary and
Treasurer of Price-Fleming.
Nolan L. North, who is a Vice President and Assistant Treasurer
of the Manager, is Assistant Treasurer of Price-Fleming.
Leah P. Holmes, who is an Assistant Vice President of the
Manager, is a Vice President of Price-Fleming.
Barbara A. Van Horn, who is Assistant Secretary of the Manager,
is Assistant Secretary of Price-Fleming.
Certain directors and officers of the Manager are also officers
and/or directors of one or more of the Price Funds and/or one or
more of the affiliated entities listed herein.
See also "Management of Fund," in Registrant's Statement of
Additional Information.
Item 29. Principal Underwriters.
(a) The principal underwriter for the Registrant is
Investment Services. Investment Services acts as the principal
underwriter for the other seventy-one Price Funds. Investment
Services is a wholly-owned subsidiary of the Manager, is
registered as a broker-dealer under the Securities Exchange Act
of 1934 and is a member of the National Association of Securities
Dealers, Inc. Investment Services has been formed for the
limited purpose of distributing the shares of the Price Funds and
will not engage in the general securities business. Since the
Price Funds are sold on a no-load basis, Investment Services will
not receive any commissions or other compensation for acting as
principal underwriter.
(b) The address of each of the directors and officers of
Investment Services listed below is 100 East Pratt Street,
Baltimore, Maryland 21202.
PAGE 36
Positions and
Name and Principal Positions and Offices Offices With
Business Address With Underwriter Registrant
__________________ ______________________ ______________
James Sellers Riepe Chairman of the Board Vice President
and Trustee
Edward C. Bernard President None
Henry Holt Hopkins Vice President and Vice President
Director
Charles E. Vieth Vice President and None
Director
Mark E. Rayford Director None
Patricia M. Archer Vice President None
Joseph C. Bonasorte Vice President None
Darrell N. Braman Vice President None
Meredith C. Callanan Vice President None
Laura H. Chasney Vice President None
Victoria C. Collins Vice President None
Christopher W. Dyer Vice President None
Forrest R. Foss Vice President None
James W. Graves Vice President None
Andrea G. Griffin Vice President None
David J. Healy Vice President None
Joseph P. Healy Vice President None
Walter J. Helmlinger Vice President None
Eric G. Knauss Vice President None
Douglas G. Kremer Vice President None
Sharon Renae Krieger Vice President None
Keith Wayne Lewis Vice President None
James Link Vice President None
David L. Lyons Vice President None
Sarah McCafferty Vice President None
Maurice Albert Minerbi Vice President None
Nancy M. Morris Vice President None
George A. Murnaghan Vice President None
Steven Ellis Norwitz Vice President None
Kathleen M. O'Brien Vice President None
Pamela D. Preston Vice President None
Lucy Beth Robins Vice President None
John Richard Rockwell Vice President None
Kenneth J. Rutherford Vice President None
Monica R. Tucker Vice President None
William F. Wendler, II Vice President None
Jane F. White Vice President None
Thomas R. Woolley Vice President None
Alvin M. Younger, Jr. Secretary and None
Treasurer
Mark S. Finn Controller None
Richard J. Barna Assistant Vice President None
PAGE 37
Catherine L. Berkenkemper Assistant Vice President None
Ronae M. Brock Assistant Vice President None
Brenda E. Buhler Assistant Vice President None
Patricia S. Butcher Assistant Vice President Assistant
Secretary
Renee M. Christoff Assistant Vice President None
Cheryl L. Emory Assistant Vice President None
John A. Galateria Assistant Vice President None
Douglas E. Harrison Assistant Vice President None
Janelyn A. Healey Assistant Vice President None
Kathleen Hussey Assistant Vice President None
Keith J. Langrehr Assistant Vice President None
C. Lillian Matthews Assistant Vice President None
Janice D. McCrory Assistant Vice President None
Sandra J. McHenry Assistant Vice President None
Mark J. Mitchell Assistant Vice President None
JeanneMarie B. Patella Assistant Vice President None
Kristin E. Seeberger Assistant Vice President None
Arthur J. Silber Assistant Vice President None
Nolan L. North Assistant Treasurer None
Barbara A. VanHorn Assistant Secretary None
(c) Not applicable. Investment Services will not receive
any compensation with respect to its activities as underwriter
for the Price Funds since the Price Funds are sold on a no-load
basis.
Item 30. Location of Accounts and Records.
All accounts, books, and other documents required to be
maintained by T. Rowe Price State Tax-Free Income Trust
under Section 31(a) of the Investment Company Act of 1940
and the rules thereunder will be maintained by T. Rowe Price
State Tax-Free Income Trust at its offices at 100 East Pratt
Street, Baltimore, Maryland 21202. Transfer, dividend
disbursing, and shareholder service activities are performed
by T. Rowe Price Services, Inc. at 100 Each Pratt Street,
Baltimore, Maryland 21202. Custodian activities for T. Rowe
Price State Tax-Free Income Trust are performed at State
Street Bank and Trust Company's Service Center (State Street
South), 1776 Heritage Drive, Quincy, Massachusetts 02171.
Item 31. Management Services.
Registrant is not a party to any management-related service
contract, other than as set forth in the Prospectus.
PAGE 38
Item 32. Undertakings.
(a) Each series of the Registrant agrees to furnish, upon
request and free of charge, a copy of its latest Report
to Shareholders to each person to whom its prospectus
is delivered.
PAGE 39
Pursuant to the requirements of the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended,
the Registrant certifies that it meets all of the requirements
for effectiveness of this registration statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baltimore,
State of Maryland, this 19th day of June, 1996.
T. ROWE PRICE STATE TAX-FREE INCOME
TRUST
/s/William T. Reynolds
By: William T. Reynolds,
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933,
as amended, this Registration Statement has been signed below by
the following persons in the capacities and on the dates
indicated:
SIGNATURE TITLE DATE
_________ ______ _____
/s/William T. Reynolds Chairman of the Board
William T. Reynolds (Principal Executive
Officer) June 19, 1996
/s/Carmen F. Deyesu
Carmen F. Deyesu Treasurer June 19, 1996
(Chief Financial Officer)
*
Robert P. Black Trustee June 19, 1996
*
Dr. Calvin W. Burnett Trustee June 19, 1996
/s/George J. Collins
George J. Collins Trustee June 19, 1996
*
Anthony W. Deering Trustee June 19, 1996
*
F. Pierce Linaweaver Trustee June 19, 1996
PAGE 40
/s/James S. Riepe
James S. Riepe Vice President and Trustee June 19, 1996
*
John G. Schreiber Trustee June 19, 1996
/s/Henry H. Hopkins
Henry H. Hopkins, Attorney-In-Fact
The Custodian Agreement dated September 28, 1987, as
amended, between State Street Bank and Trust Company and T. Rowe
Price Funds should be inserted here.
PAGE 1
CUSTODIAN CONTRACT
Between
STATE STREET BANK AND TRUST COMPANY
and
EACH OF THE PARTIES INDICATED
ON APPENDIX A
DATED: SEPTEMBER 28, 1987
FRF 07/87
PAGE 2
TABLE OF CONTENTS
1. Employment of Custodian and Property to be Held By It1
2. Duties of the Custodian with Respect to Property of the Fund
Held by the Custodian in the United States. . . 2
2.1 Holding Securities . . . . . . . . . . . . . 2
2.2 Delivery of Securities . . . . . . . . . . . 2
1) Sale . . . . . . . . . . . . . . . . . . 2
2) Repurchase Agreement . . . . . . . . . . 2
3) Securities System . . . . . . . . . . . . 3
4) Tender Offer . . . . . . . . . . . . . . 3
5) Redemption by Issuer . . . . . . . . . . 3
6) Transfer to Issuer, Nominee, Exchange . . 3
7) Sale to Broker . . . . . . . . . . . . . 3
8) Exchange or Conversion . . . . . . . . . 4
9) Warrants, Rights . . . . . . . . . . . . 4
10) Loans of Securities . . . . . . . . . . . 4
11) Borrowings . . . . . . . . . . . . . . . 4
12) Options . . . . . . . . . . . . . . . . . 5
13) Futures . . . . . . . . . . . . . . . . . 5
14) In-Kind Distributions . . . . . . . . . . 5
15) Miscellaneous . . . . . . . . . . . . . . 5
16) Type of Payment . . . . . . . . . . . . . 6
2.3 Registration of Securities . . . . . . . . . 6
2.4 Bank Accounts . . . . . . . . . . . . . . . . 7
2.5 Sale of Shares and Availability of Federal Funds7
2.6 Collection of Income, Dividends . . . . . . . 7
2.7 Payment of Fund Monies . . . . . . . . . . . 8
1) Purchases . . . . . . . . . . . . . . . . 8
2) Exchanges . . . . . . . . . . . . . . . . 9
3) Redemptions . . . . . . . . . . . . . . . 9
4) Expense and Liability . . . . . . . . . . 9
5) Dividends . . . . . . . . . . . . . . . . 9
6) Short Sale Dividend . . . . . . . . . . . 10
7) Loan . . . . . . . . . . . . . . . . . . 10
8) Miscellaneous . . . . . . . . . . . . . . 10
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased . . . . . . . . . . . 10
2.9 Appointment of Agents . . . . . . . . . . . . 10
2.10 Deposit of Securities in Securities System . 10
1) Account of Custodian . . . . . . . . . . 11
2) Records . . . . . . . . . . . . . . . . . 11
3) Payment of Fund Monies, Delivery of
Securities . . . . . . . . . . . . . . 11
4) Reports . . . . . . . . . . . . . . . . . 12
5) Annual Certificate . . . . . . . . . . . 12
6) Indemnification . . . . . . . . . . . . . 12
2.11 Fund Assets Held in the Custodian's Direct Paper
System . . . . . . . . . . . . . . . . . . 13
2.12 Segregated Account . . . . . . . . . . . . . 14
PAGE 3
2.13 Ownership Certificates for Tax Purposes . . . 15
2.14 Proxies . . . . . . . . . . . . . . . . . . . 15
2.15 Communications Relating to Fund Portfolio
Securities . . . . . . . . . . . . . . . . 15
2.16 Reports to Fund by Independent Public
Accountants . . . . . . . . . . . . . . . . 16
3. Duties of the Custodian with Respect to Property
of the Fund Held Outside of the United States . 16
3.1 Appointment of Foreign Sub-Custodians . . . . 16
3.2 Assets to be Held . . . . . . . . . . . . . . 17
3.3 Foreign Securities Depositories . . . . . . . 17
3.4 Segregation of Securities . . . . . . . . . . 17
3.5 Access of Independent Accountants of the Fund 17
3.6 Reports by Custodian . . . . . . . . . . . . 18
3.7 Transactions in Foreign Assets of the Fund . 18
3.8 Responsibility of Custodian, Sub-Custodian and
Fund . . . . . . . . . . . . . . . . . . . 18
3.9 Monitoring Responsibilities . . . . . . . . . 19
3.10 Branches of U.S. Banks . . . . . . . . . . . 19
4. Payments for Repurchases or Redemptions and Sales of
Shares of the Fund . . . . . . . . . . . . . . . 19
5. Proper Instructions . . . . . . . . . . . . . . . 20
6. Actions Permitted Without Express Authority . . . 21
7. Evidence of Authority, Reliance on Documents . . . 21
8. Duties of Custodian with Respect to the Books of
Account and Calculations of Net Asset Value and
Net Income . . . . . . . . . . . . . . . . . . . 22
9. Records, Inventory . . . . . . . . . . . . . . . . 22
10. Opinion of Fund's Independent Accountant . . . . . 23
11. Compensation of Custodian . . . . . . . . . . . . 23
12. Responsibility of Custodian . . . . . . . . . . . 23
13. Effective Period, Termination and Amendment . . . 25
14. Successor Custodian . . . . . . . . . . . . . . . 26
15. Interpretive and Additional Provisions . . . . . . 28
16. Notice . . . . . . . . . . . . . . . . . . . . . . 28
17. Bond . . . . . . . . . . . . . . . . . . . . . . . 28
18. Confidentiality . . . . . . . . . . . . . . . . . 29
19. Exemption from Liens . . . . . . . . . . . . . . . 29
20. Massachusetts Law to Apply . . . . . . . . . . . . 29
21. Prior Contracts . . . . . . . . . . . . . . . . . 29
22. The Parties . . . . . . . . . . . . . . . . . . . 30
23. Governing Documents . . . . . . . . . . . . . . . 30
24. Subcustodian Agreement . . . . . . . . . . . . . . 30
25. Directors and Trustees . . . . . . . . . . . . . . 30
26. Massachusetts Business Trust . . . . . . . . . . . 30
27. Successors of Parties . . . . . . . . . . . . . . 31
PAGE 4
CUSTODIAN CONTRACT
This Contract by and between State Street Bank and Trust
Company, a Massachusetts trust company, having its principal
place of business at 225 Franklin Street, Boston, Massachusetts,
02110 (hereinafter called the "Custodian"), and each fund which
is listed on Appendix A (as such Appendix may be amended from
time to time) and which evidences its agreement to be bound
hereby by executing a copy of this Contract (each such fund
individually hereinafter called the "Fund," whose definition may
be found in Section 22),
WITNESSETH: That in consideration of the mutual covenants
and agreements hereinafter contained, the parties hereto agree as
follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of
its assets, including securities it desires to be held in places
within the United States ("domestic securities") and securities
it desires to be held outside the United States ("foreign
securities") pursuant to the Governing Documents of the Fund.
The Fund agrees to deliver to the Custodian all securities and
cash now or hereafter owned or acquired by it, and all payments
of income, payments of principal or capital distributions
received by it with respect to all securities owned by the Fund
from time to time, and the cash consideration received by it for
such new or treasury shares of capital stock ("Shares") of the
Fund as may be issued or sold from time to time. The Custodian
shall not be responsible for any property of the Fund held or
received by the Fund and not delivered to the Custodian.
With respect to domestic securities, upon receipt of "Proper
Instructions" (within the meaning of Article 5), the Custodian
shall from time to time employ one or more sub-custodians located
in the United States, but only in accordance with an applicable
vote by the Board of Directors/Trustees of the Fund, and provided
that the Custodian shall have no more or less responsibility or
liability to the Fund on account of any actions or omissions of
any sub-custodian so employed than any such sub-custodian has to
the Custodian, and further provided that the Custodian shall not
release the sub-custodian from any responsibility or liability
unless mutually agreed upon by the parties in writing. With
respect to foreign securities and other assets of the Fund held
outside the United States, the Custodian shall employ Chase
Manhattan Bank, N.A., as a sub-custodian for the Fund in
accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund
Held By the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and
physically segregate for the account of the Fund all
PAGE 5
non-cash property, to be held by it in the United States,
including all domestic securities owned by the Fund, other
than (a) securities which are maintained pursuant to Section
2.10 in a clearing agency which acts as a securities
depository or in a book-entry system authorized by the U.S.
Department of the Treasury, collectively referred to herein
as "Securities System," and (b) commercial paper of an
issuer for which the Custodian acts as issuing and paying
agent ("Direct Paper") which is deposited and/or maintained
in the Direct Paper System of the Custodian pursuant to
Section 2.11.
2.2 Delivery of Securities. The Custodian shall release
and deliver domestic securities owned by the Fund held by
the Custodian or in a Securities System account of the
Custodian or in the Custodian's Direct Paper book entry
system account ("Direct Paper System Account") only upon
receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by mutual agreement of
the parties, and only in the following cases:
1) Sale. Upon sale of such securities for the
account of the Fund and receipt of payment
therefor;
2) Repurchase Agreement. Upon the receipt of payment
in connection with any repurchase agreement
related to such securities entered into by the
Fund;
3) Securities System. In the case of a sale effected
through a Securities System, in accordance with
the provisions of Section 2.10 hereof;
4) Tender Offer. To the depository agent or other
receiving agent in connection with tender or other
similar offers for portfolio securities of the
Fund;
5) Redemption by Issuer. To the issuer thereof or
its agent when such securities are called,
redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) Transfer to Issuer, Nominee. Exchange. To the
issuer thereof, or its agent, for transfer into
the name of the Fund or into the name of any
nominee or nominees of the Custodian or into the
name or nominee name of any agent appointed
pursuant to Section 2.9 or into the name or
nominee name of any sub-custodian appointed
pursuant to Article 1; or for exchange for a
different number of bonds, certificates or other
evidence representing the same aggregate face
amount or number of units and bearing the same
interest rate, maturity date and call provisions,
PAGE 6
if any; provided that, in any such case, the new
securities are to be delivered to the Custodian;
7) Sale to Broker or Dealer. Upon the sale of such
securities for the account of the Fund, to the
broker or its clearing agent or dealer, against a
receipt, for examination in accordance with
"street delivery" custom; provided that in any
such case, the Custodian shall have no
responsibility or liability for any loss arising
from the delivery of such securities prior to
receiving payment for such securities except as
may arise from the Custodian's failure to act in
accordance with its duties as set forth in
Section 12.
8) Exchange or Conversion. For exchange or
conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization,
split-up of shares, change of par value or
readjustment of the securities of the issuer of
such securities, or pursuant to provisions for
conversion contained in such securities, or
pursuant to any deposit agreement provided that,
in any such case, the new securities and cash, if
any, are to be delivered to the Custodian;
9) Warrants, Rights. In the case of warrants, rights
or similar securities, the surrender thereof in
the exercise of such warrants, rights or similar
securities or the surrender of interim receipts or
temporary securities for definitive securities;
provided that, in any such case, the new
securities and cash, if any, are to be delivered
to the Custodian;
10) Loans of Securities. For delivery in connection
with any loans of securities made by the Fund, but
only against receipt of adequate collateral as
agreed upon from time to time by the Custodian and
the Fund, which may be in the form of cash,
obligations issued by the United States
government, its agencies or instrumentalities, or
such other property as mutually agreed by the
parties, except that in connection with any loans
for which collateral is to be credited to the
Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury,
the Custodian will not be held liable or
responsible for the delivery of securities owned
by the Fund prior to the receipt of such
collateral, unless the Custodian fails to act in
accordance with its duties set forth in
Article 12;
PAGE 7
11) Borrowings. For delivery as security in
connection with any borrowings by the Fund
requiring a pledge of assets by the Fund, but only
against receipt of amounts borrowed, except where
additional collateral is required to secure a
borrowing already made, subject to Proper
Instructions, further securities may be released
for that purpose;
12) Options. For delivery in accordance with the
provisions of any agreement among the Fund, the
Custodian and a broker-dealer registered under the
Securities Exchange Act of 1934 (the "Exchange
Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to
compliance with the rules of The Options Clearing
Corporation, any registered national securities
exchange, any similar organization or
organizations, or the Investment Company Act of
1940, regarding escrow or other arrangements in
connection with transactions by the Fund;
13) Futures. For delivery in accordance with the
provisions of any agreement among the Fund, the
Custodian, and a Futures Commission Merchant
registered under the Commodity Exchange Act,
relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any
Contract Market, any similar organization or
organizations, or the Investment Company Act of
1940, regarding account deposits in connection
with transactions by the Fund;
14) In-Kind Distributions. Upon receipt of
instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such
Transfer Agent or to the holders of shares in
connection with distributions in kind, as may be
described from time to time in the Fund's
currently effective prospectus and statement of
additional information ("prospectus"), in
satisfaction of requests by holders of Shares for
repurchase or redemption;
15) Miscellaneous. For any other proper corporate
purpose, but only upon receipt of, in addition to
Proper Instructions, a certified copy of a
resolution of the Board of Directors/Trustees or
of the Executive Committee signed by an officer of
the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities to
be delivered, setting forth the purpose for which
such delivery is to be made, declaring such
PAGE 8
purpose to be a proper corporate purpose, and
naming the person or persons to whom delivery of
such securities shall be made; and
16) Type of Payment. In any or all of the above
cases, payments to the Fund shall be made in cash,
by a certified check upon or a treasurer's or
cashier's check of a bank, by effective bank wire
transfer through the Federal Reserve Wire System
or, if appropriate, outside of the Federal Reserve
Wire System and subsequent credit to the Fund's
Custodian account, or, in case of delivery through
a stock clearing company, by book-entry credit by
the stock clearing company in accordance with the
then current street custom, or such other form of
payment as may be mutually agreed by the parties,
in all such cases collected funds to be promptly
credited to the Fund.
2.3 Registration of Securities. Domestic securities held
by the Custodian (other than bearer securities) shall be
registered in the name of the Fund or in the name of any
nominee of the Fund or of any nominee of the Custodian which
nominee shall be assigned exclusively to the Fund, unless
the Fund has authorized in writing the appointment of a
nominee to be used in common with other registered
investment companies having the same investment adviser as
the Fund, or in the name or nominee name of any agent
appointed pursuant to Section 2.9 or in the name or nominee
name of any sub-custodian appointed pursuant to Article 1.
All securities accepted by the Custodian on behalf of the
Fund under the terms of this Contract shall be in "street
name" or other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a
separate bank account or accounts in the United States in
the name of the Fund, subject only to draft or order by the
Custodian acting pursuant to the terms of this Contract, and
shall hold in such account or accounts, subject to the
provisions hereof all cash received by it from or for the
account of the Fund, other than cash maintained by the Fund
in a bank account established and used in accordance with
Rule 17f-3 under the Investment Company Act of 1940. Funds
held by the Custodian for the Fund may be deposited for the
Fund's credit in the Banking Department of the Custodian or
in such other banks or trust companies as the Custodian may
in its discretion deem necessary or desirable; provided,
however, that every such bank or trust company shall be
qualified to act as a custodian under the Investment Company
Act of 1940 and that each such bank or trust company and the
funds to be deposited with each such bank or trust company
shall be approved by vote of a majority of the Board of
Directors/Trustees of the Fund. Such funds shall be
PAGE 9
deposited by the Custodian in its capacity as Custodian and
shall be withdrawable by the Custodian only in that
capacity.
2.5 Sale of Shares and Availability of Federal Funds. Upon
mutual agreement between the Fund and the Custodian, the
Custodian shall, upon the receipt of Proper Instructions,
make federal funds available to the Fund as of specified
times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for
Shares of the Fund which are deposited into the Fund's
account.
