For yield, price, last transaction, and current balance, 24 hours, 7 days a
week, call:
1-800-638-2587 toll free
625-7676 Baltimore area
For assistance with your existing fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
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T. Rowe Price
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for distribution only to shareholders and to others
who have received a copy of the prospectus of the T. Rowe Price Virginia
Tax-Free Bond Funds.
T. Rowe Price
Invest With Confidence (registered trademark)
VTF
REPTVAC 2/29/96
Annual Report
T. Rowe Price
Virginia Tax-Free Funds
February 29, 1996
Fellow Shareholders
The fiscal year ended February 29, 1996, was a banner year for bonds and the
funds that invest in them. Prices rose and yields fell through much of the
year, generating good returns for investors in fixed income securities. We are
happy to report that the performance of both Virginia bond funds compared
favorably with their peer group averages.
Market Environment
The economy slowed in 1995, and inflation remained moderate. After tightening
monetary policy in 1994 and early 1995, the Federal Reserve reversed course
when it became clear that the economy was running out of steam. Since July,
the Fed has lowered the key federal funds rate target three times, from 6% to
5.25% at the end of the fiscal year.
Against a background of slower growth, moderate inflation, and apparent
progress on reducing the federal budget deficit, bond yields tumbled. The
30-year Treasury yield, nearly 7.5% a year ago, fell briefly below 6% in late
December. At fiscal year-end, the long bond yield had edged back up to 6.5%,
as efforts to come up with deficit reduction legislation flagged in early
1996. Signs that stronger economic growth might resume in 1996 also
contributed to recent uneasiness in the bond market.
Chart 1: Virginia Bonds
Source: T. Rowe Price
After moving only slightly lower during the first half of the fiscal
year ended February 29, long-term municipal yields fell further in the second
half. Thirty-year prime general obligation (GO) bonds yielded 5.95% on
February 28, 1995, and on August 31 they were only 10 basis points lower (100
basis points equal one percent). During the most recent six months, prices
rose further as yields dropped an additional 45 basis points to 5.40%.
Municipal bonds with short maturities followed a different pattern, as
their yields fell more in the first half of the year than in the second. After
falling 70 basis points to 4.3% on August 31, the yield of five-year prime GO
bonds fell only 10 basis points more by February 29, 1996. The net result was
a lower and steeper yield curve that led to significant price appreciation
from 1994's lows.
Virginia's economy kept pace with the nation in 1995, with nonfarm jobs
growing at an average of 2.2%. However, the downsizing of the federal
government, the state's second largest employer, remained a problem. The
manufacturing sector may also be vulnerable to pressure on the tobacco
companies from anti-smoking advocates and to lower trade barriers in textiles
and apparel. On a positive note, the number of higher-skilled, higher-paying
jobs increased in industries such as electronics manufacturing, engineering,
management services, and distribution. Virginia's high-tech industries account
for only 7% of jobs but 12% of the state's wages. As the shrinking federal
government increasingly outsources its operations, opportunities should
increase for Virginia's high-tech and management companies. Motorola announced
last year that it will build a major manufacturing facility in Goochland
County, and IBM and Toshiba plan to add 1,200 jobs when they open a $1.2
billion semiconductor plant in Manassas.
Virginia Short-Term Tax-Free Bond Fund
After shortening the fund's weighted average maturity to 2.6 years in August
when the economy showed signs of strength, we lengthened to 2.8 years in
December amid signs of a sluggish holiday buying season. (A shortening of
maturities cushions the fund's share price against rises in interest rates
that can accompany brisk economic growth. Conversely, longer maturities
enhance the fund's price appreciation when a slowdown in the economy leads to
lower interest rates.) Our "bullet" structure, concentrating portfolio
holdings around three-year maturities rather than in one- and five-year bonds,
increased the fund's price appreciation as interest rates fell over the last
six months.
In recent weeks, hopes for another cut in the federal funds rate were
dashed by the balanced-budget stalemate and signs that the economy was
slightly stronger than expected. We responded by lowering our average maturity
slightly at the end of February.