2.6 Collection of Income, Dividends. The Custodian shall
collect on a timely basis all income and other payments with
respect to United States registered securities held
hereunder to which the Fund shall be entitled either by law
or pursuant to custom in the securities business, and shall
collect on a timely basis all income and other payments with
respect to United States bearer securities if, on the date
of payment by the issuer, such securities are held by the
Custodian or its agent thereof and shall credit such income
or other payments, as collected, to the Fund's custodian
account. Without limiting the generality of the foregoing,
the Custodian shall detach and present for payment all
coupons and other income items requiring presentation as and
when they become due and shall collect interest when due on
securities held hereunder. The Custodian will also receive
and collect all stock dividends, rights and other items of
like nature as and when they become due or payable. Income
due the Fund on United States securities loaned pursuant to
the provisions of Section 2.2 (10) shall be the
responsibility of the Fund. The Custodian will have no duty
or responsibility in connection therewith, other than to
provide the Fund with such information or data as may be
necessary to assist the Fund in arranging for the timely
delivery to the Custodian of the income to which the Fund is
properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper
Instructions,
which may be continuing instructions when deemed appropriate
by mutual agreement of the parties, the Custodian shall pay
out monies of the Fund in the following cases only:
1) Purchases. Upon the purchase of domestic
securities, options, futures contracts or options
on futures contracts for the account of the Fund
but only (a) against the delivery of such
securities, or evidence of title to such options,
futures contracts or options on futures contracts,
to the Custodian (or any bank, banking firm or
trust company doing business in the United States
or abroad which is qualified under the Investment
PAGE 10
Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian
as its agent for this purpose in accordance with
Section 2.9 hereof) registered in the name of the
Fund or in the name of a nominee of the Fund or of
the Custodian referred to in Section 2.3 hereof or
in other proper form for transfer; (b) in the case
of a purchase effected through a Securities
System, in accordance with the conditions set
forth in Section 2.10 hereof or (c) in the case of
a purchase involving the Direct Paper System, in
accordance with the conditions set forth in
Section 2.11; or (d) in the case of repurchase
agreements entered into between the Fund and the
Custodian, or another bank, or a broker-dealer
which is a member of NASD, (i) against delivery of
the securities either in certificate form or
through an entry crediting the Custodian's account
at the Federal Reserve Bank with such securities
or (ii) against delivery of the receipt evidencing
purchase by the Fund of securities owned by the
Custodian along with written evidence of the
agreement by the Custodian to repurchase such
securities from the Fund. All coupon bonds
accepted by the Custodian shall have the coupons
attached or shall be accompanied by a check
payable on coupon payable date for the interest
due on such date.
2) Exchanges. In connection with conversion,
exchange or surrender of securities owned by the
Fund as set forth in Section 2.2 hereof;
3) Redemptions. For the redemption or repurchase of
Shares issued by the Fund as set forth in Article
4 hereof;
4) Expense and Liability. For the payment of any
expense or liability incurred by the Fund,
including but not limited to the following
payments for the account of the Fund: interest,
taxes, management, accounting, transfer agent and
legal fees, and operating expenses of the Fund
whether or not such expenses are to be in whole or
part capitalized or treated as deferred expenses;
5) Dividends. For the payment of any dividends or
other distributions to shareholders declared
pursuant to the Governing Documents of the Fund;
6) Short Sale Dividend. For payment of the amount of
dividends received in respect of securities sold
short;
7) Loan. For repayment of a loan upon redelivery of
pledged securities and upon surrender of the
PAGE 11
note(s), if any, evidencing the loan;
8) Miscellaneous. For any other proper purpose, but
only upon receipt of, in addition to Proper
Instructions, a certified copy of a resolution of
the Board of Directors/Trustees or of the
Executive Committee of the Fund signed by an
officer of the Fund and certified by its Secretary
or an Assistant Secretary, specifying the amount
of such payment, setting forth the purpose for
which such payment is to be made, declaring such
purpose to be a proper purpose, and naming the
person or persons to whom such payment is to be
made.
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased. In any and every case where payment
for purchase of domestic securities for the account of the
Fund is made by the Custodian in advance of receipt of the
securities purchased in the absence of specific written
instructions from the Fund to so pay in advance, the
Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been
received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time
or times in its discretion appoint (and may at any time
remove) any other bank or trust company, which is itself
qualified under the Investment Company Act of 1940, as
amended, to act as a custodian, as its agent to carry out
such of the provisions of this Article 2 as the Custodian
may from time to time direct; provided, however, that the
appointment of any agent shall not relieve the Custodian of
its responsibilities or liabilities hereunder.
2.10 Deposit of Securities in Securities Systems. The
Custodian may deposit and/or maintain domestic securities
owned by the Fund in a clearing agency registered with the
Securities and Exchange Commission under Section 17A of the
Securities Exchange Act of 1934, which acts as a securities
depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal
agencies, collectively referred to herein as "Securities
System" in accordance with applicable Federal Reserve Board
and Securities and Exchange Commission rules and
regulations, if any, and subject to the following
provisions:
1) Account of Custodian. The Custodian may keep
domestic securities of the Fund in a Securities
System provided that such securities are
represented in an account ("Account") of the
Custodian in the Securities System which shall not
include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise
PAGE 12
for customers;
2) Records. The records of the Custodian, with
respect to domestic securities of the Fund which
are maintained in a Securities System, shall
identify by book-entry those securities belonging
to the Fund;
3) Payment of Fund Monies, Delivery of Securities.
Subject to Section 2.7, the Custodian shall pay
for domestic securities purchased for the account
of the Fund upon (i) receipt of advice from the
Securities System that such securities have been
transferred to the Account, and (ii) the making of
an entry on the records of the Custodian to
reflect such payment and transfer for the account
of the Fund. Subject to Section 2.2, the
Custodian shall transfer domestic securities sold
for the account of the Fund upon (i) receipt of
advice from the Securities System that payment for
such securities has been transferred to the
Account, and (ii) the making of an entry on the
records of the Custodian to reflect such transfer
and payment for the account of the Fund. Copies
of all advices from the Securities System of
transfers of domestic securities for the account
of the Fund shall identify the Fund, be maintained
for the Fund by the Custodian and be provided to
the Fund at its request. The Custodian shall
furnish the Fund confirmation of each transfer to
or from the account of the Fund in the form of a
written advice or notice and shall furnish to the
Fund copies of daily transaction sheets reflecting
each day's transactions in the Securities System
for the account of the Fund;
4) Reports. The Custodian shall provide the Fund
with any report obtained by the Custodian on the
Securities System's accounting system, internal
accounting control and procedures for safeguarding
domestic securities deposited in the Securities
System, and further agrees to provide the Fund
with copies of any documentation it has relating
to its arrangements with the Securities Systems as
set forth in this Agreement or as otherwise
required by the Securities and Exchange
Commission;
5) Annual Certificate. The Custodian shall have
received the initial or annual certificate, as the
case may be, required by Article 13 hereof;
6) Indemnification. Anything to the contrary in this
Contract notwithstanding, the Custodian shall be
liable to the Fund for any loss or expense,
PAGE 13
including reasonable attorneys fees, or damage to
the Fund resulting from use of the Securities
System by reason of any failure by the Custodian
or any of its agents or of any of its or their
employees or agents or from failure of the
Custodian or any such agent to enforce effectively
such rights as it may have against the Securities
System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the
Custodian with respect to any claim against the
Securities System or any other person which the
Custodian may have as a consequence of any such
loss, expense or damage if and to the extent that
the Fund has not been made whole for any such
loss, expense or damage.
2.11 Fund Assets Held in the Custodian's Direct Paper
System. The Custodian may deposit and/or maintain
securities owned by the Fund in the Direct Paper System of
the Custodian subject to the following provisions:
1) No transaction relating to securities in the
Direct Paper System will be effected in the
absence of Proper Instructions;
2) The Custodian may keep securities of the Fund in
the Direct Paper System only if such securities
are represented in an account ("Account") of the
Custodian in the Direct Paper System which shall
not include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise
for customers;
3) The records of the Custodian with respect to
securities of the Fund which are maintained in the
Direct Paper System shall identify by book-entry
those securities belonging to the Fund;
4) The Custodian shall pay for securities purchased
for the account of the Fund upon the making of an
entry on the records of the Custodian to reflect
such payment and transfer of securities to the
account of the Fund. The Custodian shall transfer
securities sold for the account of the Fund upon
the making of an entry on the records of the
Custodian to reflect such transfer and receipt of
payment for the account of the Fund;
5) The Custodian shall furnish the Fund confirmation
of each transfer to or from the account of the
Fund, in the form of a written advice or notice,
of Direct Paper on the next business day following
such transfer and shall furnish to the Fund copies
of daily transaction sheets reflecting each day's
transaction in the Securities System for the
account of the Fund;
PAGE 14
6) The Custodian shall provide the Fund with any
report on its system of internal accounting
control as the Fund may reasonably request from
time to time;
2.12 Segregated Account. The Custodian shall, upon receipt
of Proper Instructions, which may be of a continuing nature
where deemed appropriate by mutual agreement of the parties,
establish and maintain a segregated account or accounts for
and on behalf of the Fund, into which account or accounts
may be transferred cash and/or securities, including
securities maintained in an account by the Custodian
pursuant to Section 2.10 hereof, (i) in accordance with the
provisions of any agreement among the Fund, the Custodian
and a broker-dealer registered under the Exchange Act and a
member of the NASD (or any futures commission merchant
registered under the Commodity Exchange Act), relating to
compliance with the rules of The Options Clearing
Corporation and of any registered national securities
exchange (or the Commodity Futures Trading Commission or any
registered contract market), or of any similar organization
or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund, (ii) for purposes
of segregating cash or government securities in connection
with options purchased, sold or written by the Fund or
commodity futures contracts or options thereon purchased or
sold by the Fund, (iii) for the purposes of compliance by
the Fund with the procedures required by Investment Company
Act Release No. 10666, or any subsequent release, rule or
policy, of the Securities and Exchange Commission relating
to the maintenance of segregated accounts by registered
investment companies and (iv) for other proper corporate
purposes, but only, in the case of clause (iv), upon receipt
of, in addition to Proper Instructions, a certified copy of
a resolution of the Board of Directors/Trustees or of the
Executive Committee signed by an officer of the Fund and
certified by the Secretary or an Assistant Secretary,
setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate
purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian
shall execute ownership and other certificates and
affidavits for all federal and state tax purposes in
connection with receipt of income or other payments with
respect to domestic securities of the Fund held by it and in
connection with transfers of such securities.
2.14 Proxies. If the securities are registered other than
in the name of the Fund or a nominee of the Fund, the
Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the
PAGE 15
registered holder of such securities, all proxies, without
indication of the manner in which such proxies are to be
voted, and shall promptly deliver to the Fund such proxies,
all proxy soliciting materials and all notices relating to
such securities.
2.15 Communications Relating to Fund Portfolio Securities.
The Custodian shall transmit promptly to the Fund all
written information (including, without limitation, pendency
of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of
exercise of call and put options written by the Fund and the
maturity of futures contracts purchased or sold by the Fund)
received by the Custodian from issuers of the domestic
securities being held for the Fund by the Custodian, an
agent appointed under Section 2.9, or sub-custodian
appointed under Section 1. With respect to tender or
exchange offers, the Custodian shall transmit promptly to
the Fund all written information received by the Custodian,
an agent appointed under Section 2.9, or sub-custodian
appointed under Section 1 from issuers of the domestic
securities whose tender or exchange is sought and from the
party (or his agents) making the tender or exchange offer.
If the Fund desires to take action with respect to any
tender offer, exchange offer or any other similar
transaction, the Fund shall notify the Custodian of such
desired action at least 72 hours (excluding holidays and
weekends) prior to the time such action must be taken under
the terms of the tender, exchange offer, or other similar
transaction, and it will be the responsibility of the
Custodian to timely transmit to the appropriate person(s)
the Fund's notice. Where the Fund does not notify the
Custodian of its desired action within the aforesaid 72 hour
period, the Custodian shall use its best efforts to timely
transmit the Fund's notice to the appropriate person.
2.16 Reports to Fund by Independent Public Accountants. The
Custodian shall provide the Fund, at such times as the Fund
may reasonably require, with reports by independent public
accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures
contracts and options on futures contracts, including
domestic securities deposited and/or maintained in a
Securities System, relating to the services provided by the
Custodian under this Contract; such reports shall be of
sufficient scope and in sufficient detail, as may reasonably
be required by the Fund to provide reasonable assurance that
any material inadequacies existing or arising since the
prior examination would be disclosed by such examination.
The reports must describe any material inadequacies
disclosed and, if there are no such inadequacies, the
reports shall so state.
PAGE 16
3. Duties of the Custodian with Respect to Property of the Fund
Held Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The Custodian
is authorized and instructed to employ Chase Manhattan Bank,
N.A, ("Chase") as sub-custodian for the Fund's securities,
cash and other assets maintained outside of the United
States ("foreign assets") all as described in the
Subcustodian Agreement between the Custodian and Chase.
Upon receipt of "Proper Instructions", together with a
certified resolution of the Fund's Board of
Directors/Trustees, the Custodian and the Fund may agree to
designate additional proper institutions and foreign
securities depositories to act as sub-custodians of the
Fund's foreign assets. Upon receipt of Proper Instructions
from the Fund, the Custodian shall cease the employment of
any one or more of such sub-custodians for maintaining
custody of the Fund's foreign assets.
3.2 Assets to be Held. The Custodian shall limit the
foreign assets maintained in the custody of foreign sub-
custodians to foreign assets specified under the terms of
the Subcustodian Agreement between the Custodian and Chase.
3.3 Foreign Securities Depositories. Except as may
otherwise be agreed upon in writing by the Custodian and the
Fund, foreign assets of the Fund shall be maintained in
foreign securities depositories only through arrangements
implemented by the banking institutions serving as sub-
custodians pursuant to the terms hereof.
3.4 Segregation of Securities. The Custodian shall
identify on its books as belonging to the Fund, the foreign
assets of the Fund held by Chase and by each foreign sub-
custodian.
3.5 Access of Independent Accountants of the Fund. Upon
request of the Fund, the Custodian will use its best efforts
(subject to applicable law) to arrange for the independent
accountants, officers or other representatives of the Fund
or the Custodian to be afforded access to the books and
records of Chase and any banking or other institution
employed as a sub-custodian for the Fund by Chase or the
Custodian insofar as such books and records relate to the
performance of Chase or such banking or other institution
under any agreement with the Custodian or Chase. Upon
request of the Fund, the Custodian shall furnish to the Fund
such reports (or portions thereof) of Chase's external
auditors as are available to the Custodian and which relate
directly to Chase's system of internal accounting controls
applicable to Chase's duties as a subcustodian or which
relate to the internal accounting controls of any
subcustodian employed by Chase with respect to foreign
assets of the Fund.
PAGE 17
3.6 Reports by Custodian. The Custodian will supply to the
Fund from time to time, as mutually agreed upon, statements
in respect of the foreign assets of the Fund held pursuant
to the terms of the Subcustodian Agreement between the
Custodian and Chase, including but not limited, to an
identification of entities having possession of the Fund's
foreign assets and advices or notifications of any transfers
of foreign assets to or from each custodial account
maintained by any sub-custodian on behalf of the Fund
indicating, as to foreign assets acquired for the Fund, the
identity of the entity having physical possession of such
foreign assets.
3.7 Transactions in Foreign Assets of the Fund. All
transactions with respect to the Fund's foreign assets shall
be in accordance with, and subject to, the provisions of the
Subcustodian Agreement between Chase and the Custodian.
3.8 Responsibility of Custodian, Sub-Custodian, and Fund.
Notwithstanding anything to the contrary in this Custodian
Contract, the Custodian shall not be liable to the Fund for
any loss, damage, cost, expense, liability or claim arising
out of or in connection with the maintenance of custody of
the Fund's foreign assets by Chase or by any other banking
institution or securities depository employed pursuant to
the terms of any Subcustodian Agreement between Chase and
the Custodian, except that the Custodian shall be liable for
any such loss, damage, cost, expense, liability or claim to
the extent provided in the Subcustodian Agreement between
Chase and the Custodian or attributable to the failure of
the Custodian to exercise the standard of care set forth in
Article 12 hereof in the performance of its duties under
this Contract or such Subcustodian Agreement. At the
election of the Fund, the Fund shall be entitled to be
subrogated to the rights of the Custodian under the
Subcustodian Agreement with respect to any claims arising
thereunder against Chase or any other banking institution or
securities depository employed by Chase if and to the extent
that the Fund has not been made whole therefor. As between
the Fund and the Custodian, the Fund shall be solely
responsible to assure that the maintenance of foreign
securities and cash pursuant to the terms of the
Subcustodian Agreement complies with all applicable rules,
regulations, interpretations and orders of the Securities
and Exchange Commission, and the Custodian assumes no
responsibility and makes no representations as to such
compliance.
3.9 Monitoring Responsibilities. With respect to the
Fund's foreign assets, the Custodian shall furnish annually
to the Fund, during the month of June, information
concerning the sub-custodians employed by the Custodian.
PAGE 18
Such information shall be similar in kind and scope to that
furnished to the Fund in connection with the initial
approval of this Contract. In addition, the Custodian will
promptly inform the Fund in the event that the Custodian
learns of a material adverse change in the financial
condition of a sub-custodian.
3.10 Branches of U.S. Banks. Except as otherwise set forth
in this Contract, the provisions of this Article 3 shall not
apply where the custody of the Fund's assets is maintained
in a foreign branch of a banking institution which is a
"bank" as defined by Section 2(a)(5) of the Investment
Company Act of 1940 which meets the qualification set forth
in Section 26(a) of said Act. The appointment of any such
branch as a sub-custodian shall be governed by Section 1 of
this Contract.
4. Payments for Repurchases or Redemptions and Sales of Shares
of the Fund
From such funds as may be available for the purpose but
subject to the limitations of the Governing Documents of the Fund
and any applicable votes of the Board of Directors/Trustees of
the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for
payment to holders of Shares who have delivered to the Transfer
Agent a request for redemption or repurchase of their Shares. In
connection with the redemption or repurchase of Shares of the
Fund, the Custodian is authorized upon receipt of instructions
from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholder. In connection with
the redemption or repurchase of Shares of the Fund, the Custodian
shall honor checks drawn on the Custodian by a holder of Shares,
which checks have been furnished by the Fund to the holder of
Shares, when presented to the Custodian in accordance with such
procedures and controls as are mutually agreed upon from time to
time between the Fund and the Custodian.
The Custodian shall receive from the distributor for the
Fund's Shares or from the Transfer Agent of the Fund and deposit
as received into the Fund's account such payments as are received
for Shares of the Fund issued or sold from time to time by the
Fund. The Custodian will provide timely notification to the Fund
and the Transfer Agent of any receipt by it of payments for
Shares of the Fund.
5. Proper Instructions
Proper Instructions as used herein means a writing signed or
initialled by one or more person or persons as the Board of
Directors/Trustees shall have from time to time authorized. Each
such writing shall set forth the specific transaction or type of
transaction involved, including a specific statement of the
purpose for which such action is requested, or shall be a blanket
instruction authorizing specific transactions of a repeated or
PAGE 19
routine nature. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have
been given by a person authorized to give such instructions with
respect to the transaction involved. The Fund shall cause all
oral instructions to be confirmed in writing. Upon receipt of a
certificate of the Secretary or an Assistant Secretary as to the
authorization by the Board of Directors/Trustees of the Fund
accompanied by a detailed description of procedures approved by
the Board of Directors/Trustees, Proper Instructions may include
communications effected directly between electro-mechanical or
electronic devices provided that the Board of Directors/Trustees
and the Custodian are satisfied that such procedures afford
adequate safeguards for the Fund's assets.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express
authority from the Fund:
1) make payments to itself or others for minor
expenses of handling securities or other similar
items relating to its duties under this Contract,
provided that all such payments shall be accounted
for to the Fund;
2) surrender securities in temporary form for
securities in definitive form;
3) endorse for collection, in the name of the Fund,
checks, drafts and other negotiable instruments on
the same day as received; and
4) in general, attend to all non-discretionary
details in connection with the sale, exchange,
substitution, purchase, transfer and other
dealings with the securities and property of the
Fund except as otherwise directed by the Board of
Directors/Trustees of the Fund.
7. Evidence of Authority, Reliance on Documents
The Custodian shall be protected in acting upon any
instructions, notice, request, consent, certificate or other
instrument or paper reasonably and in good faith believed by it
to be genuine and to have been properly executed by or on behalf
of the Fund in accordance with Article 5 hereof. The Custodian
may receive and accept a certified copy of a vote of the Board of
Directors/Trustees of the Fund as conclusive evidence (a) of the
authority of any person to act in accordance with such vote or
(b) of any determination or of any action by the Board of
Directors/Trustees pursuant to the Governing Documents of the
Fund as described in such vote, and such vote may be considered
as in full force and effect until receipt by the Custodian of
written notice to the contrary. So long as and to the extent
that it is in the exercise of the standard of care set forth in
Article 12 hereof, the Custodian shall not be responsible for the
title, validity or genuineness of any property or evidence of
title thereto received by it or delivered by it pursuant to this
PAGE 20
Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party
or parties.
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary
information to the person or persons appointed by the Board of
Directors/Trustees of the Fund to keep the books of account of
the Fund and/or compute the net asset value per share of the
outstanding shares of the Fund or, if directed in writing to do
so by the Fund, shall itself keep such books of account and/or
compute such net asset value per share. If so directed, the
Custodian shall also calculate daily the net income of the Fund
as described in the Fund's currently effective prospectus and
shall advise the Fund and the Transfer Agent daily of the total
amounts of such net income and, if instructed in writing by an
officer of the Fund to do so, shall advise the Transfer Agent
periodically of the division of such net income among its various
components. The calculations of the net asset value per share
and the daily income of the Fund shall be made at the time or
times and in the manner described from time to time in the Fund's
currently effective prospectus.
9. Records, Inventory
The Custodian shall create and maintain all records relating
to its activities and obligations under this Contract in such
manner as will meet the obligations of the Fund under the
Investment Company Act of 1940, with particular attention to
Section 31 thereof and Rules 31a-1 and 31a-2 thereunder,
applicable federal and state tax laws and any other law or
administrative rules or procedures which may be applicable to the
Fund. All such records shall be the property of the Fund and
shall at all times during the regular business hours of the
Custodian be open for inspection and audit by duly authorized
officers, employees or agents of the Fund and employees and
agents of the Securities and Exchange Commission, and, in the
event of termination of this Agreement, will be delivered in
accordance with Section 14 hereof. The Custodian shall, at the
Fund's request, supply the Fund with a tabulation of securities
owned by the Fund and held by the Custodian and shall, when
requested to do so by the Fund and for such compensation as shall
be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations. The Custodian shall
conduct a periodic inventory of all securities and other property
subject to this Agreement and provide to the Fund a periodic
reconciliation of the vaulted position of the Fund to the
appraised position of the Fund. The Custodian will promptly
report to the Fund the results of the reconciliation, indicating
any shortages or discrepancies uncovered thereby, and take
appropriate action to remedy any such shortages or discrepancies.
PAGE 21
10. Opinion of Fund's Independent Accountant
The Custodian shall cooperate with the Fund's independent
public accountants in connection with the annual and other audits
of the books and records of the Fund and take all reasonable
action, as the Fund may from time to time request, to provide
from year to year the necessary information to such accountants
for the expression of their opinion without any qualification as
to the scope of their examination, including but not limited to,
any opinion in connection with the preparation of the Fund's Form
N-lA, and Form N-SAR or other annual reports to the Securities
and Exchange Commission and with respect to any other
requirements of such Commission.
11. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation
for its services and expenses as Custodian, as agreed upon from
time to time between the Fund and the Custodian.
12. Responsibility of Custodian
Notwithstanding anything to the contrary in this Agreement,
the Custodian shall be held to the exercise of reasonable care in
carrying out the provisions of this Contract, but shall be kept
indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence.
In order for the indemnification provision contained in this
Section to apply, it is understood that if in any case the Fund
may be asked to indemnify or save the Custodian harmless, the
Fund shall be fully and promptly advised of all pertinent facts
concerning the situation in question, and it is further
understood that the Custodian will use all reasonable care to
identify and notify the Fund promptly concerning any situation
which presents or appears likely to present the probability of
such a claim for indemnification against the Fund. The Fund,
shall have the option to defend the Custodian against any claim
which may be the subject of this indemnification, and in the
event that the Fund so elects, it will so notify the Custodian,
and thereupon the Fund shall take over complete defense of the
claim and the Custodian shall in such situation initiate no
further legal or other expenses for which it shall seek
indemnification under this Section. The Custodian shall in no
case confess any claim or make any compromise in any case in
which the Fund will be asked to indemnify the Custodian except
with the Fund's prior written consent. Nothing herein shall be
construed to limit any right or cause of action on the part of
the Custodian under this Contract which is independent of any
right or cause of action on the part of the Fund. The Custodian
shall be entitled to rely on and may act upon advice of counsel
(who may be counsel for the Fund or such other counsel as may be
agreed to by the parties) on all matters, and shall be without
liability for any action reasonably taken or omitted pursuant to
such advice. Notwithstanding the foregoing, the responsibility
PAGE 22
of the Custodian with respect to redemptions effected by check
shall be in accordance with a separate Agreement entered into
between the Custodian and the Fund.
If the Fund requires the Custodian to take any action with
respect to securities, which action involves the payment of money
or which action may, in the opinion of the Custodian, result in
the Custodian or its nominee assigned to the Fund being liable
for the payment of money or incurring liability of some other
form, the Fund, as a prerequisite to requiring the Custodian to
take such action, shall provide indemnity to the Custodian in an
amount and form satisfactory to it.
If the Fund requires the Custodian to advance cash or
securities for any purpose or in the event that the Custodian or
its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to
act or willful misconduct, any property at any time held for the
account of the Fund shall be security therefor and should the
Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of the Fund's
assets to the extent necessary to obtain reimbursement, provided
that the Custodian gives the Fund reasonable notice to repay such
cash or securities advanced, however, such notice shall not
preclude the Custodian's right to assert any lien under this
provision.
13. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution,
shall continue in full force and effect until terminated as
hereinafter provided, may be amended at any time by mutual
agreement of the parties hereto and may be terminated by either
party by an instrument in writing delivered or mailed, postage
prepaid to the other party, such termination to take effect not
sooner than sixty (60) days after the date of such delivery or
mailing in the case of a termination by the Fund, and not sooner
than 180 days after the date of such delivery or mailing in the
case of a termination by the Custodian; provided, however that
the Custodian shall not act under Section 2.10 hereof in the
absence of receipt of an initial certificate of the Secretary or
an Assistant Secretary that the Board of Directors/Trustees of
the Fund has approved the initial use of a particular Securities
System and the receipt of an annual certificate of the Secretary
or an Assistant Secretary that the Board of Directors/Trustees
has reviewed the use by the Fund of such Securities System, as
required in each case by Rule 17f-4 under the Investment Company
Act of 1940, as amended and that the Custodian shall not act
under Section 2.11 hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the
Board of Directors/Trustees has approved the initial use of the
Direct Paper System and the receipt of an annual certificate of
PAGE 23
the Secretary or an Assistant Secretary that the Board of
Directors/Trustees has reviewed the use by the Fund of the Direct
Paper System; provided further, however, that the Fund shall not
amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the
Governing Documents of the Fund, and further provided, that the
Fund may at any time by action of its Board of Directors/Trustees
(i) substitute another bank or trust company for the Custodian by
giving notice as described above to the Custodian, or (ii)
immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the
Comptroller of the Currency or upon the happening of a like event
at the direction of an appropriate regulatory agency or court of
competent jurisdiction.
Upon termination of the Contract, the Fund shall pay to the
Custodian such compensation as may be due as of the date of such
termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements, provided that the Custodian
shall not incur any costs, expenses or disbursements specifically
in connection with such termination unless it has received prior
approval from the Fund, which approval shall not be unreasonably
withheld.
14. Successor Custodian
If a successor custodian shall be appointed by the Board of
Directors/Trustees of the Fund, the Custodian shall, upon
termination, deliver to such successor custodian at the office of
the Custodian, duly endorsed and in the form for transfer, all
securities, funds and other properties then held by it hereunder
and shall transfer to an account of the successor custodian all
of the Fund's securities held in a Securities System. The
Custodian shall also use its best efforts to assure that the
successor custodian will continue any subcustodian agreement
entered into by the Custodian and any subcustodian on behalf of
the Fund.
If no such successor custodian shall be appointed, the
Custodian shall, in like manner, upon receipt of a certified copy
of a vote of the Board of Directors/Trustees of the Fund, deliver
at the office of the Custodian and transfer such securities,
funds and other properties in accordance with such vote.
In the event that no written order designating a successor
custodian or certified copy of a vote of the Board of
Directors/Trustees shall have been delivered to the Custodian on
or before the date when such termination shall become effective,
then the Custodian shall have the right to deliver to a bank
or trust company, which is a "bank" as defined in the Investment
Company Act of 1940, doing business in Boston, Massachusetts, of
its own selection, having an aggregate capital, surplus, and
undivided profits, as shown by its last published report, of not
PAGE 24
less than $25,000,000, all securities, funds and other properties
held by the Custodian and all instruments held by the Custodian
relative thereto and all other property held by it under this
Contract and to transfer to an account of such successor
custodian all of the Fund's securities held in any Securities
System. Thereafter, such bank or trust company shall be the
successor of the Custodian under this Contract.
In the event that securities, funds and other properties
remain in the possession of the Custodian after the date of
termination hereof owing to failure of the Fund to procure the
certified copy of the vote referred to or of the Board of
Directors/Trustees to appoint a successor custodian, the
Custodian shall be entitled to fair compensation for its services
during such period as the Custodian retains possession of such
securities, funds and other properties and the provisions of this
Contract relating to the duties and obligations of the Custodian
shall remain in full force and effect. If while this Contract is
in force the Fund shall be liquidated pursuant to law, the
Custodian shall distribute, either in cash or (if the Fund so
orders) in the portfolio securities and other assets of the Fund,
pro rata among the holders of shares of the Fund as certified by
the Transfer Agent, the property of the Fund which remains after
paying or satisfying all expenses and liabilities of the Fund.
Section 12 hereof shall survive any termination of this Contract.
15. Interpretive and Additional Provisions
In connection with the operation of this Contract, the
Custodian and the Fund may from time to time agree on such
provisions interpretive of or in addition to the provisions of
this Contract as may in their joint opinion be consistent with
the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both
parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any
applicable federal or state regulations or any provision of the
Governing Documents of the Fund. No interpretive or additional
provisions made as provided in the preceding sentence shall be
deemed to be an amendment of this Contract.
16. Notice
Any notice shall be sufficiently given when sent by
registered or certified mail, or by such other means as the
parties shall agree, to the other party at the address of such
party set forth above or at such other address as such party may
from time to time specify in writing to the other party.
17. Bond
The Custodian shall, at all times, maintain a bond in such
form and amount as is acceptable to the Fund which shall be
issued by a reputable fidelity insurance company authorized to do
business in the place where such bond is issued against larceny
PAGE 25
and embezzlement, covering each officer and employee of the
Custodian who may, singly or jointly with others, have access to
securities or funds of the Fund, either directly or through
authority to receive and carry out any certificate instruction,
order request, note or other instrument required or permitted by
this Agreement. The Custodian agrees that it shall not cancel,
terminate or modify such bond insofar as it adversely affects the
Fund except after written notice given to the Fund not less than
10 days prior to the effective date of such cancellation,
termination or modification. The Custodian shall furnish to the
Fund a copy of each such bond and each amendment thereto.
18. Confidentiality
The Custodian agrees to treat all records and other
information relative to the Fund and its prior, present or future
shareholders as confidential, and the Custodian, on behalf of
itself and its employees, agrees to keep confidential all such
information except, after prior notification to and approval in
writing by the Fund, which approval shall not be unreasonably
withheld and may not be withheld where the Custodian may be
exposed to civil or criminal contempt proceedings for failure to
comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Fund.
19. Exemption from Liens
The securities and other assets held by the Custodian for
the Fund shall be subject to no lien or charge of any kind in
favor of the Custodian or any person claiming through the
Custodian, but nothing herein shall be deemed to deprive the
Custodian of its right to invoke any and all remedies available
at law or equity to collect amounts due it under this Agreement.
Neither the Custodian nor any sub-custodian appointed pursuant to
Section 1 hereof shall have any power or authority to assign,
hypothecate, pledge or otherwise dispose of any securities held
by it for the Fund, except upon the direction of the Fund, duly
given as herein provided, and only for the account of the Fund.
20. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth
of Massachusetts.
21. Prior Contracts
Without derogating any of the rights established by such
contracts, this Contract supersedes and terminates, as of the
date hereof, all prior contracts between the Fund and the
Custodian relating to the custody of the Fund's assets.
22. The Parties
All references herein to "the Fund" are to each of the funds
listed on Appendix A individually, as if this Contract were
between such individual fund and the Custodian. In the case of a
series fund or trust, all references to "the Fund" are to the
individual series or portfolio of such fund or trust, or to such
fund or trust on behalf of the individual series or portfolio, as
PAGE 26
appropriate. Any reference in this Contract to "the parties"
shall mean the Custodian and such other individual Fund as to
which the matter pertains.
23. Governing Documents.
The term "Governing Documents" means the Articles of
Incorporation, Agreement of Trust, By-Laws and Registration
Statement filed under the Securities Act of 1933, as amended from
time to time.
24. Subcustodian Agreement.
Reference to the "Subcustodian Agreement" between the
Custodian and Chase shall mean any such agreement which shall be
in effect from time to time between Chase and the Custodian with
respect to foreign assets of the Fund.
25. Directors and Trustees.
It is understood and is expressly stipulated that neither
the holders of shares in the Fund nor any Directors or Trustees
of the Fund shall be personally liable hereunder.
26. Massachusetts Business Trust
With respect to any Fund which is a party to this Contract
and which is organized as a Massachusetts business trust, the
term Fund means and refers to the trustees from time to time
serving under the applicable trust agreement (Declaration of
Trust) of such Trust as the same may be amended from time to
time. It is expressly agreed that the obligations of any such
Trust hereunder shall not be binding upon any of the trustees,
shareholders, nominees, officers, agents or employees of the
Trust, personally, but bind only the trust property of the Trust,
as provided in the Declaration of Trust of the Trust. The
execution and delivery of this Contract has been authorized by
the trustees and signed by an authorized officer of the Trust,
acting as such, and neither such authorization by such Trustees
nor such execution and delivery by such officer shall be deemed
to have been made by any of them but shall bind only the trust
property of the Trust as provided in its Declaration of Trust.
27. Successors of Parties.
This Contract shall be binding on and shall inure to the
benefit of the Fund and the Custodian and their respective
successors.
IN WITNESS WHEREOF, each of the parties has caused this
instrument to be executed in its name and behalf by its duly
authorized representative and its seal to be hereunder affixed as
of the dates indicated below.
DATED: September 28, 1987
__________________
PAGE 27
STATE STREET BANK AND TRUST
COMPANY
ATTEST:
/s/Kathleen M. Kubit By/s/Charles Cassidy
_____________________ _________________________________
Assistant Secretary Vice President
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE INTERNATIONAL TRUST
T. Rowe Price International Stock Fund
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE U.S. TREASURY MONEY FUND, INC.
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE
FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE INSTITUTIONAL TRUST
Tax-Exempt Reserve Portfolio
PAGE 28
(SIGNATURES CONTINUED)
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
New York Tax-Free Money Fund
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
New York Tax-Free Bond Fund
T. ROWE PRICE INTERNATIONAL TRUST
T. Rowe Price International Bond Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME
TRUST
California Tax-Free Money Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME
TRUST
California Tax-Free Bond Fund
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
DATED: September 28, 1987
___________________
ATTEST:
/s/Nancy J. Wortman By/s/Carmen F. Deyesu
____________________________ __________________________________
PAGE 29
Appendix A
The following Funds are parties to this Agreement and have
so indicated their intention to be bound by such Agreement by
executing the Agreement on the dates indicated thereon.
T. Rowe Price California Tax-Free Income Trust on behalf of
the
California Tax-Free Bond Fund and
California Tax-Free Money Fund
T. Rowe Price Capital Appreciation Fund
T. Rowe Price Equity Income Fund
T. Rowe Price GNMA Fund
T. Rowe Price Growth & Income Fund, Inc.
T. Rowe Price Growth Stock Fund, Inc.
T. Rowe Price High Yield Fund, Inc.
T. Rowe Price Institutional Trust on behalf of the
Tax-Exempt Reserve Portfolio
T. Rowe Price International Trust on behalf of the
T. Rowe Price International Bond Fund and
T. Rowe Price International Stock Fund
T. Rowe Price New America Growth Fund
T. Rowe Price New Era Fund, Inc.
T. Rowe Price New Horizons Fund, Inc.
T. Rowe Price New Income Fund, Inc.
T. Rowe Price Prime Reserve Fund, Inc.
T. Rowe Price Science & Technology Fund, Inc.
T. Rowe Price Short-Term Bond Fund, Inc.
T. Rowe Price State Tax-Free Income Trust on behalf of the
Maryland Tax-Free Bond Fund,
New York Tax-Free Bond Fund and
New York Tax-Free Money Fund
T. Rowe Price Tax-Exempt Money Fund, Inc.
T. Rowe Price Tax-Free High Yield Fund, Inc.
T. Rowe Price Tax-Free Income Fund, Inc.
T. Rowe Price Tax-Free Short-Intermediate Fund, Inc.
T. Rowe Price U.S. Treasury Money Fund, Inc.
PAGE 30
AMENDMENT NO. 1 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
THIS AGREEMENT, made as of this 24th day of June, 1988, by
and between: T. Rowe Price Growth Stock Fund, Inc., T. Rowe Price
New Horizons Fund, Inc., T. Rowe Price New Era Fund, Inc., T.
Rowe Price New Income Fund, Inc., T. Rowe Price Prime Reserve
Fund, Inc., T. Rowe Price International Trust, T. Rowe Price U.S.
Treasury Money Fund, Inc., T. Rowe Price Growth & Income Fund,
Inc., T. Rowe Price Tax-Exempt Money Fund, Inc., T. Rowe Price
Tax-Free Income Fund, Inc., T. Rowe Price Tax-Free Short-
Intermediate Fund, Inc., T. Rowe Price Short-Term Bond Fund,
Inc., T. Rowe Price High Yield Fund, Inc., T. Rowe Price Tax-Free
High Yield Fund, Inc., T. Rowe Price New America Growth Fund, T.
Rowe Price Equity Income Fund, T. Rowe Price GNMA Fund, T. Rowe
Price Capital Appreciation Fund, T. Rowe Price Institutional
Trust, T. Rowe Price State Tax-Free Income Trust, T. Rowe Price
California Tax-Free Income Trust, T. Rowe Price Science &
Technology Fund, Inc., (hereinafter together called the "Funds"
and individually "Fund") and State Street Bank and Trust Company,
a Massachusetts trust,
W I T N E S S E T H:
It is mutually agreed that the Custodian Contract made by
the parties on the 28th day of September, 1987, is hereby amended
by adding thereto the T. Rowe Price Small-Cap Value Fund, Inc.
T. ROWE PRICE GROWTH STOCK FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE NEW HORIZONS FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE NEW ERA FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
PAGE 31
(SIGNATURES CONTINUED)
T. ROWE PRICE NEW INCOME FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE PRIME RESERVE FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE INTERNATIONAL TRUST
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE U.S. TREASURY MONEY FUND, INC.
/s/Henry H.Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE GROWTH & INCOME FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
PAGE 32
(SIGNATURES CONTINUED)
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE
FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE HIGH YIELD FUND, INC.
/s/ Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE NEW AMERICA GROWTH FUND
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE EQUITY INCOME FUND
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE GNMA FUND
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE CAPITAL APPRECIATION FUND
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE INSTITUTIONAL TRUST
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
PAGE 33
(SIGNATURES CONTINUED)
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME
TRUST
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE SCIENCE & TECHNOLOGY
FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
STATE STREET BANK AND TRUST COMPANY
/s/William Blackwell
______________________________________________
By:
PAGE 34
AMENDMENT NO. 2 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, between State Street Bank and Trust Company and
each of the Parties listed on Appendix A thereto is hereby
further amended, as of October 19, 1988, by adding thereto the T.
Rowe Price International Discovery Fund, Inc., a separate series
of T. Rowe Price International Trust.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL TRUST
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. ROWE PRICE U.S. TREASURY MONEY FUND, INC.
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE
FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
PAGE 35
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE INSTITUTIONAL TRUST
Tax-Exempt Reserve Portfolio
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME
TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY
FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
STATE STREET BANK AND TRUST COMPANY
/s/Guy R. Sturgeon
______________________________________________
By:
PAGE 36
AMENDMENT NO. 3 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988 and October 19, 1988, between State Street Bank and
Trust Company and each of the Parties listed on Appendix A
thereto is hereby further amended, as of February 22, 1989, by
adding thereto the T. Rowe Price International Equity Fund, Inc.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL TRUST
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. ROWE PRICE U.S. TREASURY MONEY FUND, INC.
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE
FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
PAGE 37
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE INSTITUTIONAL TRUST
Tax-Exempt Reserve Portfolio
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME
TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY
FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE INTERNATIONAL
EQUITY FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
STATE STREET BANK AND TRUST COMPANY
/s/K. Donelson
______________________________________________
By:
PAGE 38
AMENDMENT NO. 4 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988 and February 22, 1989, between
State Street Bank and Trust Company and each of the Parties
listed on Appendix A thereto is hereby further amended, as of
July 19, 1989, by adding thereto the Institutional International
Funds, Inc., on behalf of the Foreign Equity Fund.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL TRUST
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. ROWE PRICE U.S. TREASURY MONEY FUND, INC.
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE
FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
PAGE 39
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE INSTITUTIONAL TRUST
Tax-Exempt Reserve Portfolio
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME
TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY
FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE INTERNATIONAL
EQUITY FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
______________________________________________
By:
PAGE 40
AMENDMENT NO. 5 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, and July 19,
1989 between State Street Bank and Trust Company and each of the
Parties listed on Appendix A thereto is hereby further amended,
as of September 15, 1989, by adding thereto the T. Rowe Price
U.S. Treasury Funds, Inc., on behalf of the U.S. Treasury
Intermediate Fund and the U.S. Treasury Long-Term Fund.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL TRUST
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. ROWE PRICE U.S. TREASURY MONEY FUND, INC.
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE
FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
PAGE 41
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE INSTITUTIONAL TRUST
Tax-Exempt Reserve Portfolio
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME
TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY
FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE INTERNATIONAL
EQUITY FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
/s/Henry H. Hopkins
____________________________________
By: Henry H. Hopkins
Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
____________________________________
By:
PAGE 42
AMENDMENT NO. 6 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19, 1989
and September 15, 1989, between State Street Bank and Trust
Company and each of the Parties listed on Appendix A thereto is
hereby further amended, as of December 15, 1989, by restating
Section 2.15 as follows:
2.15 Communications Relating to Fund Portfolio Securities. The
Custodian shall transmit promptly to the Fund all written
information (including, without limitation, pendency of calls and
maturities of domestic securities and expirations of rights in
connection therewith and notices of exercise of call and put
options written by the Fund and the maturity of futures contracts
purchased or sold by the Fund) received by the Custodian from
issuers of the domestic securities being held for the Fund by the
Custodian, an agent appointed under Section 2.9, or sub-custodian
appointed under Section 1. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Fund all
written information received by the Custodian, an agent appointed
under Section 2.9, or sub-custodian appointed under Section 1
from issuers of the domestic securities whose tender or exchange
is sought and from the party (or his agents) making the tender or
exchange offer. If the Fund desires to take action with respect
to any tender offer, exchange offer or any other similar
transaction, the Fund shall notify the Custodian of such desired
action at least 48 hours (excluding holidays and weekends) prior
to the time such action must be taken under the terms of the
tender, exchange offer, or other similar transaction, and it will
be the responsibility of the Custodian to timely transmit to the
appropriate person(s) the Fund's notice. Where the Fund does not
notify the custodian of its desired action within the aforesaid
48 hour period, the Custodian shall use its best efforts to
timely transmit the Fund's notice to the appropriate person. It
is expressly noted that the parties may negotiate and agree to
alternative procedures with respect to such 48 hour notice period
on a selective and individual basis.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
PAGE 43
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL TRUST
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. ROWE PRICE U.S. TREASURY MONEY FUND, INC.
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE
FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE INSTITUTIONAL TRUST
Tax-Exempt Reserve Portfolio
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME
TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY
FUND, INC.
PAGE 44
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE INTERNATIONAL
EQUITY FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U. S. TREASURY FUNDS, INC.
U. S. Treasury Intermediate Fund
U. S. Treasury Long-Term Fund
/s/Carmen F. Deyesu
_________________________________________
By: Carmen F. Deyesu,
Treasurer
STATE STREET BANK AND TRUST COMPANY
/s/ E. D. Hawkes, Jr.
_________________________________________
By: E. D. Hawkes, Jr.
Vice President
PAGE 45
Amendment No. 7 filed on Form SE January 25, 1990 with
International Trust (CIK 313212) Post Effective Amendment No. 17.
PAGE 46
AMENDMENT NO. 8 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, and December 20,
1989, between State Street Bank and Trust Company and each of the
Parties listed on Appendix A thereto is hereby further amended,
as of January 25, 1990, by adding thereto the T. Rowe Price
European Stock Fund, a separate series of T. Rowe Price
International Trust.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL TRUST
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. ROWE PRICE U.S. TREASURY MONEY FUND, INC.
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE
FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
PAGE 47
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE INSTITUTIONAL TRUST
Tax-Exempt Reserve Portfolio
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME
TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY
FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE INTERNATIONAL
EQUITY FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
/s/Henry H. Hopkins
_________________________________________
By: Henry H. Hopkins
Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
_________________________________________
By:
PAGE 48
AMENDMENT NO. 9 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
and January 25, 1990 between State Street Bank and Trust Company
and each of the Parties listed on Appendix A thereto is hereby
further amended, as of February 21, 1990, by adding thereto the
T. Rowe Price Index Trust, Inc., on behalf of the T. Rowe Price
Equity Index Fund.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL TRUST
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. ROWE PRICE U.S. TREASURY MONEY FUND, INC.