The fund maintained significant investments in prerefunded bonds, about
58% of net assets, which will be paid off at their first call date or maturity
with money escrowed in U.S. government securities. Prerefunded bonds generally
yield more than current triple A-rated bonds and are in greater supply due to
issuer refinancings in the early 1990s.
These moves helped your fund achieve an edge over the Lipper average of
similar funds for both the 6- and 12-month periods ended February 29. (Lipper
Analytical Services eliminated the fund's former benchmark, the Lipper States
Short Municipal Debt Funds Average, replacing it with the one shown in the
table, which it considers more appropriate.)
Performance Comparison
Periods Ended 2/29/96
6 Months 12 Months
_________ _________
Virginia Short-Term
Tax-Free Bond Fund 2.61% 6.43%
Lipper Short Municipal
Debt Funds Average 2.48 6.00
Virginia Tax-Free Bond Fund
For most of the past year, we extended the fund's duration to enhance price
appreciation in a falling rate environment. (Duration is a more accurate
measure than maturity of a fund's price sensitivity to changes in interest
rates.) We stepped on the brakes a bit from April to May, lowering our
effective duration to 7.3 years, as tax reform fears rattled the municipal
market. The most dire prediction was that municipal bonds would lose their
appeal if taxes were eliminated on the income from taxable securities. By
July, however, believing that prices fully reflected these concerns and that
the market would again focus on positive underlying fundamentals, we began
lengthening, keeping duration above 7.7 years through December. As a result,
the fund benefited from the steeper decline in long-term yields in the second
calendar half.
In the first two months of 1996, amid signs that the economy was
stronger than expected, we took a slightly more cautious approach, raising our
cash levels modestly and trimming duration to 7.6 years. In addition, several
bond refundings put intermediate-term prerefunded bonds in the portfolio,
helping performance and complementing our preference for less risky,
shorter-term bonds.
Chart 2: Virginia Bond Issues
Source: Securities Data Co.
We also maintained an attractive level of income by holding
higher-coupon bonds acquired in the early 1990s. These bonds, which trade at a
premium to par, are less responsive to market rallies but provide higher
tax-free income than comparable issues available today. The portfolio
continued to be overweighted in hospital and housing bonds, which together
represent around one-third of net assets. Hospital bonds have been steady
performers while housing bonds have offered attractive yields.
Your fund exceeded the Lipper average of similar funds for both the 6-
and 12-month periods ended February 29. We are especially pleased that the
fund ranked number one among 14 funds in its Lipper category for the
three-year period ended February 29, through periods of both rising and
falling interest rates, and surpassed the Lipper average for each fiscal year
since inception. (The fund was ranked 9 out of 30 funds and 2 out of nine
funds in its Lipper category for the one-year and since inception, 4/30/91,
periods ended February 29, respectively).
Performance Comparison
Periods Ended 2/29/96
6 Months 12 Months
_________ _________
Virginia Tax-Free
Bond Fund 5.85% 10.69%
Lipper Virginia Municipal
Debt Funds Average 5.12 10.24
Outlook
The municipal market paid substantial attention to the topic of tax reform
last year. Concerns that proposed revisions to the tax code would be
detrimental to municipal bonds kept municipal securities from performing quite
as well as taxable alternatives. As we anticipated, these fears have lessened
somewhat as tax reform discussions have faded from prominence. Municipals have
already recaptured some of the ground lost to taxable bonds, which we
attribute to reduced worries about the impact of tax reform.
The unusually fierce weather this winter, as well as the partial
government shutdowns, tended to delay and distort many recent economic
statistics, but it looks as though the economy is on track for a year of
moderate growth. This should be enough to keep the unemployment rate in its
current zone without significantly exacerbating inflationary pressures. This
March the economic upturn completed its fifth year, making it one of the
longest peacetime expansions on record, but still without signs of an
impending recession.
Further easing by the Federal Reserve may be slow in coming, since the
Fed is concerned about the risk of fueling inflationary pressures when the
economy has only limited margins of excess capacity. The prospects for sharp
deficit reduction and the moderate inflation outlook that gave the bond market
confidence last year are not as compelling so far in 1996. Consequently, we
expect the bulk of returns this year to come from coupon income rather than
capital appreciation.