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE
FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
PAGE 49
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE INSTITUTIONAL TRUST
Tax-Exempt Reserve Portfolio
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME
TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY
FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE INTERNATIONAL
EQUITY FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
/s/Henry H. Hopkins
_____________________________________
By: Henry H. Hopkins
Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
______________________________________
By:
PAGE 50
AMENDMENT NO. 10 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, between State Street Bank
and Trust Company and each of the Parties listed on Appendix A
thereto is hereby further amended, as of June 12, 1990, by adding
thereto the T. Rowe Price Spectrum Fund, Inc., on behalf of the
Spectrum Growth Fund and the Spectrum Income Fund.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL TRUST
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. ROWE PRICE U.S. TREASURY MONEY FUND, INC.
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE
FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
PAGE 51
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE INSTITUTIONAL TRUST
Tax-Exempt Reserve Portfolio
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME
TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY
FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE INTERNATIONAL
EQUITY FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
/s/Henry H. Hopkins
_____________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
______________________________________
By:
PAGE 52
AMENDMENT NO. 11 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, and June 12, 1990 between
State Street Bank and Trust Company and each of the Parties
listed on Appendix A thereto is hereby further amended, as of
July 18, 1990, by adding thereto the T. Rowe Price New Asia Fund,
a separate series of the T. Rowe Price International Funds, Inc.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE
FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
PAGE 53
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE INSTITUTIONAL TRUST
Tax-Exempt Reserve Portfolio
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME
TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY
FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE INTERNATIONAL
EQUITY FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
/s/Henry H. Hopkins
_____________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/ Guy R. Sturgeon
______________________________________
By: Guy R. Sturgeon
PAGE 54
AMENDMENT NO. 12 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, and July 18,
1990 between State Street Bank and Trust Company and each of the
Parties listed on Appendix A thereto is hereby further amended,
as of October 15, 1990, by adding thereto the T. Rowe Price
Global Government Bond Fund, a separate series of the T. Rowe
Price International Funds, Inc.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE
FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
PAGE 55
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE INSTITUTIONAL TRUST
Tax-Exempt Reserve Portfolio
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME
TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY
FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE INTERNATIONAL
EQUITY FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
/s/Henry H. Hopkins
_____________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/ Guy R. Sturgeon
______________________________________
By:
PAGE 56
AMENDMENT NO. 13 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, and October 15, 1990, between State Street Bank and Trust
Company and each of the Parties listed on Appendix A thereto is
hereby further amended, as of February 13, 1991, by adding
thereto the Virginia Tax-Free Bond Fund and New Jersey Tax-Free
Bond Fund, two separate series of the T. Rowe Price State Tax-
Free Income Trust
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE
FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
PAGE 57
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME
TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY
FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE INTERNATIONAL
EQUITY FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
/s/Henry H. Hopkins
_____________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/ Guy Sturgeon
______________________________________
By: Vice President
PAGE 58
AMENDMENT NO. 14 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, and February 13, 1991, between State
Street Bank and Trust Company and each of the Parties listed on
Appendix A thereto is hereby further amended, as of March 6,
1991, by adding thereto the T. Rowe Price Balanced Fund, Inc.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE
FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
PAGE 59
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME
TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY
FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE INTERNATIONAL
EQUITY FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
/s/Henry H. Hopkins
_____________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
______________________________________
By:
PAGE 60
AMENDMENT NO. 15 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, and March 6, 1991,
between State Street Bank and Trust Company and each of the
Parties listed on Appendix A thereto is hereby further amended,
as of September 12, 1991, by adding thereto the T. Rowe Price
Adjustable Rate U.S. Government Fund, Inc.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE
FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
PAGE 61
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME
TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY
FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE INTERNATIONAL
EQUITY FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S.
GOVERNMENT FUND, INC.
/s/Henry H. Hopkins
_____________________________________
By: Henry H. Hopkins, Vice President
PAGE 62
STATE STREET BANK AND TRUST COMPANY
/s/
______________________________________
By:
PAGE 63
AMENDMENT NO. 16 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991 and
September 12, 1991, between State Street Bank and Trust Company
and each of the Parties listed on Appendix A thereto is hereby
further amended, as of November 6, 1991, by adding thereto the T.
Rowe Price Japan Fund, a separate series of the T. Rowe Price
International Funds, Inc.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE
FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
PAGE 64
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME
TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY
FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE INTERNATIONAL
EQUITY FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S.
GOVERNMENT FUND, INC.
PAGE 65
/s/Henry H. Hopkins
_____________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
______________________________________
By:
PAGE 66
AMENDMENT NO. 17 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991 and November 6, 1991, between State Street
Bank and Trust Company and each of the Parties listed on
Appendix A thereto is hereby further amended, as of April 23,
1992, by adding thereto the T. Rowe Price Mid-Cap Growth Fund,
Inc. and T. Rowe Price Short-Term Global Income Fund, a separate
series of the T. Rowe Price International Funds, Inc.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Short-Term Global Income Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
PAGE 67
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE INTERNATIONAL EQUITY FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
PAGE 68
/s/Henry H. Hopkins
_________________________________
By:Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
____________________________________
By:
PAGE 69
AMENDMENT NO. 18 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, and April 23, 1992, between
State Street Bank and Trust Company and each of the Parties
listed on Appendix A thereto is hereby further amended, as of
September 2, 1992, by adding thereto the T. Rowe Price OTC Fund,
a series of the T. Rowe Price OTC Fund, Inc.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Short-Term Global Income Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
PAGE 70
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
PAGE 71
/s/Henry H. Hopkins
__________________________________
By:Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
__________________________________
By:
PAGE 72
AMENDMENT NO. 19 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, April 23, 1992, and
September 2, 1992, between State Street Bank and Trust Company
and each of the Parties listed on Appendix A thereto is hereby
further amended, as of November 3, 1992, by adding thereto the T.
Rowe Price Tax-Free Insured Intermediate Bond Fund, Inc.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Short-Term Global Income Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
PAGE 73
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
PAGE 74
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND
FUND, INC.
/s/Henry H. Hopkins
_________________________________________
By:Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
_________________________________________
By:
PAGE 75
AMENDMENT NO. 20 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, April 23, 1992, September
2, 1992, and November 3, 1992, between State Street Bank and
Trust Company and each of the Parties listed on Appendix A
thereto is hereby further amended, as of December 16, 1992, by
adding thereto the T. Rowe Price Dividend Growth Fund, Inc.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Short-Term Global Income Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
PAGE 76
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
PAGE 77
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND
FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
/s/Henry H. Hopkins
_________________________________________
By:Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
_________________________________________
By:
PAGE 78
AMENDMENT NO. 21 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, April 23, 1992, September
2, 1992, November 3, 1992, and December 16, 1992, between State
Street Bank and Trust Company and each of the Parties listed on
Appendix A thereto is hereby further amended, as of December 21,
1992, by adding thereto the Maryland Short-Term Tax-Free Bond
Fund, an additional series to the T. Rowe Price State Tax-Free
Income Trust.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Short-Term Global Income Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
PAGE 79
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
PAGE 80
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND
FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
/s/Henry H. Hopkins
_________________________________________
By:Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
_________________________________________
By:
PAGE 81
AMENDMENT NO. 22 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, April 23, 1992, September
2, 1992, November 3, 1992, December 16, 1992, and December 21,
1992, between State Street Bank and Trust Company and each of the
Parties listed on Appendix A thereto is hereby further amended,
as of January 28, 1993, by adding thereto the Georgia Tax-Free
Bond Fund and the Florida Insured Intermediate Tax-Free Fund,
additional series to the T. Rowe Price State Tax-Free Income
Trust.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Short-Term Global Income Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
PAGE 82
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
PAGE 83
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND
FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
/s/Henry H. Hopkins
_________________________________________
By:Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
_________________________________________
By:
PAGE 84
AMENDMENT NO. 23 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, April 23, 1992, September
2, 1992, November 3, 1992, December 16, 1992, December 21, 1992,
and January 28, 1993, between State Street Bank and Trust Company
and each of the Parties listed on Appendix A thereto is hereby
further amended, as of April 22, 1993, by adding thereto the T.
Rowe Price Blue Chip Growth Fund, Inc.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Short-Term Global Income Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
PAGE 85
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
PAGE 86
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND
FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
/s/Henry H. Hopkins
_________________________________________
By:Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
__________________________________________
By:
PAGE 87
AMENDMENT NO. 24 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, April 23, 1992, September
2, 1992, November 3, 1992, December 16, 1992, December 21, 1992,
January 28, 1993, April 22, 1993, between State Street Bank and
Trust Company and each of the Parties listed on Appendix A
thereto is hereby further amended, as of September 16, 1993, by
adding thereto the T. Rowe Price Summit Funds, Inc. and T. Rowe
Price Summit Municipal Funds, Inc.
Notwithstanding anything to the contrary herein, it is
understood that the T. Rowe Price Summit Funds, Inc. and T. Rowe
Price Summit Municipal Funds, Inc. (collectively referred to as
the "Funds") shall not be responsible for paying any of the fees
or expenses set forth herein but that, in accordance with the
Investment Management Agreement, dated September 16, 1993,
between the Funds and T. Rowe Price Associates, Inc. ("T. Rowe
Price"), the Funds will require T. Rowe Price to pay all such
fees and expenses.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Short-Term Global Income Fund
PAGE 88
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
PAGE 89
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND
FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market
Fund
T. Rowe Price Summit Municipal Intermediate
Fund
T. Rowe Price Summit Municipal Income Fund
/s/Henry H. Hopkins
________________________________________
By:Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
________________________________________
By:
PAGE 90
AMENDMENT NO. 25 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, April 23, 1992, September
2, 1992, November 3, 1992, December 16, 1992, December 21, 1992,
January 28, 1993, April 22, 1993, and September 16, 1993, between
State Street Bank and Trust Company and each of the Parties
listed on Appendix A thereto is hereby further amended, as of
November 3, 1993, by adding thereto the T. Rowe Price Latin
America Fund, a separate series of the T. Rowe Price
International Funds, Inc.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Short-Term Global Income Fund
T. Rowe Price Latin America Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
PAGE 91
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
PAGE 92
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND
FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market
Fund
T. Rowe Price Summit Municipal Intermediate
Fund
T. Rowe Price Summit Municipal Income Fund
/s/Henry H. Hopkins
________________________________________
By:Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
________________________________________
By:
PAGE 93
AMENDMENT NO. 26 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, April 23, 1992, September
2, 1992, November 3, 1992, December 16, 1992, December 21, 1992,
January 28, 1993, April 22, 1993, September 16, 1993, and
November 3, 1993, between State Street Bank and Trust Company and
each of the Parties listed on Appendix A thereto is hereby
further amended, as of March 1, 1994, by adding thereto the T.
Rowe Price Equity Income Portfolio and T. Rowe Price New America
Growth Portfolio, two separate series of the T. Rowe Price Equity
Series, Inc. and T. Rowe Price International Stock Portfolio, a
separate series of the T. Rowe Price International Series, Inc.
Notwithstanding anything to the contrary herein, it is
understood that the T. Rowe Price Equity Series, Inc. and T. Rowe
Price International Series, Inc. (collectively referred to as the
"Funds") shall not be responsible for paying any of the fees or
expenses set forth herein but that, in accordance with the
Investment Management Agreements, dated March 1, 1994, between
the Funds and T. Rowe Price Associates, Inc. and Rowe Price-
Fleming International, Inc. (collectively referred to as "T. Rowe
Price"), the Funds will require T. Rowe Price to pay all such
fees and expenses.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
PAGE 94
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Short-Term Global Income Fund
T. Rowe Price Latin America Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
PAGE 95
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND
FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market
Fund
T. Rowe Price Summit Municipal Intermediate
Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
PAGE 96
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
/s/Henry H. Hopkins
________________________________________
By:Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
________________________________________
By:
PAGE 97
AMENDMENT NO. 27 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, April 23, 1992, September
2, 1992, November 3, 1992, December 16, 1992, December 21, 1992,
January 28, 1993, April 22, 1993, September 16, 1993, November 3,
1993, and March 1, 1994, between State Street Bank and Trust
Company and each of the Parties listed on Appendix A thereto is
hereby further amended, as of April 21, 1994, by adding thereto
the T. Rowe Price Limited-Term Bond Portfolio, a separate series
of the T. Rowe Price Fixed Income Series, Inc.
Notwithstanding anything to the contrary herein, it is
understood that the T. Rowe Price Fixed Income Series, Inc.
(referred to as the "Fund") shall not be responsible for paying
any of the fees or expenses set forth herein but that, in
accordance with the Investment Management Agreement, dated April
21, 1994, between the Fund and T. Rowe Price Associates, Inc.
(referred to as "T. Rowe Price"), the Fund will require T. Rowe
Price to pay all such fees and expenses.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Short-Term Global Income Fund
T. Rowe Price Latin America Fund
PAGE 98
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
PAGE 99
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND
FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market
Fund
T. Rowe Price Summit Municipal Intermediate
Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
PAGE 100
/s/Henry H. Hopkins
________________________________________
By:Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
________________________________________
By:
PAGE 101
AMENDMENT NO. 28 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, April 23, 1992, September
2, 1992, November 3, 1992, December 16, 1992, December 21, 1992,
January 28, 1993, April 22, 1993, September 16, 1993, November 3,
1993, March 1, 1994, and April 21, 1994, between State Street
Bank and Trust Company and each of the Parties listed on
Appendix A thereto is hereby further amended, as of July 27,
1994, by adding thereto the T. Rowe Price Personal Strategy
Balanced Fund, T. Rowe Price Personal Strategy Growth Fund, and
T. Rowe Price Personal Strategy Income Fund, three separate
series of the T. Rowe Price Personal Strategy Funds, Inc.
Notwithstanding anything to the contrary herein, it is
understood that the T. Rowe Price Personal Strategy Funds, Inc.
(collectively referred to as the "Funds") shall not be
responsible for paying any of the fees or expenses set forth
herein but that, in accordance with the Investment Management
Agreements, dated July 27, 1994, between the Funds and T. Rowe
Price Associates, Inc. (referred to as "T. Rowe Price"), the
Funds will require T. Rowe Price to pay all such fees and
expenses.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
PAGE 102
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Short-Term Global Income Fund
T. Rowe Price Latin America Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
PAGE 103
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND
FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market
Fund
T. Rowe Price Summit Municipal Intermediate
Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
PAGE 104
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
/s/Henry H. Hopkins
________________________________________
By:Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
________________________________________
By:
PAGE 105
AMENDMENT NO. 29 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, April 23, 1992, September
2, 1992, November 3, 1992, December 16, 1992, December 21, 1992,
January 28, 1993, April 22, 1993, September 16, 1993, November 3,
1993, March 1, 1994, and April 21, 1994, between State Street
Bank and Trust Company and each of the Parties listed on
Appendix A thereto is hereby further amended, as of July 27,
1994, by adding thereto the T. Rowe Price Personal Strategy
Balanced Strategy Balanced Portfolio, a separate series of the T.
Rowe Price Equity Series, Inc.
Notwithstanding anything to the contrary herein, it is
understood that the T. Rowe Price Personal Strategy Balanced
Portfolio, a separate series of the T. Rowe Price Equity Series,
Inc. (referred to as the "Fund) shall not be responsible for
paying any of the fees or expenses set forth herein but that, in
accordance with the Investment Management Agreement, dated July
27, 1994, between the Fund and T. Rowe Price Associates, Inc.
(referred to as "T. Rowe Price"), the Fund will require T. Rowe
Price to pay all such fees and expenses.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
PAGE 106
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Short-Term Global Income Fund
T. Rowe Price Latin America Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
PAGE 107
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND
FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market
Fund
T. Rowe Price Summit Municipal Intermediate
Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced
Portfolio
PAGE 108
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
/s/Henry H. Hopkins
________________________________________
By:Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
________________________________________
By:
PAGE 109
AMENDMENT NO. 30 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, April 23, 1992, September
2, 1992, November 3, 1992, December 16, 1992, December 21, 1992,
January 28, 1993, April 22, 1993, September 16, 1993, November 3,
1993, March 1, 1994, April 21, 1994, and July 27, 1994 between
State Street Bank and Trust Company and each of the Parties
listed on Appendix A thereto is hereby further amended, as of
September 21, 1994, by adding thereto the T. Rowe Price Value
Fund, Inc.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Short-Term Global Income Fund
T. Rowe Price Latin America Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
PAGE 110
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
PAGE 111
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND
FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market
Fund
T. Rowe Price Summit Municipal Intermediate
Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced
Portfolio
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
PAGE 112
T. ROWE PRICE VALUE FUND, INC.
/s/Henry H. Hopkins
________________________________________
By:Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/Carol C. Ayotte
________________________________________
By:Carol C. Ayotte, Vice President
PAGE 113
AMENDMENT NO. 31 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, April 23, 1992, September
2, 1992, November 3, 1992, December 16, 1992, December 21, 1992,
January 28, 1993, April 22, 1993, September 16, 1993, November 3,
1993, March 1, 1994, April 21, 1994, July 27, 1994, and September
21, 1994 between State Street Bank and Trust Company and each of
the Parties listed on Appendix A thereto is hereby further
amended, as of November 1, 1994, by adding thereto the T. Rowe
Price Virginia Short-Term Tax-Free Bond Fund, a separate series
of the T. Rowe Price State Tax-Free Income Trust.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Short-Term Global Income Fund
T. Rowe Price Latin America Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
PAGE 114
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
PAGE 115
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND
FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market
Fund
T. Rowe Price Summit Municipal Intermediate
Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced
Portfolio
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
PAGE 116
T. ROWE PRICE VALUE FUND, INC.
/s/Henry H. Hopkins
________________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/Carol C. Ayotte
________________________________________
By:Carol C. Ayotte, Vice President
PAGE 117
AMENDMENT NO. 32 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, April 23, 1992, September
2, 1992, November 3, 1992, December 16, 1992, December 21, 1992,
January 28, 1993, April 22, 1993, September 16, 1993, November 3,
1993, March 1, 1994, April 21, 1994, July 27, 1994, September 21,
1994, and November 1, 1994 between State Street Bank and Trust
Company and each of the Parties listed on Appendix A thereto is
hereby further amended, as of November 2, 1994, by adding thereto
the T. Rowe Price Capital Opportunity Fund, Inc. and the T. Rowe
Price Emerging Markets Bond Fund, a separate series of the T.
Rowe Price International Funds, Inc.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Short-Term Global Income Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
PAGE 118
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
PAGE 119
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND
FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market
Fund
T. Rowe Price Summit Municipal Intermediate
Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced
Portfolio
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE VALUE FUND, INC.
PAGE 120
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
/s/Henry H. Hopkins
________________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/Carol C. Ayotte
________________________________________
By:Carol C. Ayotte, Vice President
PAGE 121
AMENDMENT NO. 33 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, April 23, 1992, September
2, 1992, November 3, 1992, December 16, 1992, December 21, 1992,
January 28, 1993, April 22, 1993, September 16, 1993, November 3,
1993, March 1, 1994, April 21, 1994, July 27, 1994, September 21,
1994, November 1, 1994, and November 2, 1994 between State Street
Bank and Trust Company and each of the Parties listed on
Appendix A thereto is hereby further amended, as of January 25,
1995, by adding thereto the T. Rowe Price Emerging Markets Stock
Fund, a separate series of the T. Rowe Price International Funds,
Inc.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Short-Term Global Income Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
PAGE 122
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
PAGE 123
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND
FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market
Fund
T. Rowe Price Summit Municipal Intermediate
Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced
Portfolio
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE VALUE FUND, INC.
PAGE 124
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
/s/Henry H. Hopkins
_____________________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/Carol C. Ayotte
_____________________________________________
By: Carol C. Ayotte, Vice President
PAGE 125
AMENDMENT NO. 34 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, April 23, 1992, September
2, 1992, November 3, 1992, December 16, 1992, December 21, 1992,
January 28, 1993, April 22, 1993, September 16, 1993, November 3,
1993, March 1, 1994, April 21, 1994, July 27, 1994, September 21,
1994, November 1, 1994, November 2, 1994, and January 25, 1995,
between State Street Bank and Trust Company and each of the
Parties listed on Appendix A thereto is hereby further amended,
as of September 20, 1995, by adding thereto the T. Rowe Price
Corporate Income Fund, Inc.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Short-Term Global Income Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
PAGE 126
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
PAGE 127
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC., now known as T. ROWE PRICE SHORT-
TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND
FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market
Fund
T. Rowe Price Summit Municipal Intermediate
Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced
Portfolio
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE VALUE FUND, INC.
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
PAGE 128
T. ROWE PRICE CORPORATE INCOME FUND, INC.
/s/Henry H. Hopkins
_____________________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/Carol C. Ayotte
_____________________________________________
By: Carol C. Ayotte, Vice President
PAGE 129
AMENDMENT NO. 35 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, April 23, 1992, September
2, 1992, November 3, 1992, December 16, 1992, December 21, 1992,
January 28, 1993, April 22, 1993, September 16, 1993, November 3,
1993, March 1, 1994, April 21, 1994, July 27, 1994, September 21,
1994, November 1, 1994, November 2, 1994, January 25, 1995,
September 20, 1995, and October 11, 1995, between State Street
Bank and Trust Company and each of the Parties listed on
Appendix A thereto is hereby further amended, as of November 1,
1995, by adding thereto the T. Rowe Price Global Stock Fund, a
separate series of the T. Rowe Price International Funds, Inc.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Short-Term Global Income Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
PAGE 130
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
PAGE 131
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC., now known as T. ROWE PRICE SHORT-
TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND
FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market
Fund
T. Rowe Price Summit Municipal Intermediate
Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced
Portfolio
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE VALUE FUND, INC.
PAGE 132
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
/s/Henry H. Hopkins
_____________________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/Carol C. Ayotte
_____________________________________________
By: Carol C. Ayotte, Vice President
PAGE 133
AMENDMENT NO. 36 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, April 23, 1992, September
2, 1992, November 3, 1992, December 16, 1992, December 21, 1992,
January 28, 1993, April 22, 1993, September 16, 1993, November 3,
1993, March 1, 1994, April 21, 1994, July 27, 1994, September 21,
1994, November 1, 1994, November 2, 1994, January 25, 1995,
September 20, 1995, October 11, 1995, and November 1, 1995,
between State Street Bank and Trust Company and each of the
Parties listed on Appendix A thereto is hereby further amended,
as of December 11, 1995, by adding thereto the T. Rowe Price
Health Sciences Fund, Inc.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Short-Term Global Income Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
PAGE 134
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
PAGE 135
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC., now known as T. ROWE PRICE SHORT-
TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND
FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market
Fund
T. Rowe Price Summit Municipal Intermediate
Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced
Portfolio
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
PAGE 136
T. ROWE PRICE VALUE FUND, INC.
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
/s/Henry H. Hopkins
_____________________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/Carol C. Ayotte
_____________________________________________
By: Carol C. Ayotte, Vice President
PAGE 137
AMENDMENT NO. 37 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, April 23, 1992, September
2, 1992, November 3, 1992, December 16, 1992, December 21, 1992,
January 28, 1993, April 22, 1993, September 16, 1993, November 3,
1993, March 1, 1994, April 21, 1994, July 27, 1994, September 21,
1994, November 1, 1994, November 2, 1994, January 25, 1995,
September 20, 1995, October 11, 1995, November 1, 1995, and
December 11, 1995, between State Street Bank and Trust Company
and each of the Parties listed on Appendix A thereto is hereby
further amended, as of April 24, 1996, by adding thereto the T.
Rowe Price Mid-Cap Value Fund, Inc. and Mid-Cap Equity Growth
Fund, a separate series of the Institutional Domestic Equity
Funds, Inc.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Short-Term Global Income Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
PAGE 138
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
PAGE 139
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC., now known as T. ROWE PRICE SHORT-
TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND
FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market
Fund
T. Rowe Price Summit Municipal Intermediate
Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced
Portfolio
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
PAGE 140
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE VALUE FUND, INC.
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
INSTITUTIONAL DOMESTIC EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
/s/Henry H. Hopkins
_____________________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/Carol C. Ayotte
_____________________________________________
By: Carol C. Ayotte, Vice President
The Transfer Agency and Service Agreement between T. Rowe
Price Services, Inc. and T. Rowe Price Funds, dated January 1,
1996, as amended, should be inserted here.
PAGE 1
TRANSFER AGENCY AND SERVICE AGREEMENT
between
T. ROWE PRICE SERVICES, INC.
and
EACH OF THE PARTIES INDICATED ON APPENDIX A
PAGE 2
TABLE OF CONTENTS
Page
Article A Terms of Appointment . . . . . . . . . . . . . 2
Article B Duties of Price Services . . . . . . . . . . . 2
1. Receipt of Orders/Payments . . . . . . . . 3
2. Written Redemptions . . . . . . . . . . . 4
3. Transfers . . . . . . . . . . . . . . . . 5
4. Confirmations . . . . . . . . . . . . . . 6
5. Returned Checks and ACH Debits . . . . . . 6
6. Redemptions of Shares under Ten Day Hold . 6
7. Dividends, Distributions and Other
Corporate Actions . . . . . . . . . . . . 8
8. Unclaimed Payments and Certificates . . . 9
9. Books and Records . . . . . . . . . . . . 9
10. Authorized Issued and Outstanding Shares 11
11. Tax Information . . . . . . . . . . . . 11
12. Information to be Furnished to the Fund 12
13. Correspondence . . . . . . . . . . . . . 12
14. Lost or Stolen Securities . . . . . . . 12
15. Telephone Services . . . . . . . . . . . 12
16. Proxies . . . . . . . . . . . . . . . . 13
17. Form N-SAR . . . . . . . . . . . . . . . 13
18. Cooperation With Accountants . . . . . . 13
19. Blue Sky . . . . . . . . . . . . . . . . 13
20. Other Services . . . . . . . . . . . . . 14
21. Fees and Out-of-Pocket Expenses . . . . 14
Article C Representations and Warranties of the Price
Services . . . . . . . . . . . . . . . . . . 15
Article D Representations and Warranties of the Fund . 16
Article E Standard of Care/Indemnification . . . . . . 17
Article F Dual Interests . . . . . . . . . . . . . . . 19
Article G Documentation . . . . . . . . . . . . . . . . 19
Article H References to Price Services . . . . . . . . 20
Article I Compliance with Governmental Rules and
Regulations . . . . . . . . . . . . . . . . . 21
Article J Ownership of Software and Related Material . 21
PAGE 3
Article K Quality Service Standards . . . . . . . . . . 21
Article L As of Transactions . . . . . . . . . . . . . 21
Article M Term and Termination of Agreement . . . . . . 24
Article N Notice . . . . . . . . . . . . . . . . . . . 25
Article O Assignment . . . . . . . . . . . . . . . . . 25
Article P Amendment/Interpretive Provisions . . . . . . 25
Article Q Further Assurances . . . . . . . . . . . . . 25
Article R Maryland Law to Apply . . . . . . . . . . . . 26
Article S Merger of Agreement . . . . . . . . . . . . . 26
Article T Counterparts . . . . . . . . . . . . . . . . 26
Article U The Parties . . . . . . . . . . . . . . . . . 26
Article V Directors, Trustees, Shareholders and
Massachusetts Business Trust . . . . . . . . 26
Article W Captions . . . . . . . . . . . . . . . . . . 27
PAGE 4
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the first day of January, 1996, by and
between T. ROWE PRICE SERVICES, INC., a Maryland corporation
having its principal office and place of business at 100 East
Pratt Street, Baltimore, Maryland 21202 ("Price Services"), and
EACH FUND WHICH IS LISTED ON APPENDIX A (as such Appendix may be
amended from time to time) and which evidences its agreement to
be bound hereby by executing a copy of this Agreement (each such
Fund individually hereinafter referred to as "the Fund", whose
definition may be found in Article U);
WHEREAS, the Fund desires to appoint Price Services as its
transfer agent, dividend disbursing agent and agent in connection
with certain other activities, and Price Services desires to
accept such appointment;
WHEREAS, Price Services represents that it is registered
with the Securities and Exchange Commission as a Transfer Agent
under Section 17A of the Securities Exchange Act of 1934 ("'34
Act") and will notify each Fund promptly if such registration is
revoked or if any proceeding is commenced before the Securities
and Exchange Commission which may lead to such revocation;
WHEREAS, certain of the Funds are named investment options
under various tax-sheltered retirement plans including, but not
limited to, individual retirement accounts, simplified employee
PAGE 5
pension plans, deferred compensation plans, 403(b) plans, and
profit sharing, thrift, and money purchase pension plans for
self-employed individuals and professional partnerships and
corporations, (collectively referred to as "Retirement Plans");
WHEREAS, Price Services has the capability of providing
special services, on behalf of the Funds, for the accounts of
shareholders participating in these Retirement Plans ("Retirement
Accounts").
WHEREAS, Price Services may subcontract or jointly contract
with other parties, on behalf of the Funds to perform certain of
the functions and services described herein including services to
Retirement Plans and Retirement Accounts. Price Services may
also enter into, on behalf of the Funds, certain banking
relationships to perform various banking services including, but
not limited to, check deposits, check disbursements, automated
clearing house transactions ("ACH") and wire transfers. Subject
to guidelines mutually agreed upon by the Funds and Price
Services, excess balances, if any, resulting from these banking
relationships will be invested and the income therefrom will be
used to offset fees which would otherwise be charged to the Funds
under this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
PAGE 6
A. Terms of Appointment
Subject to the terms and conditions set forth in this
Agreement, the Fund hereby employs and appoints Price Services to
act, and Price Services agrees to act, as the Fund's transfer
agent, dividend disbursing agent and agent in connection with:
(1) the Fund's authorized and issued shares of its common stock
or shares of beneficial interest (all such stock and shares to be
referred to as "Shares"); (2) any accumulation, open-account or
similar plans provided to the shareholders of the Fund
("Shareholders"), including, without limitation, any periodic
investment plan or periodic withdrawal program; and (3) certain
Retirement Plan and Retirement Accounts as agreed upon by the
parties.
The parties to the Agreement hereby acknowledge that from
time to time, Price Services and T. Rowe Price Trust Company may
enter into contracts ("Other Contracts") with employee benefit
plans and/or their sponsors for the provision of certain plan
participant services to Retirement Plans and Retirement Accounts.
Compensation paid to Price Services pursuant to this Agreement
is with respect to the services described herein and not with
respect to services provided under Other Contracts.
PAGE 7
B. Duties of Price Services
Price Services agrees that it will perform the following
services:
1. Receipt of Orders/Payments
Receive for acceptance, orders/payments for the
purchase of Shares and promptly deliver payment and
appropriate documentation thereof to the authorized
custodian of the Fund (the "Custodian"). Upon receipt of
any check or other instrument drawn or endorsed to it as
agent for, or identified as being for the account of, the
Fund, Price Services will process the order as follows:
o Examine the check to determine if the check conforms to
the Funds' acceptance procedures (including certain
third-party check procedures). If the check conforms,
Price Services will endorse the check and include the
date of receipt, will process the same for payment, and
deposit the net amount to the parties agreed upon
designated bank account prior to such deposit in the
Custodial account, and will notify the Fund and the
Custodian, respectively, of such deposits (such
notification to be given on a daily basis of the total
amount deposited to said accounts during the prior
business day);
PAGE 8
o Open a new account, if necessary, and credit the
account of the investor with the number of Shares to be
purchased according to the price of the Fund's Shares
in effect for purchases made on that date, subject to
any instructions which the Fund may have given to Price
Services with respect to acceptance of orders for
Shares relating to payments so received by it;
o Maintain a record of all unpaid purchases and report
such information to the Fund daily;
o Process periodic payment orders, as authorized by
investors, in accordance with the payment procedures
for pre-authorized checking ("PAC") and ACH purchases
mutually agreed upon by both parties;
o Receive monies from Retirement Plans and determine the
proper allocation of such monies to the Retirement
Accounts based upon instructions received from
Retirement Plan participants or Retirement Plan
administrators ("Administrators"); and
o Process telephone orders for purchases of Fund shares
from the Shareholder's bank account (via wire or ACH)
to the Fund in accordance with procedures mutually
agreed upon by both parties.
PAGE 9
Upon receipt of funds through the Federal Reserve Wire
System that are designated for purchases in Funds which declare
dividends at 12:00 p.m. (or such time as set forth in the Fund's
current prospectus), Price Services shall promptly notify the
Fund and the Custodian of such deposit.
2. Redemptions
Receive for acceptance redemption requests, including
telephone redemptions and requests received from
Administrators for distributions to participants or their
designated beneficiaries or for payment of fees due the
Administrator or such other person, including Price
Services, and deliver the appropriate documentation thereof
to the Custodian. Price Services shall receive and stamp
with the date of receipt, all requests for redemptions of
Shares (including all certificates delivered to it for
redemption) and shall process said redemption requests as
follows, subject to the provisions of Section 7 hereof:
o Examine the redemption request and, for written
redemptions, the supporting documentation, to determine
that the request is in good order and all requirements
have been met;
PAGE 10
o Notify the Fund on the next business day of the total
number of Shares presented and covered by all such
requests;
o As set forth in the prospectus of the Fund, and in any
event, on or prior to the seventh (7th) calendar day
succeeding any such request for redemption, Price
Services shall, from funds available in the accounts
maintained by Price Services as agent for the Funds,
pay the applicable redemption price in accordance with
the current prospectus of the Fund, to the investor,
participant, beneficiary, Administrator or such other
person, as the case may be;
o If any request for redemption does not comply with the
Fund's requirements, Price Services shall promptly
notify the investor of such fact, together with the
reason therefore, and shall effect such redemption at
the price in effect at the time of receipt of all
appropriate documents;
o Make such withholdings as may be required under
applicable Federal tax laws;
o In the event redemption proceeds for the payment of
fees are to be wired through the Federal Reserve Wire
System or by bank wire, Price Services shall cause such
PAGE 11
proceeds to be wired in Federal funds to the bank
account designated; and
o Process periodic redemption orders as authorized by the
investor in accordance with the periodic withdrawal
procedures for Systematic Withdrawal Plan ("SWP") and
systematic ACH redemptions mutually agreed upon by both
parties.
Procedures and requirements for effecting and accepting
redemption orders from investors by telephone, Tele*Access,
computer, Mailgram, or written instructions shall be
established by mutual agreement between Price Services and
the Fund consistent with the Fund's current prospectus.
3. Transfers
Effect transfers of Shares by the registered owners
thereof upon receipt of appropriate instructions and
documentation and examine such instructions for conformance
with appropriate procedures and requirements. In this
regard, Price Services, upon receipt of a proper request for
transfer, including any transfer involving the surrender of
certificates of Shares, is authorized to transfer, on the
records of the Fund, Shares of the Fund, including
cancellation of surrendered certificates, if any, to credit
a like amount of Shares to the transferee and to
PAGE 12
countersign, issue and deliver new certificates, if
requested, for those Funds issuing certificates.
4. Confirmations
Mail all confirmations and other enclosures requested
by the Fund to the shareholder, and in the case of
Retirement Accounts, to the Administrators, as may be
required by the Funds or by applicable Federal or state law.
5. Returned Checks and ACH Debits
In order to minimize the risk of loss to the Fund by
reason of any check being returned unpaid, Price Services
will promptly identify and follow-up on any check or ACH
debit returned unpaid. For items returned, Price Services
may telephone the investor and/or redeposit the check or
debit for collection or cancel the purchase, as deemed
appropriate. Price Services and the Funds will establish
procedures for the collection of money owed the Fund from
investors who have caused losses due to these returned
items.
6. Redemption of Shares under Ten Day Hold
o Uncollected Funds
Shares purchased by personal, corporate, or
governmental check, or by ACH will be considered
PAGE 13
uncollected until the tenth calendar date following the
trade date of the trade ("Uncollected Funds");
o Good Funds
Shares purchased by treasurer's, cashier, certified, or
official check, or by wire transfer will be considered
collected immediately ("Good Funds"). Absent
information to the contrary (i.e., notification from
the payee institution), Uncollected Funds will be
considered Good Funds on the tenth calendar day
following trade date.
o Redemption of Uncollected Funds
o Shareholders making telephone requests for
redemption of shares purchased with Uncollected
Funds will be given two options:
1. The Shareholder will be permitted to exchange
to a money market fund to preserve principal until
the payment is deemed Good Funds,
2. The redemption can be processed utilizing the
same procedures for written redemptions described
below.
o If a written redemption request is made for shares
where any portion of the payment for said shares
is in Uncollected Funds, and the request is in
PAGE 14
good order, Price Services will promptly obtain
the information relative to the payment necessary
to determine when the payment becomes Good Funds.
The redemption will be processed in accordance
with normal procedures, and the proceeds will be
held until confirmation that the payment is Good
Funds. On the seventh (7th) calendar day after
trade date, and each day thereafter until either
confirmation is received or the tenth (10th)
calendar day, Price Services will call the paying
institution to request confirmation that the check
or ACH in question has been paid. On the tenth
calendar day after trade date, the redemption
proceeds will be released, regardless of whether
confirmation has been received.
o Checkwriting Redemptions.
o Daily, all checkwriting redemptions $10,000 and
over reported as Uncollected Funds or insufficient
funds will be reviewed. An attempt will be made
to contact the shareholder to make good the funds
(through wire, exchange, transfer). Generally by
12:00 p.m. the same day, if the matter has not
been resolved, the redemption request will be
PAGE 15
rejected and the check returned to the
Shareholder.
o All checkwriting redemptions under $10,000
reported as Uncollected or insufficient funds will
be rejected and the check returned to the
Shareholder.
o Confirmations of Available Funds
The Fund expects that situations may develop whereby it
would be beneficial to determine if a person who has
placed an order for Shares has sufficient funds in his
or her checking account to cover the payment for the
Shares purchased. When this situation occurs, Price
Services may call the bank in question and request that
it confirm that sufficient funds to cover the purchase
are currently credited to the account in question.
Price Services will maintain written documentation or a
recording of each telephone call which is made under
the procedures outlined above. None of the above
procedures shall preclude Price Services from inquiring
as to the status of any check received by it in payment
for the Fund's Shares as Price Services may deem
appropriate or necessary to protect both the Fund and
PAGE 16
Price Services. If a conflict arises between Section 2
and this Section 7, Section 7 will govern.
7. Dividends, Distributions and Other Corporate Actions
o The Fund will promptly inform Price Services of the
declaration of any dividend, distribution, stock split
or any other distributions of a similar kind on account
of its Capital Stock.
o Price Services shall act as Dividend Disbursing Agent
for the Fund, and as such, shall prepare and make
income and capital gain payments to investors. As
Dividend Disbursing Agent, Price Services will on or
before the payment date of any such dividend or
distribution, notify the Custodian of the estimated
amount required to pay any portion of said dividend or
distribution which is payable in cash, and the Fund
agrees that on or about the payment date of such
distribution, it shall instruct the Custodian to make
available to Price Services sufficient funds for the
cash amount to be paid out. If an investor is entitled
to receive additional Shares by virtue of any such
distribution or dividend, appropriate credits will be
made to his or her account.
PAGE 17
8. Unclaimed Payments and Certificates
In accordance with procedures agreed upon by both
parties, report abandoned property to appropriate state and
governmental authorities of the Fund. Price Services shall,
90 days prior to the annual reporting of abandoned property
to each of the states, make reasonable attempts to locate
Shareholders for which (a) checks or share certificates have
been returned; (b) for which accounts have aged outstanding
checks; or (c) accounts with unissued shares that have been
coded with stop mail and meet the dormancy period guidelines
specified in the individual states. Price Services shall
make reasonable attempts to contact shareholders for those
accounts which have significant aged outstanding checks and
those checks meet a specified dollar threshold.
9. Books and Records
Maintain records showing for each Shareholder's
account, Retirement Plan or Retirement Account, as the case
may be, the following:
o Names, address and tax identification number;
o Number of Shares held;
o Certain historical information regarding the
account of each Shareholder, including dividends
PAGE 18
and distributions distributed in cash or invested
in Shares;
o Pertinent information regarding the establishment
and maintenance of Retirement Plans and Retirement
Accounts necessary to properly administer each
account;
o Information with respect to the source of
dividends and distributions allocated among income
(taxable and nontaxable income), realized short-
term gains and realized long-term gains;
o Any stop or restraining order placed against a
Shareholder's account;
o Information with respect to withholdings on
domestic and foreign accounts;
o Any instructions from a Shareholder including, all
forms furnished by the Fund and executed by a
Shareholder with respect to (i) dividend or
distribution elections, and (ii) elections with
respect to payment options in connection with the
redemption of Shares;
o Any correspondence relating to the current
maintenance of a Shareholder's account;
PAGE 19
o Certificate numbers and denominations for any
Shareholder holding certificates;
o Any information required in order for Price
Services to perform the calculations contemplated
under this Agreement.
Price Services shall maintain files and furnish
statistical and other information as required under this
Agreement and as may be agreed upon from time to time by
both parties or required by applicable law. However, Price
Services reserves the right to delete, change or add any
information to the files maintained; provided such
deletions, changes or additions do not contravene the terms
of this Agreement or applicable law and do not materially
reduce the level of services described in this Agreement.
Price Services shall also use its best efforts to obtain
additional statistical and other information as each Fund
may reasonably request for additional fees as may be agreed
to by both parties.
Any such records maintained pursuant to Rule 31a-1
under the Investment Company Act of 1940 ("the Act") will be
preserved for the periods and maintained in a manner
prescribed in Rule 31a-2 thereunder. Disposition of such
records after such prescribed periods shall be as mutually
PAGE 20
agreed upon by the Fund and Price Services. The retention
of such records, which may be inspected by the Fund at
reasonable times, shall be at the expense of the Fund. All
records maintained by Price Services in connection with the
performance of its duties under this Agreement will remain
the property of the Fund and, in the event of termination of
this Agreement, will be delivered to the Fund as of the date
of termination or at such other time as may be mutually
agreed upon.
All books, records, information and data pertaining to
the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of
this Agreement shall remain confidential, and shall not be
voluntarily disclosed to any other person, except after
prior notification to and approval by the other party
hereto, which approval shall not be unreasonably withheld
and may not be withheld where Price Services or the Fund may
be exposed to civil or criminal contempt proceedings for
failure to comply; when requested to divulge such
information by duly constituted governmental authorities; or
after so requested by the other party hereto.
PAGE 21
10. Authorized Issued and Outstanding Shares
Record the issuance of Shares of the Fund and maintain,
pursuant to Rule 17Ad-10(e) of the '34 Act, a record of the
total number of Shares of the Fund which are authorized,
issued and outstanding, based upon data provided to it by
the Fund. Price Services shall also provide the Fund on a
regular basis the total number of Shares which are
authorized and issued and outstanding. Price Services shall
have no obligation, when recording the issuance of Shares,
to monitor the issuance of such Shares or to take cognizance
of any laws relating to the issuance or sale of such Shares.
11. Tax Information
Prepare and file with the Internal Revenue Service and
with other appropriate state agencies and, if required, mail
to investors, those returns for reporting dividends and
distributions paid as required to be so filed and mailed,
and shall withhold such sums required to be withheld under
applicable Federal income tax laws, rules, and regulations.
Additionally, Price Services will file and, as applicable,
mail to investors, any appropriate information returns
required to be filed in connection with Retirement Plan
processing, such as 1099R, 5498, as well as any other
appropriate forms that the Fund or Price Services may deem
PAGE 22
necessary. The Fund and Price Services shall agree to
procedures to be followed with respect to Price Services'
responsibilities in connection with compliance with back-up
withholding and other tax laws.
12. Information to be Furnished to the Fund
Furnish to the Fund such information as may be agreed
upon between the Fund and Price Services including any
information that the Fund and Price Services agree is
necessary to the daily operations of the business.
13. Correspondence
Promptly and fully answer correspondence from
shareholders and Administrators relating to Shareholder
Accounts, Retirement Accounts, transfer agent procedures,
and such other correspondence as may from time to time be
mutually agreed upon with the Funds. Unless otherwise
instructed, copies of all correspondence will be retained by
Price Services in accordance with applicable law and
procedures.
14. Lost or Stolen Securities
Pursuant to Rule 17f-1 of the '34 Act, report to the
Securities Information Center and/or the FBI or other
appropriate person on Form X-17-F-1A all lost, stolen,
missing or counterfeit securities. Provide any other
PAGE 23
services relating to lost, stolen or missing securities as
may be mutually agreed upon by both parties.
15. Telephone Services
Maintain a Telephone Servicing Staff of representatives
("Representatives") sufficient to timely respond to all
telephonic inquiries reasonably foreseeable. The
Representatives will also effect telephone purchases,
redemptions, exchanges, and other transactions mutually
agreed upon by both parties, for those Shareholders who have
authorized telephone services. The Representatives shall
require each Shareholder effecting a telephone transaction
to properly identify himself/herself before the transaction
is effected, in accordance with procedures agreed upon
between by both parties. Procedures for processing
telephone transactions will be mutually agreed upon by both
parties. Price Services will also be responsible for
providing Tele*Access, PC*Access and such other Services as
may be offered by the Funds from time to time. Price
Services will maintain a special Shareholder Servicing staff
to service certain Shareholders with substantial
relationships with the Funds.
PAGE 24
16. Proxies
Monitor the mailing of proxy cards and other material
supplied to it by the Fund in connection with Shareholder
meetings of the Fund and shall coordinate the receipt,
examination and tabulation of returned proxies and the
certification of the vote to the Fund.
17. Form N-SAR
Maintain such records, if any, as shall enable the Fund
to fulfill the requirements of Form N-SAR.
18. Cooperation With Accountants
Cooperate with each Fund's independent public
accountants and take all reasonable action in the
performance of its obligations under the Agreement to assure
that the necessary information is made available to such
accountants for the expression of their opinion without any
qualification as to the scope of their examination,
including, but not limited to, their opinion included in
each such Fund's annual report on Form N-SAR and annual
amendment to Form N-1A.
19. Blue Sky
Provide to the Fund or its agent, on a daily, weekly,
monthly and quarterly basis, and for each state in which the
Fund's Shares are sold, sales reports and other materials
PAGE 25
for blue sky compliance purposes as shall be agreed upon by
the parties.