Virginia continues to be a strong player in the national economy,
offering solid investments for your fund. Conservative fiscal management at
the state and local levels is evidenced by stronger balance sheets. Looking
ahead, we expect the state to continue emphasizing prison expansion and
education, and we will be looking for buying opportunities among the new bonds
issued to finance these programs.
Respectfully submitted,
Mary J. Miller
Chairman of theInvestment Advisory Committee
March 20, 1996
Portfolio Highlights
Virginia Short-Term Tax-Free Bond Fund
Key Statistics
Periods Ended
Dividend Yield* 2/29/96
___________________________ _______________
6 Months 4.05%
12 Months 4.16
Dividend Per Share
___________________________
6 Months $0.10
12 Months** 0.21
Change in Price Per Share
___________________________
6 Months (From $5.14 to $5.16) $0.02
12 Months (From $5.06 to $5.16) 0.10
Weighted Average Quality*** 1.5
Weighted Average Maturity 2.6 years
Weighted Average Effective Duration2.3 years
*Dividends earned and reinvested for the periods indicated are annualized
and divided by the average daily net asset values per share for the same
period.
**Taxability of dividends: 100% of dividends were exempt from federal and
Virginia income taxes.
***On a T. Rowe Price scale of 1 to 10, with Grade 1 representing highest
quality.
Virginia Tax-Free Bond Fund
Key Statistics
Periods Ended
Dividend Yield* 2/29/96
___________________________ _______________
6 Months 5.25%
12 Months 5.39
Dividend Per Share
___________________________
6 Months $0.29
12 Months** 0.57
Change in Price Per Share
___________________________
6 Months (From $10.75 to $11.09) $0.34
12 Months (From $10.56 to $11.09) 0.53
Weighted Average Quality*** 2.1
Weighted Average Maturity 17.3 years
Weighted Average Effective Duration7.6 years
*Dividends earned and reinvested for the periods indicated are annualized
and divided by the average daily net asset values per share for the same
period.
**Taxability of dividends: 100% of dividends were exempt from federal and
Virginia income taxes.
***On a T. Rowe Price scale of 1 to 10, with Grade 1 representing highest
quality.
Virginia Short-Term Tax-Free Bond Fund
Sector Diversification
Percent of Net Assets
2/29/96
_________________
Prerefunded Bonds 58%
Hospital Revenue 13
Lease Revenue 5
General Obligation - Local 5
Solid Waste Revenue 5
Industrial and Pollution Control Revenue4
Housing Finance Revenue 4
Miscellaneous Revenue 2
Air and Sea Transportation Revenue 2
Escrowed to Maturity 1
Other Assets Less Liabilities 1
Virginia Tax-Free Bond Fund
Sector Diversification
Percent of Net Assets
2/29/96
_________________
Hospital Revenue 21%
Housing Finance Revenue 15
Prerefunded Bonds 15
Lease Revenue 11
Water and Sewer Revenue 7
Air and Sea Transportation Revenue 5
Industrial and Pollution Control Revenue5
General Obligation - Local 4
Educational Revenue 4
Solid Waste Revenue 3
Miscellaneous Revenue 3
Escrowed to Maturity 2
Dedicated Tax Revenue 2
Other Assets Less Liabilities 2
General Obligation - State 1
Virginia Short-Term Tax-Free Bond Fund
Chart 3: Performance Comparison
Average Annual Compound Total Return
Virginia Short-Term Tax-Free Bond Fund
Periods ended February 29, 1996
Since Inception
1 Year (11/30/94)
_______ _____________
6.43% 7.05%
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original
purchase.
Virginia Tax-Free Bond Fund
Chart 4: Performance Comparison
Average Annual Compound Total Return
Virginia Tax-Free Bond Fund
Periods ended February 29, 1996
Since Inception
1 Year 3 Years (4/30/91)
_______ _______ _____________
10.69% 6.00% 8.29%
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original
purchase.
Statement of Net Assets
T. Rowe Price Virginia Short-Term Tax-Free Bond Fund / February 29, 1996
(amounts in thousands)
Amount Value
________________
VIRGINIA - 94.1%
Alexandria IDA, Ogden Martin,
VRDN (Currently 3.55%) * . . . . . . . . . $ 100 $ 100
Augusta County IDA, Augusta Hosp.,
(AMBAC Insured), 6.10%, 9/1/00 . . . . . . 60 65
Chesapeake, GO, 6.80%, 7/1/03
(Prerefunded 7/1/97!). . . . . . . . . . . 450 478
Chesapeake Hosp. Auth., Chesapeake General Hosp.,
(BIGI Insured),
7.625%, 7/1/18 (Prerefunded 7/1/98!) . 85 94
Chesapeake Water and Sewer Systems,
7.10%, 12/1/05 (Prerefunded 12/1/98!). . . 250 276
7.75%, 7/1/17 (Prerefunded 7/1/97!). . 90 97
Fairfax County, GO, 5.00%, 6/1/97. . . . . 230 234
6.50%, 4/1/05 (Prerefunded 4/1/98!). . 250 268
Ogden Martin, 7.20%, 2/1/99 *. . . . . . . 450 481
Fairfax County IDA, Fairfax Hosp. System,
VRDN (Currently 3.40%) . . . . . . . . . . 100 100
Fairfax County Water Auth.,
6.125%, 1/1/29 (Prerefunded 1/1/00!) . . . 250 267
Hampton, GO, 6.625%, 1/1/10
(Prerefunded 1/1/00!). . . . . . . . . . . 100 110
Hampton Roads Sanitation Dist., 7.10%, 7/1/98
(Escrowed to Maturity) . . . . . . . . . . 125 134
7.20%, 7/1/09 (Prerefunded 7/1/99!). . 500 558
Henrico County, GO, 6.40%, 10/1/99
(Prerefunded 10/1/98!) . . . . . . . . . . 180 192
Henrico County IDA, Henrico County Jail,
5.80%, 8/1/99. . . . . . . . . . . . . . . 150 158
Loudoun County Sanitation Auth., Water and Sewer,
(AMBAC Insured), 7.25%, 1/1/03
(Prerefunded 1/1/99!). . . . . . . . . . . 350 386
Newport News, GO, 7.25%, 1/1/98. . . . . . 75 80
Norfolk, GO, 7.00%, 10/1/09
(Prerefunded 10/1/98!) . . . . . . . . . . 450 493
Peninsula Ports Auth., Shell Oil, VRDN
(Currently 3.40%). . . . . . . . . . . . . 500 500
Prince William County, GO, 6.125%, 2/1/03
(Prerefunded 2/1/99!). . . . . . . . . . . 500 533
Prince William County IDA, Potomac Hosp. Corp.,
5.90%, 10/1/97 . . . . . . . . . . . . . . 50 51
Richmond, GO, 7.00%, 1/15/20
(Prerefunded 1/15/00!) . . . . . . . . . . 400 447
Public Utilities, 7.60%, 1/15/04
(Prerefunded 1/15/98!) . . . . . . . . . . 340 370
Roanoke IDA, Roanoke Memorial Hosp.,
6.90%, 7/1/99. . . . . . . . . . . . . . . 500 538
Suffolk, GO, 7.30%, 8/1/03
(Prerefunded 8/1/97!). . . . . . . . . . . 50 54
Univ. of Virginia Hosp., 7.15%, 6/1/17
(Prerefunded 6/1/98!). . . . . . . . . . . 50 55
Virginia, GO, 6.60%, 6/1/05
(Prerefunded 6/1/98!). . . . . . . . . . . 500 540
Higher Ed. Institution, GO, 6.60%, 6/1/08
(Prerefunded 6/1/98!). . . . . . . . . . . 625 674
Virginia Beach, GO, 6.75%, 5/1/97. . . . . 30 31
6.10%, 8/1/99. . . . . . . . . . . . . 250 267
7.50%, 5/1/04 (Prerefunded 5/1/97!). . 200 213
Virginia Beach Hosp. Auth., Sentara Bayside
Hosp., 5.65%, 11/1/98. . . . . . . . . . . 500 520
Virginia HDA, 5.75%, 11/1/97 . . . . . . . 95 97
4.90%, 11/1/00 * . . . . . . . . . . . 300 304
6.40%, 1/1/05 *. . . . . . . . . . . . 50 52
Virginia Public Building Auth.,
5.70%, 8/1/00. . . . . . . . . . . . . . . 300 319