20. Other Services
Provide such other services as may be mutually agreed
upon between Price Services and the Fund.
21. Fees and Out-of-Pocket Expenses
Each Fund shall pay to Price Services and/or its agents
for its Transfer Agent Services hereunder, fees computed as
set forth in Schedule A attached. Except as provided below,
Price Services will be responsible for all expenses relating
to the providing of Services. Each Fund, however, will
reimburse Price Services for the following out-of-pocket
expenses and charges incurred in providing Services:
o Postage. The cost of postage and freight for
mailing materials to Shareholders and Retirement
Plan participants, or their agents, including
overnight delivery, UPS and other express mail
services and special courier services required to
transport mail between Price Services locations
and mail processing vendors.
o Proxies. The cost to mail proxy cards and other
material supplied to it by the Fund and costs
related to the receipt, examination and tabulation
PAGE 26
of returned proxies and the certification of the
vote to the Fund.
o Communications
o Print. The printed forms used internally and
externally for documentation and processing
Shareholder and Retirement Plan participant,
or their agent's inquiries and requests;
paper and envelope supplies for letters,
notices, and other written communications
sent to Shareholders and Retirement Plan
participants, or their agents.
o Print & Mail House. The cost of internal
and third party printing and mail house
services, including printing of statements
and reports.
o Voice and Data. The cost of equipment
(including associated maintenance), supplies
and services used for communicating to and
from the Shareholders of the Fund and
Retirement Plan participants, or their
agents, the Fund's transfer agent, other Fund
offices, and other agents of either the Fund
PAGE 27
or Price Services. These charges shall
include:
o telephone toll charges (both incoming
and outgoing, local, long distance and
mailgrams); and
o data and telephone lines and associated
equipment such as modems, multiplexers,
and facsimile equipment.
o Record Retention. The cost of maintenance
and supplies used to maintain, microfilm,
copy, record, index, display, retrieve, and
store, in microfiche or microfilm form,
documents and records.
o Disaster Recovery. The cost of services,
equipment, facilities and other charges
necessary to provide disaster recovery for
any and all services listed in this
Agreement.
Out-of-pocket costs will be billed at cost to the
Funds. Allocation of monthly costs among the Funds will
generally be made based upon the number of Shareholder and
Retirement Accounts serviced by Price Services each month. Some
invoices for these costs will contain costs for both the Funds
PAGE 28
and other funds serviced by Price Services. These costs will be
allocated based on a reasonable allocation methodology. Where
possible, such as in the case of inbound and outbound WATS
charges, allocation will be made on the actual distribution or
usage.
C. Representations and Warranties of Price Services
Price Services represents and warrants to the Fund that:
1. It is a corporation duly organized and existing and in
good standing under the laws of Maryland;
2. It is duly qualified to carry on its business in
Maryland, California and Florida;
3. It is empowered under applicable laws and by its
charter and by-laws to enter into and perform this
Agreement;
4. All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement;
5. It is registered with the Securities and Exchange
Commission as a Transfer Agent pursuant to Section 17A of
the '34 Act; and
6. It has and will continue to have access to the
necessary facilities, equipment and personnel to perform its
duties and obligations under this Agreement.
PAGE 29
D. Representations and Warranties of the Fund
The Fund represents and warrants to Price Services that:
1. It is a corporation or business trust duly organized
and existing and in good standing under the laws of Maryland
or Massachusetts, as the case may be;
2. It is empowered under applicable laws and by its
Articles of Incorporation or Declaration of Trust, as the
case may be, and By-Laws to enter into and perform this
Agreement;
3. All proceedings required by said Articles of
Incorporation or Declaration of Trust, as the case may be,
and By-Laws have been taken to authorize it to enter into
and perform this Agreement;
4. It is an investment company registered under the Act;
and
5. A registration statement under the Securities Act of
1933 ("the '33 Act") is currently effective and will remain
effective, and appropriate state securities law filings have
been made and will continue to be made, with respect to all
Shares of the Fund being offered for sale.
E. Standard of Care/Indemnification
Notwithstanding anything to the contrary in this Agreement:
PAGE 30
1. Price Services shall not be liable to any Fund for any
act or failure to act by it or its agents or subcontractors
on behalf of the Fund in carrying or attempting to carry out
the terms and provisions of this Agreement provided Price
Services has acted in good faith and without negligence or
willful misconduct and selected and monitored the
performance of its agents and subcontractors with reasonable
care.
2. The Fund shall indemnify and hold Price Services
harmless from and against all losses, costs, damages,
claims, actions and expenses, including reasonable expenses
for legal counsel, incurred by Price Services resulting
from: (i) any action or omission by Price Services or its
agents or subcontractors in the performance of their duties
hereunder; (ii) Price Services acting upon instructions
believed by it to have been executed by a duly authorized
officer of the Fund; or (iii) Price Services acting upon
information provided by the Fund in form and under policies
agreed to by Price Services and the Fund. Price Services
shall not be entitled to such indemnification in respect of
actions or omissions constituting negligence or willful
misconduct of Price Services or where Price Services has not
PAGE 31
exercised reasonable care in selecting or monitoring the
performance of its agents or subcontractors.
3. Except as provided in Article L of this Agreement,
Price Services shall indemnify and hold harmless the Fund
from all losses, costs, damages, claims, actions and
expenses, including reasonable expenses for legal counsel,
incurred by the Fund resulting from the negligence or
willful misconduct of Price Services or which result from
Price Services' failure to exercise reasonable care in
selecting or monitoring the performance of its agents or
subcontractors. The Fund shall not be entitled to such
indemnification in respect of actions or omissions
constituting negligence or willful misconduct of such Fund
or its agents or subcontractors; unless such negligence or
misconduct is attributable to Price Services.
4. In determining Price Services' liability, an isolated
error or omission will normally not be deemed to constitute
negligence when it is determined that:
o Price Services had in place "appropriate procedures".
o the employee(s) responsible for the error or omission
had been reasonably trained and were being
appropriately monitored; and
PAGE 32
o the error or omission did not result from wanton or
reckless conduct on the part of the employee(s).
It is understood that Price Services is not obligated to
have in place separate procedures to prevent each and every
conceivable type of error or omission. The term
"appropriate procedures" shall mean procedures reasonably
designed to prevent and detect errors and omissions. In
determining the reasonableness of such procedures, weight
will be given to such factors as are appropriate, including
the prior occurrence of any similar errors or omissions when
such procedures were in place and transfer agent industry
standards in place at the time of the occurrence.
5. In the event either party is unable to perform its
obligations under the terms of this Agreement because of
acts of God, strikes or other causes reasonably beyond its
control, such party shall not be liable to the other party
for any loss, cost, damage, claim, action or expense
resulting from such failure to perform or otherwise from
such causes.
6. In order that the indemnification provisions contained
in this Article E shall apply, upon the assertion of a claim
for which either party may be required to indemnify the
other, the party seeking indemnification shall promptly
PAGE 33
notify the other party of such assertion, and shall keep the
other party advised with respect to all developments
concerning such claim. The party who may be required to
indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim,
or to defend against said claim in its own name or in the
name of the other party. The party seeking indemnification
shall in no case confess any claim or make any compromise in
any case in which the other party may be required to
indemnify it except with the other party's prior written
consent.
7. Neither party to this Agreement shall be liable to the
other party for consequential damages under any provision of
this Agreement.
F. Dual Interests
It is understood that some person or persons may be
directors, officers, or shareholders of both the Funds and Price
Services (including Price Services's affiliates), and that the
existence of any such dual interest shall not affect the validity
of this Agreement or of any transactions hereunder except as
otherwise provided by a specific provision of applicable law.
PAGE 34
G. Documentation
o As requested by Price Services, the Fund shall promptly
furnish to Price Services the following:
o A certified copy of the resolution of the
Directors/Trustees of the Fund authorizing the
appointment of Price Services and the execution and
delivery of this Agreement;
o A copy of the Articles of Incorporation or
Declaration of Trust, as the case may be, and By-
Laws of the Fund and all amendments thereto;
o As applicable, specimens of all forms of outstanding
and new stock/share certificates in the forms
approved by the Board of Directors/Trustees of the
Fund with a certificate of the Secretary of the Fund
as to such approval;
o All account application forms and other documents
relating to Shareholders' accounts;
o An opinion of counsel for the Fund with respect to
the validity of the stock, the number of Shares
authorized, the status of redeemed Shares, and the
number of Shares with respect to which a
Registration Statement has been filed and is in
effect; and
PAGE 35
o A copy of the Fund's current prospectus.
The delivery of any such document for the purpose of any
other agreement to which the Fund and Price Services are or were
parties shall be deemed to be delivery for the purposes of this
Agreement.
o As requested by Price Services, the Fund will also furnish
from time to time the following documents:
o Each resolution of the Board of Directors/Trustees of
the Fund authorizing the original issue of its Shares;
o Each Registration Statement filed with the Securities
and Exchange Commission and amendments and orders
thereto in effect with respect to the sale of Shares
with respect to the Fund;
o A certified copy of each amendment to the Articles of
Incorporation or Declaration of Trust, and the By-Laws
of the Fund;
o Certified copies of each vote of the Board of
Directors/Trustees authorizing officers to give
instructions to the Transfer Agent;
o Such other documents or opinions which Price Services,
in its discretion, may reasonably deem necessary or
appropriate in the proper performance of its duties;
and
PAGE 36
o Copies of new prospectuses issued.
Price Services hereby agrees to establish and maintain
facilities and procedures reasonably acceptable to the Fund for
safekeeping of stock certificates, check forms and facsimile
signature imprinting devices, if any; and for the preparation or
use, and for keeping account of, such certificates, forms and
devices.
H. References to Price Services
Each Fund agrees not to circulate any printed matter which
contains any reference to Price Services without the prior
approval of Price Services, excepting solely such printed matter
that merely identifies Price Services as agent of the Fund. The
Fund will submit printed matter requiring approval to Price
Services in draft form, allowing sufficient time for review by
Price Services and its legal counsel prior to any deadline for
printing.
I. Compliance With Governmental Rules and Regulations
Except as otherwise provided in the Agreement and except for
the accuracy of information furnished to the Fund by Price
Services, each Fund assumes full responsibility for the
preparation, contents and distribution of its prospectuses and
compliance with all applicable requirements of the Act, the '34
Act, the '33 Act, and any other laws, rules and regulations of
PAGE 37
governmental authorities having jurisdiction over the Fund.
Price Services shall be responsible for complying with all laws,
rules and regulations of governmental authorities having
jurisdiction over transfer agents and their activities.
J. Ownership of Software and Related Material
All computer programs, magnetic tapes, written procedures
and similar items purchased and/or developed and used by Price
Services in performance of the Agreement shall be the property of
Price Services and will not become the property of the Fund.
K. Quality Service Standards
Price Services and the Fund may from time to time agree to
certain quality service standards, as well as incentives and
penalties with respect to Price Services' hereunder.
L. As Of Transactions
For purposes of this Article L, the term "Transaction" shall
mean any single or "related transaction" (as defined below)
involving the purchase or redemption of Shares (including
exchanges) that is processed at a time other than the time of the
computation of the Fund's net asset value per Share next computed
after receipt of any such transaction order by Price Services.
If more than one Transaction ("Related Transaction") in the Fund
is caused by or occurs as a result of the same act or omission,
PAGE 38
such transactions shall be aggregated with other transactions in
the Fund and be considered as one Transaction.
o Reporting
Price Services shall:
1. Utilize a system to identify all Transactions, and
shall compute the net effect of such Transactions upon
the Fund on a daily, monthly and rolling 365 day basis.
The monthly and rolling 365 day periods are hereafter
referred to as "Cumulative".
2. Supply to the Fund, from time to time as mutually
agreed upon, a report summarizing the Transactions and
the daily and Cumulative net effects of such
Transactions both in terms of aggregate dilution and
loss ("Dilution") or gain and negative dilution
("Gain") experienced by the Fund, and the impact such
Gain or Dilution has had upon the Fund's net asset
value per Share.
3. With respect to any Transaction which causes
Dilution to the Fund of $25,000 or more, immediately
provide the Fund: (i) a report identifying the
Transaction and the Dilution resulting therefrom, (ii)
the reason such Transaction was processed as described
above, and (iii) the action that Price Services has or
PAGE 39
intends to take to prevent the reoccurrence of such as
of processing ("Report").
o Liability
1. It will be the normal practice of the Funds not to
hold Price Services liable with respect to any
Transaction which causes Dilution to any single Fund of
less than $25,000. Price Services will, however,
closely monitor for each Fund the daily and Cumulative
Gain/Dilution which is caused by Transactions of less
than $25,000. When the Cumulative Dilution to any Fund
exceeds 3/10 of 1% per share, Price Services, in
consultation with counsel to the Fund, will make
appropriate inquiry to determine whether it should take
any remedial action. Price Services will report to the
Board of Directors/Trustees of the Fund ("Board") any
action it has taken.
2. Where a Transaction causes Dilution to a Fund of
$25,000 or more ("Significant Transaction"), Price
Services will review with counsel to the Fund the
Report and the circumstances surrounding the underlying
Transaction to determine whether the Transaction was
caused by or occurred as a result of a negligent act or
omission by Price Services. If it is determined that
PAGE 40
the Dilution is the result of a negligent action or
omission by Price Services, Price Services and outside
counsel for the Fund will negotiate settlement. All
such Significant Transactions will be reported to the
Board at its next meeting (unless the settlement fully
compensates the Fund for any Dilution). Any
Significant Transaction, however, causing Dilution in
excess of the lesser of $100,000 or a penny per Share
will be promptly reported to the Board. Settlement
will not be entered into with Price Services until
approved by the Board. The factors the Board would be
expected to consider in making any determination
regarding the settlement of a Significant Transaction
would include but not be limited to:
o Procedures and controls adopted by Price Services
to prevent "As Of" processing;
o Whether such procedures and controls were being
followed at the time of the Significant
Transaction;
o The absolute and relative volume of all
transactions processed by Price Services on the
day of the Significant Transaction;
PAGE 41
o The number of Transactions processed by Price
Services during prior relevant periods, and the
net Dilution/Gain as a result of all such
transactions to the Fund and to all other Price
Funds;
o The prior response of Price Services to
recommendations made by the Funds regarding
improvement to the Transfer Agent's "As Of"
Processing Procedures.
3. In determining Price Services' liability with respect
to a Significant Transaction, an isolated error or
omission will normally not be deemed to constitute
negligence when it is determined that:
o Price Services had in place "appropriate
procedures".
o the employee(s) responsible for the error or
omission had been reasonably trained and were
being appropriately monitored; and
o the error or omission did not result from wanton
or reckless conduct on the part of the
employee(s).
It is understood that Price Services is not obligated
to have in place separate procedures to prevent each
PAGE 42
and every conceivable type of error or omission. The
term "appropriate procedures" shall mean procedures
reasonably designed to prevent and detect errors and
omissions. In determining the reasonableness of such
procedures, weight will be given to such factors as are
appropriate, including the prior occurrence of any
similar errors or omissions when such procedures were
in place and transfer agent industry standards in place
at the time of the occurrence.
M. Term and Termination of Agreement
o This Agreement shall run for a period of one (1) year from
the date first written above and will be renewed from year
to year thereafter unless terminated by either party as
provided hereunder.
o This Agreement may be terminated by the Fund upon one
hundred twenty (120) days' written notice to Price Services;
and by Price Services, upon three hundred sixty-five (365)
days' writing notice to the Fund.
o Upon termination hereof, the Fund shall pay to Price
Services such compensation as may be due as of the date of
such termination, and shall likewise reimburse for out-of-
pocket expenses related to its services hereunder.
PAGE 43
N. Notice
Any notice as required by this Agreement shall be
sufficiently given (i) when sent to an authorized person of the
other party at the address of such party set forth above or at
such other address as such party may from time to time specify in
writing to the other party; or (ii) as otherwise agreed upon by
appropriate officers of the parties hereto.
O. Assignment
Neither this Agreement nor any rights or obligations
hereunder may be assigned either voluntarily or involuntarily, by
operation of law or otherwise, by either party without the prior
written consent of the other party, provided this shall not
preclude Price Services from employing such agents and
subcontractors as it deems appropriate to carry out its
obligations set forth hereunder.
P. Amendment/Interpretive Provisions
The parties by mutual written agreement may amend this
Agreement at any time. In addition, in connection with the
operation of this Agreement, Price Services and the Fund may
agree from time to time on such provisions interpretive of or in
addition to the provisions of this Agreement as may in their
joint opinion be consistent with the general tenor of this
Agreement. Any such interpretive or additional provisions are to
PAGE 44
be signed by all parties and annexed hereto, but no such
provision shall contravene any applicable Federal or state law or
regulation and no such interpretive or additional provision shall
be deemed to be an amendment of this Agreement.
Q. Further Assurances
Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the
purposes hereof.
R. Maryland Law to Apply
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of Maryland.
S. Merger of Agreement
This Agreement, including the attached Appendices and
Schedules supersedes any prior agreement with respect to the
subject hereof, whether oral or written.
T. Counterparts
This Agreement may be executed by the parties hereto on any
number of counterparts, and all of said counterparts taken
together shall be deemed to constitute one and the same
instruments.
U. The Parties
All references herein to "the Fund" are to each of the Funds
listed on Appendix A individually, as if this Agreement were
PAGE 45
between such individual Fund and Price Services. In the case of
a series Fund or trust, all references to "the Fund" are to the
individual series or portfolio of such Fund or trust, or to such
Fund or trust on behalf of the individual series or portfolio, as
appropriate. The "Fund" also includes any T. Rowe Price Funds
which may be established after the execution of this Agreement.
Any reference in this Agreement to "the parties" shall mean Price
Services and such other individual Fund as to which the matter
pertains.
V. Directors, Trustees and Shareholders and Massachusetts
Business Trust
It is understood and is expressly stipulated that neither
the holders of Shares in the Fund nor any Directors or Trustees
of the Fund shall be personally liable hereunder. With respect to
any Fund which is a party to this Agreement and which is
organized as a Massachusetts business trust, the term "Fund"
means and refers to the trustees from time to time serving under
the applicable trust agreement (Declaration of Trust) of such
Trust as the same may be amended from time to time. It is
expressly agreed that the obligations of any such Trust hereunder
shall not be binding upon any of the trustees, shareholders,
nominees, officers, agents or employees of the Trust, personally,
but bind only the trust property of the Trust, as provided in the
PAGE 46
Declaration of Trust of the Trust. The execution and delivery of
this Agreement has been authorized by the trustees and signed by
an authorized officer of the Trust, acting as such, and neither
such authorization by such Trustees nor such execution and
delivery by such officer shall be deemed to have been made by any
of them, but shall bind only the trust property of the Trust as
provided in its Declaration of Trust.
W. Captions
The captions in the Agreement are included for convenience
of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or
effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in their names and on their behalf under
their seals by and through their duly authorized officers.
DATED: ______________________ T. ROWE PRICE SERVICES, INC.
ATTEST:
/s/Mark E. Rayford
___________________________ BY: _________________________
Mark E. Rayford
PAGE 47
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
PAGE 48
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Short-Term Global Income Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW HORIZONS FUNDS, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
PAGE 49
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
Georgia Tax-Free Bond Fund
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market Fund
T. Rowe Price Summit Municipal Intermediate Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
PAGE 50
T. ROWE PRICE VALUE FUND, INC.
DATED: ______________________
ATTEST:
/s/Carmen F. Deyesu
_________________________ BY: __________________________
Carmen F. Deyesu
PAGE 51
APPENDIX A
The following Funds are parties to this Agreement, and have so
indicated their intention to be bound by such Agreement by
executing the Agreement on the dates indicated thereon.
T. Rowe Price Blue Chip Growth Fund, Inc.
T. Rowe Price Balanced Fund, Inc.
T. Rowe Price California Tax-Free Income Trust on behalf of the
California Tax-Free Bond Fund and
California Tax-Free Money Fund
T. Rowe Price Capital Appreciation Fund
T. Rowe Price Capital Opportunity Fund, Inc.
T. Rowe Price Corporate Income Fund, Inc.
T. Rowe Price Dividend Growth Fund, Inc.
T. Rowe Price Equity Income Fund
T. Rowe Price Equity Series, Inc. on behalf of the
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. Rowe Price Fixed Income Series, Inc. on behalf of the
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price GNMA Fund
T. Rowe Price Growth & Income Fund, Inc.
T. Rowe Price Growth Stock Fund, Inc.
T. Rowe Price Health Sciences Fund, Inc.
T. Rowe Price High Yield Fund, Inc.
T. Rowe Price Index Trust, Inc. on behalf of the
T. Rowe Price Equity Index Fund
PAGE 52
T. Rowe Price Institutional International Funds, Inc. on behalf
of the
Foreign Equity Fund
T. Rowe Price International Funds, Inc. on behalf of the
T. Rowe Price International Bond Fund and
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Short-Term Global Income Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. Rowe Price International Series, Inc. on behalf of the
T. Rowe Price International Stock Portfolio
T. Rowe Price Mid-Cap Growth Fund
T. Rowe Price New America Growth Fund
T. Rowe Price New Era Fund, Inc.
T. Rowe Price New Horizons Fund, Inc.
T. Rowe Price New Income Fund, Inc.
T. Rowe Price Personal Strategy Funds, Inc.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. Rowe Price Prime Reserve Fund, Inc.
T. Rowe Price OTC Fund, Inc. on behalf of the
T. Rowe Price OTC Fund
T. Rowe Price Science & Technology Fund, Inc.
T. Rowe Price Short-Term Bond Fund, Inc.
T. Rowe Price Short-Term U.S. Government Fund, Inc.
PAGE 53
T. Rowe Price Small-Cap Value Fund, Inc.
T. Rowe Price Spectrum Fund, Inc. on behalf of the
Spectrum Growth Fund
Spectrum Income Fund
T. Rowe Price State Tax-Free Income Trust on behalf of the
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
T. Rowe Price Tax-Exempt Money Fund, Inc.
T. Rowe Price Tax-Free High Yield Fund, Inc.
T. Rowe Price Tax-Free Income Fund, Inc.
T. Rowe Price Tax-Free Insured Intermediate Bond Fund, Inc.
T. Rowe Price Tax-Free Short-Intermediate Fund, Inc.
T. Rowe Price U.S. Treasury Funds, Inc. on behalf of the
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. Rowe Price Value Fund, Inc.
T. Rowe Price Summit Funds, Inc. on behalf of the
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. Rowe Price Summit Municipal Funds, Inc. on behalf of the
T. Rowe Price Summit Municipal Money Market Fund
T. Rowe Price Summit Municipal Intermediate Fund
T. Rowe Price Summit Municipal Income Fund
PAGE 54
SCHEDULE A - FEE SCHEDULE
The following fees for services provided by T. Rowe Price
Services, Inc. (TRPS) and vendors will be billed by TRPS for
1996:
I. T. Rowe Price Services Maintenance and Transaction Charges -
Billable Monthly
A. Retail Individual
Retail Individual Account Fee - $14.50 for each Equity,
Bond, and Money Market Account serviced.
The Per Account Annual Fee will be billed monthly
at a rate of 1/12 of the annual fee for each Fund
account serviced during the month. Accounts
serviced is defined as all open accounts at month
end plus accounts which closed during the month.
Transaction Fees
1. New Account Fees (billed for all new accounts
setup in excess of 15,000/month)
$2.00 for every account opened, including
fiduciary accounts, excluding those opened by exchange.
2. Non-Automated Transactions (billed for all
transactions in excess of 300,000/month)
a. $1.00 for each non-automated transaction and
maintenance item processed for the Fund Group
as a whole during a month in excess of
300,000. The non-automated transaction count
will include all manually processed price
dependent and maintenance transactions.
Also, the number of new account setups will
be excluded from the number of non-automated
transactions.
b. Fee to be charged to the Funds based on each
Fund's number of total non-automated
transactions and maintenance.
c. Fee to be billed monthly for that month.
PAGE 55
d. NOTE: The transaction count should not
include correction of transactions
caused by non-shareholder errors.
3. Telephone Fee (billed for all calls in excess of
110,000/month)
Billed at the rate of $5.00 per call for
shareholder servicing calls received in excess of
110,000 calls per month. Calls received in Retail
Services are allocated to the Funds based on
accounts serviced and calls received in Telephone
Services are allocated based on actual calls
received.
4. Tele*Access
Base fee, per month for all calls is $100,000.
5. Correspondence (for all correspondence in excess
of 10,000/month)
$5.00 billed for each shareholder correspondence
request completed in writing or by phone in excess
of 10,000 a month. Allocated to the Funds based
on accounts serviced.
6. Telephone Transaction Fee (billed for all
telephone transactions in excess of 30,000/month)
Each price dependent transaction initiated through
the Telephone Services Group in excess of 30,000 a
month will be charged $1.00.
B. Retail Retirement Participants - $41.00 for each
Participant serviced.
The Per Participant Annual Fee will be billed monthly
at a rate of 1/12 of the annual fee for each
Participant serviced during the month.
C. Financial Institutions Accounts - $27.00 for each
Equity, Bond, and Money Market Account serviced.
PAGE 56
The Per Account Annual Fee will be billed monthly at a
rate of 1/12 of the annual fee for each Fund account
serviced during the month. Accounts serviced is defined
as all open accounts at month end plus accounts which
closed during the month.
II. Vendor Fees
A. DST
1. Annual Open Account Fee
a. $1.82 for each Equity Fund account serviced.
b. $4.33 for each Bond Fund account serviced.
c. $4.33 for each Money Market Fund account
serviced.
The Open Account Fee will be billed monthly at a
rate of 1/12 of the annual fee for each Fund account serviced
during the month.
2. Closed Account Fee (Annualized)
Payable at an annual rate of $1.48. The Closed
Account Fee will be billed monthly at a rate of
1/12 of the annual rate and will be charged in the
month following the month during which such
account is closed and shall cease to be charged in
the month following the Purge Date.
3. Fiduciary Sub-Accounting
Payable at the rate of $1.00 per month for each
fiduciary account. Fiduciary accounts closed
during the prior year will not be included as
billable items.
4. Annual Base Fee Per Fund
Annual Fee of $7,422.00 will be charged at a
monthly rate of $618.50. The fee is waived for
the first six (6) months after a new Fund is
effective. The definition of new Fund excludes
Funds created by mergers, purchases, or
reorganizations.
PAGE 57
5. Bank Account Reconciliation System (Comp/Recon)
Annual charge of $120,000 payable at a rate of
$10,000 per month.
6. TRAC 2000
Century 401(k) plans are charged $5.00 per
eligible employee per year. The ComDisco plan is
charged $4.00 per eligible employee per year.
$7.00 is the maximum fee per participant.
7. Voice Response Unit
a. $500 Set-up Fee will be charged for each
investment company unit.
b. $2,500 Maintenance Fee will be billed each
month.
c. $.24 will be billed per call connected to the
VRU. This service will be discontinued
during 1996.
8. Contingent Deferred Sales Charge.
Billed to each Fund utilizing this service at an
annual rate of $1.03 per open account.
9. Asset Allocation
The rate of $1.80 per reallocation group will be
charged for each reallocation.
B. State Street Bank
1. Checkwriting Fees
$.61 for each checkwriting item processed (i.e.
those resulting in either redemptions or returned
as non-processable). This includes signature card
maintenance and verification, manual or special
processing of checks, stop payment processing,
settlement functions, and postage and mailing
expenses to return canceled checks to
shareholders.
PAGE 58
2. ACH Transactions
$.06 for each ACH transaction processed by the
Bank and submitted to the ACH network.
3. Change of Address
$.0625 for each notice printed, addressed, and
mailed. Includes subfile established or changed.
4. Wire Order Invoices - $.07 each.
5. Dividend & Daily Spac Master Forms - $.1225 each.
6. On-Request Work Orders - $25.00 each.
7. Internal Book Transfers
$1.14 billed for money movement between TRP DDA's
at the Bank. Money is transferred by debit and
credit memos.
8. Wire Fees
$4.24 for each incoming, manual, internal bank
transfer and outgoing transmission wire.
9. Paid checks
$.20 for each paid check processed.
10. PAC Checks
$.0475 billed for eah PAC check printed and mailed
in bulk to TRP.
11. Nightly Audits
$.0325 per page for the audit of the DST nightly
update.
12. Research
DDA Research copies $1.09 each.
PAGE 59
Research for BFDS records will be billed at $3.00
per request for CAMR and other purchase items.
Other research is billed at $7.20 per request.
There will be no charge for items that were
processed via IMAGE that TRP cannot locate on
film. Transcripts are not covered under this
schedule.
13. VAX Computer Usage
Billed at the rate of $8,709.56 per month which
covers both:
a. System Fee - for use of sub-systems such as
capital stock interface, PDPS, Direct
Deposit, etc.
b. Communication Fee - charge for the line,
modems, and statistical multiplexers.
14. Abandoned Property
Services based on the following fee schedule:
a. Administrative charge $125/Fund
b. Processing charges $1.00/account
c. Due Diligence Mailings $1.35/account
d. Labor will be charged based on the number of
hours required.
e. Lost shareholder recovery $2.25/account
initial attempt
$5.00/s/o
any s/o located
15. NSCC Settlement
Settlement redemption $11.98
Settlement purchase $ 5.45
C. J.P. Morgan Bank
1. Wire Transfer Fees
Annual Account Maintenance $250.00
Annual MORCOM/CASH
First Account $5,000.00
Subsequent Accounts $3,000.00
PAGE 60
Batch File Transfer (BFT)
Transmission $15.00
(capped at 10 per month) each
Outgoing Wires
Straight-through (Repetitive or Freetype)
80% of total volume $3.25
Book Transfer (IBT) $1.50
Repair (Freeform) $7.00
Zero Balance Transfer $1.00
Incoming Wires
Fed or CHIPS $3.25
Book (IBT) $1.50
D. Bank of Boston
1. Controlled Disbursement Fees
Annual Account Maintenance $300.00
per
account
Annual Prior Day Balance Reporting Detail
Transmission $600.00
per
account
Annual Batch File Transfer (BFT)
Service $120 per
account
BFT Transmission $.003 each
Same Day Match Pay (Dividend & Redemption Checks)
CD Full Recon/Daily Match Fixed $120.00
per
account
CD Full Recon/Daily Match Items $.025 per
item
Checks Paid $.036 per
item
PAGE 61
Check Truncation
Fixed $120.00
per
account
Items $.011 per
item
Stops
On-line $7.00
Photos of Checks $4.00 per
item
Incoming Wires $5.00 per
item
On-Line Inquiry Report Terminal $3.50 per
item
2. The bank may charge interest at a rate in excess
of normal borrowing rates if the TRPS balance is
overdrawn or is in a negative collected balance
status.
E. First National Bank of Maryland
1. Internal Fund Transfer $6.00
2. Returned Items $2.50
3. Deposit Items
Charge varies 1
4. Deposit Tickets $0.50
5. Return/redeposit items $3.00
6. Deposit Corrections $4.50
7. Check copy $9.00
8. First Facts
CDA Repetitive Wire $3.95
System Reports/Per Module $27.00
Per Report Previous Day $1.80
Per Report Current Day $3.60
9. Account maintenance $12.25
10. Debit item $0.54
11. Credit transaction $0.54
____________________
1Charge varies by District, $ .0267 to $ .1167
PAGE 62
12. Foreign Deposit Check amount $1,000-$4,999
$7.50
$5,000-19,999
$15.00
over $20,000
$20.00
13. ACH Debit $0.117
14. Tax Deposits $0.90
15. Film - Monthly $121.50
16. TRPS may be charged interest when TRPS's
balance at FNB is in a negative collected
balance status. TRPS may also receive
balance credits on a positive investable balance
III. New Funds
Funds added during the term of this contract may have their
Maintenance and Transaction charges and other charges
(Section I) waived for a period of time, as agreed to by
TRPS and Fund Directors, following the establishment of the
Fund. Out-of-pocket expenses will be billed to the Fund
from the Fund's inception.
IN WITNESS WHEREOF, T.Rowe Price Funds and T.Rowe Price Services,
Inc. have agreed upon this fee schedule to be executed in their
names and on their behalf through their duly authorized officers:
T. ROWE PRICE FUNDS T. ROWE PRICE SERVICES, INC.
/s/Carmen F. Deyesu /s/Mark E. Rayford
NAME _______________________ NAME _________________________
Carmen F. Deyesu Mark E. Rayford
TITLE ______________________ TITLE ________________________
DATE ______________________ DATE _________________________
PAGE 63
AMENDMENT NO. 1
TRANSFER AGENCY AND SERVICE AGREEMENT
Between
T. ROWE PRICE SERVICES, INC.
And
THE T. ROWE PRICE FUNDS
The Transfer Agency and Service Agreement of January 1,
1996, between T. Rowe Price Services, Inc. and each of the
Parties listed on Appendix A thereto is hereby amended, as of
April 24, 1996, by adding thereto the T. Rowe Price Mid-Cap Value
Fund, Inc. and Mid-Cap Equity Growth Fund, a separate series of
the Institutional Domestic Equity Funds, Inc.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC., now known as T. ROWE PRICE SHORT-
TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME
TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced
Portfolio
PAGE 64
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
INSTITUTIONAL DOMESTIC EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL EQUITY FUND, INC.
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Short-Term Global Income Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
PAGE 65
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
Georgia Tax-Free Bond Fund
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
PAGE 66
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market
Fund
T. Rowe Price Summit Municipal Intermediate
Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE
BOND FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE
FUND, INC.
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE VALUE FUND, INC.
Attest:
/s/Patricia S. Butcher /s/Carmen F. Deyesu
______________________ ______________________________
Patricia S. Butcher, By: Carmen F. Deyesu
Assistant Secretary
Attest: T. ROWE PRICE SERVICES, INC.
/s/Barbara A. Van Horn /s/Henry H. Hopkins
______________________ ______________________________
Barbara A. Van Horn, By: Henry H. Hopkins,
Assistant Secretary Vice President
The Agreement between T. Rowe Price Associates, Inc. and
T. Rowe Price Funds for Fund Accounting Services, dated January
1, 1996, as amended, should be inserted here.
PAGE 1
AGREEMENT
between
T. ROWE PRICE ASSOCIATES, INC.
and
THE T. ROWE PRICE FUNDS
for
FUND ACCOUNTING SERVICES
PAGE 2
TABLE OF CONTENTS
Page
Article A Terms of Appointment/Duties of Price
Associates . . . . . . . . . . . . . . . . . . 1
Article B Fees and Out-of-Pocket Expenses . . . . . . . . 2
Article C Representations and Warranties of Price
Associates . . . . . . . . . . . . . . . . . . 3
Article D Representations and Warranties of the Fund . . 3
Article E Ownership of Software and Related Material . . 3
Article F Quality Service Standards . . . . . . . . . . . 4
Article G Standard of Care/Indemnification . . . . . . . 4
Article H Dual Interests . . . . . . . . . . . . . . . . 5
Article I Documentation . . . . . . . . . . . . . . . . . 5
Article J Recordkeeping/Confidentiality . . . . . . . . . 5
Article K Compliance with Governmental Rules and
Regulations . . . . . . . . . . . . . . . . . . 6
Article L Terms and Termination of Agreement . . . . . . 6
Article M Notice . . . . . . . . . . . . . . . . . . . . 6
Article N Assignment . . . . . . . . . . . . . . . . . . 7
Article O Amendment/Interpretive Provisions . . . . . . . 7
Article P Further Assurances . . . . . . . . . . . . . . 7
Article Q Maryland Law to Apply . . . . . . . . . . . . . 7
Article R Merger of Agreement . . . . . . . . . . . . . . 7
Article S Counterparts . . . . . . . . . . . . . . . . . 8
Article T The Parties . . . . . . . . . . . . . . . . . . 8
PAGE 3
Article U Directors, Trustee and Shareholders and
Massachusetts Business Trust . . . . . . . . . 8
Article V Captions . . . . . . . . . . . . . . . . . . . 9
PAGE 4
AGREEMENT made as of the first day of January, 1996, by and
between T. ROWE PRICE ASSOCIATES, INC., a Maryland corporation
having its principal office and place of business at 100 East
Pratt Street, Baltimore, Maryland 21202 ("Price Associates"), and
each Fund which is listed on Appendix A (as such Appendix may be
amended from time to time) and which evidences its agreement to
be bound hereby by executing a copy of this Agreement (each such
Fund individually hereinafter referred to as "the Fund", whose
definition may be found in Article T);
WHEREAS, Price Associates has the capability of providing the
Funds with certain accounting services ("Accounting Services");
WHEREAS, the Fund desires to appoint Price Associates to
provide these Accounting Services and Price Associates desires to
accept such appointment;
WHEREAS, the Board of Directors of the Fund has authorized
the Fund to utilize various pricing services for the purpose of
providing to Price Associates securities prices for the
calculation of the Fund's net asset value.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
PAGE 5
A. Terms of Appointment/Duties of Price Associates
Subject to the terms and conditions set forth in this
Agreement, the Fund hereby employs and appoints Price Associates
to provide, and Price Associates agrees to provide, the following
Accounting Services:
a. Maintain for each Fund a daily trial balance, a general
ledger, subsidiary records and capital stock accounts;
b. Maintain for each Fund an investment ledger, including
amortized bond and foreign dollar denominated costs where
applicable;
c. Maintain for each Fund all records relating to the Fund's
income and expenses;
d. Provide for the daily valuation of each Fund's portfolio
securities and the computation of each Fund's daily net
asset value per share. Such daily valuations shall be
made in accordance with the valuation policies established
by each of the Fund's Board of Directors including, but
not limited to, the utilization of such pricing valuation
sources and/or pricing services as determined by the
Boards. Price Associates shall have no liability for any
losses or damages incurred by the Fund as a result of
erroneous portfolio security evaluations provided by such
designated sources and/or pricing services; provided that,
PAGE 6
Price Associates reasonably believes the prices are
accurate, has adhered to its normal verification control
procedures, and has otherwise met the standard of care as
set forth in Article G of this Agreement;
e. Provide daily cash flow and transaction status information
to each Fund's adviser;
f. Prepare for each Fund such financial information that is
reasonably necessary for shareholder reports, reports to
the Board of Directors and to the officers of the Fund,
and reports to the Securities and Exchange Commission and
the Internal Revenue Service and other Federal and state
regulatory agencies;
g. Provide each Fund with such advice that may be reasonably
necessary to properly account for all financial
transactions and to maintain the Fund's accounting
procedures and records so as to insure compliance with
generally accepted accounting and tax practices and rules;
h. Maintain for each Fund all records that may be reasonably
required in connection with the audit performed by each
Fund's independent accountant, the Securities and Exchange
Commission, the Internal Revenue Service or such other
Federal or state regulatory agencies; and
i. Cooperate with each Fund's independent public accountants
and take all reasonable action in the performance of its
PAGE 7
obligations under the Agreement to assure that the
necessary information is made available to such
accountants for the expression of their opinion without
any qualification as to the scope of their examination
including, but not limited to, their opinion included in
each such Fund's annual report on Form N-SAR and annual
amendment to Form N-1A.
B. Fees and Out-of-Pocket Expenses
Each Fund shall pay to Price Associates for its Accounting
Services hereunder, fees as set forth in the Schedule attached
hereto. In addition, each Fund will reimburse Price Associates
for out-of-pocket expenses such as postage, printed forms, voice
and data transmissions, record retention, disaster recovery,
third party vendors, equipment leases and other similar items as
may be agreed upon between Price Associates and the Fund. Some
invoices will contain costs for both the Funds and other funds
services by Price Associates. In these cases, a reasonable
allocation methodology will be used to allocate these costs to
the Funds.
C. Representations and Warrantees of Price Associates
Price Associates represents and warrants to the Fund that:
1. It is a corporation duly organized and existing in good
standing under the laws of Maryland.
2. It is duly qualified to carry on its business in Maryland.
PAGE 8
3. It is empowered under applicable laws and by its charter
and By-Laws to enter into and perform this Agreement.
4. All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
5. It has, and will continue to have, access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
D. Representations and Warrantees of the Fund
The Fund represents and warrants to Price Associates that:
1. It is a corporation or business trust, as the case may be,
duly organized and existing and in good standing under the laws
of Maryland or Massachusetts, as the case may be.
2. It is empowered under applicable laws and by its Articles
of Incorporation or Declaration of Trust, as the case may be, and
By-Laws have been taken to authorize it to enter into and perform
this Agreement.
3. All proceedings required by said Articles of Incorporation
or Declaration of Trust, as the case may be, and By-Laws have
been taken to authorize it to enter into and perform this
Agreement.
E. Ownership of Software and Related Material
All computer programs, magnetic tapes, written procedures,
and similar items purchased and/or developed and used by Price
Associates in performance of the Agreement shall be the property
PAGE 9
of Price Associates and will not become the property of the
Funds.
F. Quality Service Standards
Price Associates and the Fund may, from time to time, agree
to certain quality service standards, with respect to Price
Associates' services hereunder.
G. Standard of Care/Indemnification
Notwithstanding anything to the contrary in this Agreement:
1. Price Associates shall not be liable to any Fund for any
act or failure to act by it or its agents or subcontractors on
behalf of the Fund in carrying or attempting to carry out the
terms and provisions of the Agreement provided Price Associates
has acted in good faith and without negligence or willful
misconduct and selected and monitored the performance of its
agents and subcontractors with reasonable care.
2. The Fund shall indemnify and hold Price Associates
harmless from and against all losses, costs, damages, claims,
actions, and expenses, including reasonable expenses for legal
counsel, incurred by Price Associates resulting from: (i) any
action or omission by Price Associates or its agents or
subcontractors in the performance of their duties hereunder; (ii)
Price Associates acting upon instructions believed by it to have
been executed by a duly authorized officer of the Fund; or (iii)
PAGE 10
Price Associates acting upon information provided by the Fund in
form and under policies agreed to by Price Associates and the
Fund. Price Associates shall not be entitled to such
indemnification in respect of actions or omissions constituting
negligence or willful misconduct of Price Associates or where
Price Associates has not exercised reasonable care in selecting
or monitoring the performance of its agents or subcontractors.
3. Price Associates shall indemnify and hold harmless the
Fund from all losses, costs, damages, claims, actions and
expenses, including reasonable expenses for legal counsel,
incurred by the Fund resulting from the negligence or willful
misconduct of Price Associates or which result from Price
Associates' failure to exercise reasonable care in selecting or
monitoring the performance of its agents or subcontractors. The
Fund shall not be entitled to such indemnification with respect
to actions or omissions constituting negligence or willful
misconduct of such Fund or its agents or subcontractors; unless
such negligence or misconduct is attributable to Price
Associates. 4. In the event either party is unable to
perform its obligations under the terms of this Agreement because
of acts of God, strikes or other causes reasonably beyond its
control, such party shall not be liable to the other party for
any loss, cost, damage, claim, action or expense resulting from
such failure to perform or otherwise from such causes.
PAGE 11
5. In order that the indemnification provisions contained in
this Article F shall apply, upon the assertion of a claim for
which either party may be required to indemnify the other, the
party seeking indemnification shall promptly notify the other
party of such assertion, and shall keep the other party advised
with respect to all developments concerning such claim. The
party who may be required to indemnify shall have the option to
participate with the party seeking indemnification in the defense
of such claim, or to defend against said claim in its own name or
in the name of the other party. The party seeking
indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required
to indemnify it except with the other party's prior written
consent.
6. Neither party to this Agreement shall be liable to the
other party for consequential damages under any provision of this
Agreement.
H. Dual Interests
It is understood that some person or persons may be
directors, officers, or shareholders of both the Fund and Price
Associates (including Price Associates' affiliates), and that the
existence of any such dual interest shall not affect the validity
of this Agreement or of any transactions hereunder except as
otherwise provided by a specific provision of applicable law.
PAGE 12
I. Documentation
As requested by Price Associates, the Fund shall promptly
furnish to Price Associates such documents as it may reasonably
request and as are necessary for Price Associates to carry out
its responsibilities hereunder.
J. Recordkeeping/Confidentiality
1. Price Associates shall keep records relating to the
services to be performed hereunder, in the form and manner as it
may deem advisable, provided that Price Associates shall keep all
records in such form and in such manner as required by applicable
law, including the Investment Company Act of 1940 ("the Act") and
the Securities Exchange Act of 1934 ("the '34 Act").
2. Price Associates and the Fund agree that all books,
records, information and data pertaining to the business of the
other party which are exchanged or received pursuant to the
negotiation or the carrying out of this Agreement shall remain
confidential, and shall not be voluntarily disclosed to any other
person, except: (a) after prior notification to and approval in
writing by the other party hereto, which approval shall not be
unreasonably withheld and may not be withheld where Price
Associates or Fund may be exposed to civil or criminal contempt
proceedings for failure to comply; (b) when requested to divulge
such information by duly constituted governmental authorities; or
(c) after so requested by the other party hereto.
PAGE 13
K. Compliance With Governmental Rules and Regulations
Except as otherwise provided in the Agreement and except for
the accuracy of information furnished to the Funds by Price
Associates, each Fund assumes full responsibility for the
preparation, contents and distribution of its prospectuses, and
for complying with all applicable requirements of the Act, the
'34 Act, the Securities Act of 1933 (the "33 Act"), and any laws,
rules and regulations of governmental authorities having
jurisdiction over the Funds.
L. Term and Termination of Agreement
1. This Agreement shall run for a period of one (1) year from
the date first written above and will be renewed from year to
year thereafter unless terminated by either party as provided
hereunder.
2. This Agreement may be terminated by the Fund upon sixty
(60) days' written notice to Price Associates; and by Price
Associates, upon three hundred sixty-five (365) days' writing
notice to the Fund.
3. Upon termination hereof, the Fund shall pay to Price
Associates such compensation as may be due as of the date of such
termination, and shall likewise reimburse for out-of-pocket
expenses related to its services hereunder.
PAGE 14
M. Notice
Any notice as required by this Agreement shall be
sufficiently given (i) when sent to an authorized person of the
other party at the address of such party set forth above or at
such other address as such party may from time to time specify in
writing to the other party; or (ii) as otherwise agreed upon by
appropriate officers of the parties hereto.
N. Assignment
Neither this Agreement nor any rights or obligations
hereunder may be assigned either voluntarily or involuntarily, by
operation of law or otherwise, by either party without the prior
written consent of the other party, provided this shall not
preclude Price Associates from employing such agents and
subcontractors as it deems appropriate to carry out its
obligations set forth hereunder.
O. Amendment/Interpretive Provisions
The parties by mutual written agreement may amend this
Agreement at any time. In addition, in connection with the
operation of this Agreement, Price Associates and the Fund may
agree from time to time on such provisions interpretive of or in
addition to the provisions of this Agreement as may in their
joint opinion be consistent with the general tenor of this
PAGE 15
Agreement. Any such interpretive or additional provisions are to
be signed by all parties and annexed hereto, but no such
provision shall contravene any applicable Federal or state law or
regulation and no such interpretive or additional provision shall
be deemed to be an amendment of this Agreement.
P. Further Assurances
Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the
purposes hereof.
Q. Maryland Law to Apply
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of Maryland.
R. Merger of Agreement
This Agreement, including the attached Appendices and
Schedules supersedes any prior agreement with respect to the
subject hereof, whether oral or written.
S. Counterparts
This Agreement may be executed by the parties hereto on any
number of counterparts, and all of said counterparts taken
together shall be deemed to constitute one and the same
instruments.
PAGE 16
T. The Parties
All references herein to "the Fund" are to each of the Funds
listed on Appendix A individually, as if this Agreement were
between such individual Fund and Price Associates. In the case
of a series Fund or trust, all references to "the Fund" are to
the individual series or portfolio of such Fund or trust, or to
such Fund or trust on behalf of the individual series or
portfolio, as appropriate. The "Fund" also includes any T. Rowe
Price Funds which may be established after the execution of this
Agreement. Any reference in this Agreement to "the parties"
shall mean Price Associates and such other individual Fund as to
which the matter pertains.
U. Directors, Trustees and Shareholders and Massachusetts
Business Trust
It is understood and is expressly stipulated that neither the
holders of shares in the Fund nor any Directors or Trustees of
the Fund shall be personally liable hereunder. With respect to
any Fund which is a party to this Agreement and which is
organized as a Massachusetts business trust, the term "Fund"
means and refers to the trustees from time to time serving under
the applicable trust agreement (Declaration of Trust) of such
Trust as the same may be amended from time to time. It is
PAGE 17
expressly agreed that the obligations of any such Trust hereunder
shall not be binding upon any of the trustees, shareholders,
nominees, officers, agents or employees of the Trust, personally,
but bind only the trust property of the Trust, as provided in the
Declaration of Trust of the Trust. The execution and delivery of
this Agreement has been authorized by the trustees and signed by
an authorized officer of the Trust, acting as such, and neither
such authorization by such Trustees nor such execution and
delivery by such officer shall be deemed to have been made by any
of them, but shall bind only the trust property of the Trust as
provided in its Declaration of Trust.
V. Captions
The captions in the Agreement are included for convenience of
reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or
effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in their names and on their behalf under
their seals by and through their duly authorized officers.
PAGE 18
DATED: ______________________ T. ROWE PRICE ASSOCIATES, INC.
ATTEST:
/s/Barbara A. Van Horn /s/Alvin M. Younger, Jr.
______________________________ BY: __________________________
Barbara A. Van Horn, Managing Director
Assistant Secretary
PAGE 19
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price personal Strategy Balanced
Portfolio
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
PAGE 20
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Short-Term Global Income Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE MID-CAP GROWTH FUND
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW HORIZONS FUNDS, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE OTC FUND, INC. on behalf of the:
T. Rowe Price OTC Fund
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND,
INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
PAGE 21
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
Georgia Tax-Free Bond Fund
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND
FUND, INC.
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE SUMMIT FUNDS, INC.on behalf of
the:
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. on
behalf of the:
T. Rowe Price Summit Municipal Money Market Fund
T. Rowe Price Summit Municipal Intermediate Fund
T. Rowe Price Summit Municipal Income Fund
PAGE 22
DATED: ______________________ T. ROWE PRICE FUNDS
ATTEST:
/s/Patricia S. Butcher /s/Carmen F. Deyesu
______________________________ BY: ___________________________
Patricia S. Butcher, Carmen F. Deyesu
Assistant Secretary
PAGE 23
APPENDIX A
The following Funds are parties to this Agreement, and have so
indicated their intention to be bound by such Agreement by
executing the Agreement on the dates indicated thereon.
T. Rowe Price Adjustable Rate U.S. Government
Fund, Inc.
T. Rowe Price Blue Chip Growth Fund, Inc.
T. Rowe Price Balanced Fund, Inc.
T. Rowe Price California Tax-Free Income
Trust on behalf of the
California Tax-Free Bond Fund and
California Tax-Free Money Fund
T. Rowe Price Capital Appreciation Fund
T. Rowe Price Capital Opportunity Fund, Inc.
T. Rowe Price Corporate Income Fund, Inc.
T. Rowe Price Dividend Growth Fund, Inc.
T. Rowe Price Equity Income Fund
T. Rowe Price Equity Series, Inc. on behalf
of the:
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced
Portfolio
T. Rowe Price Fixed Income Series, Inc. on
behalf of the:
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price GNMA Fund
T. Rowe Price Growth & Income Fund, Inc.
T. Rowe Price Growth Stock Fund, Inc.
T. Rowe Price Health Sciences Fund, Inc.
T. Rowe Price High Yield Fund, Inc.
PAGE 24
T. Rowe Price Index Trust, Inc. on behalf of
the:
T. Rowe Price Equity Index Fund
T. Rowe Price Institutional International
Funds, Inc. on behalf of the:
Foreign Equity Fund
T. Rowe Price International Equity Fund, Inc.
T. Rowe Price International Funds, Inc. on
behalf of the:
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Short-Term Global Income
Fund
T. Rowe Price Latin American Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. Rowe Price Mid-Cap Growth Fund
T. Rowe Price New America Growth Fund
T. Rowe Price New Era Fund, Inc.
T. Rowe Price New Horizons Fund, Inc.
T. Rowe Price New Income Fund, Inc.
T. Rowe Price OTC Fund, Inc. on behalf of
the:
T. Rowe Price OTC Fund
T. Rowe Price Prime Reserve Fund, Inc.
T. Rowe Price Science & Technology Fund, Inc.
T. Rowe Price Short-Term Bond Fund, Inc.
T. Rowe Price Short-Term U.S. Government
Fund, Inc.
T. Rowe Price Small-Cap Value Fund, Inc.
PAGE 25
T. Rowe Price Spectrum Fund, Inc. on behalf
of the:
Spectrum Growth Fund
Spectrum Income Fund
T. Rowe Price State Tax-Free Income Trust on
behalf of the:
Maryland Tax-Free Bond Fund,
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund and
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Bond
Fund
Georgia Tax-Free Bond Fund
T. Rowe Price Tax-Exempt Money Fund, Inc.
T. Rowe Price Tax-Free Insured Intermediate
Bond Fund, Inc.
T. Rowe Price Tax-Free High Yield Fund, Inc.
T. Rowe Price Tax-Free Income Fund, Inc.
T. Rowe Price Tax-Free Short-Intermediate
Fund, Inc.
T. Rowe Price U.S. Treasury Funds, Inc. on
behalf of the:
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. Rowe Price Summit Funds, Inc. on behalf of
the:
Summit Cash Reserves Fund
Summit Limited-Term Bond Fund
Summit GNMA Fund
PAGE 26
T. Rowe Price Summit Municipal Funds, Inc. on
behalf of the:
Summit Municipal Money Market Fund
Summit Municipal Intermediate Fund
Summit Municipal Income Fund
T. Rowe Price Value Fund, Inc.
PAGE 27
FUND ACCOUNTING SERVICES FEE SCHEDULE
Between
T. ROWE PRICE ASSOCIATES, INC.
And
THE T. ROWE PRICE FUNDS
January 1, 1996 to December 31, 1996
PAGE 28
FUND ACCOUNTING SERVICES
1996 FEE SCHEDULE
A.Fee Structure
1. Base Fee
Domestic Funds $60,000 each
International Funds $100,000 each
Spectrum Funds $45,000 each
Per Fund fee for basic recordkeeping
and financial reporting
2. Individual Fund Fee
Total fees reflecting special $ 968,000
characteristics of each Fund
3. Stock Lending Fee
Flat fee reflecting $ 75,000
monitoring of Security Lending Program
4. Additional Funds
Domestic Funds $60,000 each
International Funds $100,000 each
Spectrum Funds $45,000 each
B. Total Cost Per Fund
Growth Stock Fund $ 104,000
New Horizons Fund 95,000
Equity Income Fund 85,000
New Era Fund 72,000
International Stock Fund 115,000
Growth & Income Fund 85,000
New America Growth Fund 70,000
Capital Appreciation Fund 85,000
Small-Cap Value Fund 60,000
Foreign Equity Fund 105,000
International Discovery Fund 125,000
Science & Technology Fund 70,000
PAGE 29
High Yield Fund 165,000
Tax-Free Income Fund 110,000
New Income Fund 100,000
Tax-Free High Yield Fund 110,000
European Stock Fund 100,000
Equity Index Fund 60,000
New Asia Fund 110,000
Spectrum Growth Fund 45,000
GNMA Fund 120,000
International Bond Fund 125,000
Balanced Fund 90,000
Maryland Bond Fund 81,000
Tax-Free Short Intermediate Fund 90,000
Short-Term Bond Fund 120,000
California Bond Fund 72,000
New York Bond Fund 72,000
U.S. Treasury Short-Intermediate Fund 60,000
U.S. Treasury Long-Term Bond Fund 60,000
Spectrum Income Fund 45,000
Prime Reserve Fund 85,000
Tax-Exempt Money Fund 93,000
U.S. Treasury Money Fund 60,000
California Money Fund 67,000
New York Money Fund 67,000
Short-Term U.S. Government Fund 100,000
Virginia Bond Fund 65,000
New Jersey Bond Fund 65,000
Global Government Bond Fund 100,000
OTC Fund 85,000
Japan Fund 100,000
Mid-Cap Growth Fund 60,000
Short-Term Global Fund 110,000
Maryland Short-Term Tax-Free Bond Fund 65,000
Florida Insured Intermediate Tax-Free Fund 65,000
Georgia Tax-Free Bond Fund 65,000
Tax-Free Insured Intermediate Bond Fund 65,000
Blue Chip Growth Fund 60,000
Dividend Growth Fund 65,000
Latin America Fund 110,000
Summit Cash Reserve Fund 60,000
Summit Limited-Term Bond Fund 60,000
Summit GNMA Fund 60,000
Summit Municipal Money Market Fund 60,000
Summit Municipal Intermediate Fund 60,000
Summit Municipal Income Fund 60,000
PAGE 30
International Stock Portfolio 100,000
Personal Strategy Income Fund 70,000
Equity Income Portfolio 60,000
Personal Strategy Balanced Fund 70,000
New America Growth Portfolio 60,000
Personal Strategy Growth Fund 70,000
Limited-Term Bond Portfolio 60,000
Value Fund 60,000
Virginia Short-Term Tax Free Bond Fund 60,000
Capital Opportunity Fund 60,000
Emerging Markets Bond Fund 100,000
Personal Strategy Balanced Portfolio 60,000
Corporate Income Fund 70,000
Global Stock Fund 100,000
Heath Sciences Fund 60,000
IN WITNESS WHEREOF, T. Rowe Price Funds and T. Rowe Price
Associates, Inc. have agreed upon this fee schedule to be
executed in their names and on their behalf through their duly
authorized officers:
T. ROWE PRICE FUNDS T. ROWE PRICE ASSOCIATES, INC.
/s/Carmen F. Deyesu /s/Alvin M. Younger
Name _________________________ Name ______________________
Carmen F. Deyesu Alvin M. Younger
Title Treasurer Title Treasurer and Managing
Director
Date _________________________ Date ______________________
PAGE 31
AMENDMENT NO. 1
AGREEMENT
between
T. ROWE PRICE ASSOCIATES, INC.
and
THE T. ROWE PRICE FUNDS
for
FUND ACCOUNTING SERVICES
The Agreement for Fund Accounting Services of January 1,
1996, between T. Rowe Price Associates, Inc. and each of the
Parties listed on Appendix A thereto is hereby amended, as of
April 24, 1996, by adding thereto the T. Rowe Price Mid-Cap Value
Fund, Inc. and Mid-Cap Equity Growth Fund, a separate series of
the Institutional Domestic Equity Funds, Inc.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC., now known as T. ROWE PRICE SHORT-
TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME
TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
PAGE 32
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced
Portfolio
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
INSTITUTIONAL DOMESTIC EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL EQUITY FUND, INC.
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Short-Term Global Income Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
PAGE 33
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
Georgia Tax-Free Bond Fund
PAGE 34
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market
Fund
T. Rowe Price Summit Municipal Intermediate
Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE
BOND FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE
FUND, INC.
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE VALUE FUND, INC.
Attest:
/s/Patricia S. Butcher /s/Carmen F. Deyesu
________________________ ___________________________________
Patricia S. Butcher, By: Carmen F. Deyesu
Assistant Secretary
Attest: T. ROWE PRICE ASSOCIATES, INC.
/s/Barbara A. Van Horn /s/Henry H. Hopkins
________________________ ___________________________________
Barbara A. Van Horn, By: Henry H. Hopkins,
Assistant Secretary Managing Director
June 17, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
RE: T. Rowe Price State Tax-Free Income Trust
Maryland Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
Virginia Short-Term Tax-Free Bond Fund
File Nos.: 811-4521/033-06533
Commissioners:
We are counsel to the above-referenced registrant which
proposes to file, pursuant to paragraph (b) of Rule 485 (the
"Rule"), Post-Effective Amendment No. 31 (the "Amendment") to its
registration statement under the Securities Act of 1933, as
amended.
Pursuant to paragraph (b)(4) of the Rule, we represent that
the Amendment does not contain disclosures which would render it
ineligible to become effective pursuant to paragraph (b) of the
Rule.
Sincerely,
/s/Shereff, Friedman, Hoffman & Goodman, LLP
Shereff, Friedman, Hoffman & Goodman, LLP
PAGE 1
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of T. Rowe Price
State Tax-Free Income Trust, Inc.
We consent to the incorporation by reference in Post-
Effective Amendment No. 31 to the Registration Statement of T.
Rowe Price State Tax-Free Income Trust (the "Trust") on Form N-1A
(File No. 33-06533) of our reports dated March 19, 1996, on our
audits of the financial statements and financial highlights of
New York Tax-Free Money Fund, New York Tax-Free Bond Fund,
Florida Insured Intermediate Tax-Free Fund, Georgia Tax-Free Bond
Fund, New Jersey Tax-Free Bond Fund, Virginia Short-Term Tax-Free
Bond Fund, Virginia Tax-Free Bond Fund, Maryland Short-Term Tax-
Free Bond Fund, and Maryland Tax-Free Bond Fund (nine of the
portfolios included in the Trust), which reports are included in
the Annual Reports to Shareholders for the year ended February
29, 1996, which are incorporated by reference in the Registration
Statement. We also consent to the reference to our Firm under the
captions "Financial Highlights" in the Prospectus and
"Independent Accountants" in the Statement of Additional
Information.
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
June 17, 1996
PAGE 2
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
T. Rowe Price Georgia Tax-Free Bond Fund
We hereby consent to the incorporation by reference in the
Prospectus and Statement of Additional Information constituting
parts of this Post-Effective Amendment No. 31 to the Registration
Statement on Form N-1A (the "Registration Statement") of our
report dated March 17, 1995, relating to the financial statements
and selected per share data and ratios appearing in the February
28, 1995 Annual Report to Shareholders of the T. Rowe Price
Georgia Tax-Free Bond Fund (one of the portfolios constituting T.
Rowe Price State Tax-Free Income Trust). We also consent to the
references to us under the heading "Financial Highlights" in the
Prospectus and under the heading "Independent Accountants" in the
Statement of Additional Information.
/s/Price Waterhouse LLP
PRICE WATERHOUSE LLP
Baltimore, Maryland
June 17, 1996
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<TOTAL-ASSETS> 73404
<PAYABLE-FOR-SECURITIES> 2079
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 285
<TOTAL-LIABILITIES> 2364
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<PAID-IN-CAPITAL-COMMON> 71037
<SHARES-COMMON-STOCK> 71040
<SHARES-COMMON-PRIOR> 66153
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<NET-CHANGE-FROM-OPS> 2223
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<CIK> 0000795384
<NAME> T. ROWE PRICE STATE TAX-FREE INCOME TRUST
<SERIES>
<NUMBER>2
<NAME> T ROWE PRICE NEW YORK TAX-FREE BOND FUND
<S> <C>
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<NAME> T. ROWE PRICE STATE TAX-FREE INCOME TRUST
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<NAME> T ROWE PRICE MARYLAND TAX-FREE BOND FUND
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<CIK> 0000795384
<NAME> T. ROWE PRICE STATE TAX-FREE INCOME TRUST
<SERIES>
<NUMBER>4
<NAME> T ROWE PRICE VIRGINIA TAX-FREE BOND FUND
<S> <C>
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<CIK> 0000795384
<NAME> T. ROWE PRICE STATE TAX-FREE INCOME TRUST
<SERIES>
<NUMBER>5
<NAME> T ROWE PRICE NEW JERSEY TAX-FREE BOND FUND
<S> <C>
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<NAME> T. ROWE PRICE STATE TAX-FREE INCOME TRUST
<SERIES>
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<NAME> T ROWE PRICE MARYLAND SHORT-TERM TAX-FREE BOND FUND
<S> <C>
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<CIK> 0000795384
<NAME> T. ROWE PRICE STATE TAX-FREE INCOME TRUST
<SERIES>
<NUMBER>7
<NAME> T ROWE PRICE FLORIDA INSURED INTER TAX-FREE BOND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 63070
<INVESTMENTS-AT-VALUE> 65257
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 65024
<SHARES-COMMON-STOCK> 6339
<SHARES-COMMON-PRIOR> 5121
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<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 49
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2187
<NET-ASSETS> 67260
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2905
<OTHER-INCOME> 0
<EXPENSES-NET> 344
<NET-INVESTMENT-INCOME> 2561
<REALIZED-GAINS-CURRENT> 1139
<APPREC-INCREASE-CURRENT> 1352
<NET-CHANGE-FROM-OPS> 5052
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2561
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 38353
<NUMBER-OF-SHARES-REDEEMED> 27236
<SHARES-REINVESTED> 1730
<NET-CHANGE-IN-ASSETS> 15338
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 835
<GROSS-ADVISORY-FEES> 0
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<GROSS-EXPENSE> 344
<AVERAGE-NET-ASSETS> 57283
<PER-SHARE-NAV-BEGIN> 10.14
<PER-SHARE-NII> .47
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<NAME> T. ROWE PRICE STATE TAX-FREE INCOME TRUST
<SERIES>
<NUMBER>8
<NAME> T ROWE PRICE GEORGIA TAX-FREE BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
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<PERIOD-END> FEB-29-1996
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<INVESTMENTS-AT-VALUE> 32128
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<TOTAL-LIABILITIES> 100
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<PAID-IN-CAPITAL-COMMON> 31983
<SHARES-COMMON-STOCK> 3113
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1166
<ACCUM-APPREC-OR-DEPREC> 1682
<NET-ASSETS> 32500
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1583
<OTHER-INCOME> 0
<EXPENSES-NET> 179
<NET-INVESTMENT-INCOME> 1404
<REALIZED-GAINS-CURRENT> 252
<APPREC-INCREASE-CURRENT> 1095
<NET-CHANGE-FROM-OPS> 2751
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1404
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 11855
<NUMBER-OF-SHARES-REDEEMED> 5099
<SHARES-REINVESTED> 1059
<NET-CHANGE-IN-ASSETS> 9162
<ACCUMULATED-NII-PRIOR> 1
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<OVERDISTRIB-NII-PRIOR> 1418
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<AVERAGE-NET-ASSETS> 27580
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<CIK> 0000795384
<NAME> T. ROWE PRICE STATE TAX-FREE INCOME TRUST
<SERIES>
<NUMBER>9
<NAME> T ROWE PRICE VIRGINIA SHORT-TERM TAX-FREE BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
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PAGE 1
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
POWER OF ATTORNEY
RESOLVED, that the Trust and each of its trustees do hereby
constitute and authorize, William T. Reynolds, Joel H. Goldberg,
and Henry H. Hopkins, and each of them individually, their true
and lawful attorneys and agents to take any and all action and
execute any and all instruments which said attorneys and agents
may deem necessary or advisable to enable the Trust to comply
with the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended, and any rules, regulations,
orders or other requirements of the United States Securities and
Exchange Commission thereunder, in connection with the
registration under the Securities Act of 1933, as amended, of
shares of the Trust, to be offered by the Trust, and the
registration of the Trust under the Investment Company Act of
1940, as amended, including specifically, but without limitation
of the foregoing, power and authority to sign the name of the
Trust on its behalf, and to sign the names of each of such
trustees and officers on his behalf as such trustee or officer to
any amendment or supplement (including Post-Effective Amendments)
to the Registration Statement on Form N-1A of the Trust filed
with the Securities and Exchange Commission under the Securities
Act of 1933, as amended, and the Registration Statement on Form
N-1A of the Trust under the Investment Company Act of 1940, as
amended, and to any instruments or documents filed or to be filed
as a part of or in connection with such Registration Statement.
In WITNESS WHEREOF, the Trust has caused these presents to
be signed by its Chairman of the Board and the same attested by
its Secretary, each thereunto duly authorized by its Board of
Trustees, and each of the undersigned has hereunto set his hand
and seal as of the day set opposite his name.
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
By: /s/William T. Reynolds
William T. Reynolds
Chairman of the Board
April 23, 1996
Attest:
/s/Lenora V. Hornung
Lenora V. Hornung
Secretary
(Signatures Continued)
Chairman of the Board
/s/William T. Reynolds (Principal Executive April 23, 1996
William T. Reynolds Officer)
/s/Mary J. Miller President April 23, 1996
Mary J. Miller
Treasurer (Principal
/s/Carmen F. Deyesu Financial Officer) April 23, 1996
Carmen F. Deyesu
/s/Robert P. Black Trustee April 23, 1996
Robert P. Black
/s/Calvin W. Burnett Trustee April 23, 1996
Calvin W. Burnett
/s/George J. Collins Trustee April 23, 1996
George J. Collins
/s/Anthony W. Deering Trustee April 23, 1996
Anthony W. Deering
/s/F. Pierce Linaweaver Trustee April 23, 1996
F. Pierce Linaweaver
/s/James S. Riepe Vice President and Trustee April 23, 1996
James S. Riepe
/s/John G. Schreiber Trustee April 23, 1996
John G. Schreiber