Correctional Fac., 6.90%, 2/1/99 . . . . . 175 189
Virginia Public School Auth., 5.60%, 1/1/99 275 287
6.20%, 1/1/03 (Prerefunded 1/1/99!). . 50 54
6.70%, 1/1/07 (Prerefunded 1/1/99!). . 150 163
7.10%, 1/1/10 (Prerefunded 1/1/98!). . 75 81
6.75%, 1/1/11 (Prerefunded 1/1/99!). . 400 436
Prince William County, GO, 6.60%, 6/1/00 . $ 50 $ 52
Washington County IDA, Johnston Memorial Hosp.,
5.375%, 7/1/98 . . . . . . . . . . . . . . 290 297
Winchester, GO, 6.85%, 10/15/05
(Prerefunded 10/15/97!). . . . . . . . . . 50 53
DISTRICT OF COLUMBIA - 2.2%
Metropolitan Washington D.C. Airports Auth.,
(FGIC Insured), 6.80%, 10/1/98 * . . . . . 250 267
PUERTO RICO - 2.2%
Puerto Rico Electric Power Auth.,
7.125%, 7/1/14 (Prerefunded 7/1/99!) . . . 250 278
Total Investments in Securities -
98.5% of Net Assets (Cost $12,099) . . . . 12,293
Other Assets Less Liabilities . . . . . . 187
__________
Net Assets Consist of: Value
__________
Accumulated net realized gain/loss -
net of distributions . . . . . . . . . . . $ 7
Net unrealized gain (loss) . . . . . . . . 194
Paid-in-capital applicable to 2,420,241 no par
value shares of beneficial interest outstanding;
unlimited number of shares authorized. . . 12,279
__________
NET ASSETS . . . . . . . . . . . . . . . . $12,480
__________
__________
NET ASSET VALUE PER SHARE. . . . . . . . . $ 5.16
______
______
* Interest subject to alternative minimum tax
! Used in determining portfolio maturity
AMBACAMBAC Indemnity Corp.
BIGI Bond Investors Guaranty Insurance
FGIC Financial Guaranty Insurance Company
GO General Obligation
HDA Housing Development Authority
IDA Industrial Development Authority
VRDN Variable Rate Demand Note
The accompanying notes are an integral part of these financial statements.
Statement of Net Assets
T. Rowe Price Virginia Tax-Free Bond Fund / February 29, 1996
(amounts in thousands)
Amount Value
________________
VIRGINIA - 91.2%
Alexandria IDA, Ogden Martin, 7.40%, 1/1/08 $ 2,450 $ 2,480
VRDN (Currently 3.55%) * . . . . . . . 600 600
Arlington County IDA, Arlington Hosp.,
7.00%, 9/1/11 (Prerefunded 9/1/01!). . . . 1,205 1,384
7.125%, 9/1/21 (Prerefunded 9/1/01!) . 800 924
Augusta County IDA, Augusta Hosp. Corp.,
(AMBAC Insured), 5.50%, 9/1/15 . . . . . . 3,750 3,688
Augusta County Service Auth., Water and Sewer,
(MBIA Insured), 5.00%, 11/1/24 . . . . . . 1,000 925
Big Stone Gap, Wallens Ridge, 5.25%, 9/1/11 4,580 4,499
Capital Region Airport Commission,
Richmond Int'l Airport,
(AMBAC Insured), 5.625%, 7/1/25. . . . . . 2,965 2,937
VRDN (Currently 3.30%) * . . . . . . . 1,000 1,000
Covington and Alleghany County IDA, PCR,
Westvaco Corp., 6.65%, 9/1/18. . . . . . . 1,500 1,624
Danville, General Improvement, GO, 7.25%, 3/1/07
(Prerefunded 3/1/99!). . . . . . . . . . . 350 388
Danville IDA, Danville Regional Medical Center,
(FGIC Insured), 6.50%, 10/1/24 . . . . . . 3,000 3,252
Fairfax County, Sewer, (AMBAC Insured),
7.00%, 11/15/16 (Prerefunded 11/15/99!). . 900 1,006
Fairfax County Housing Auth.,
FCRHA Office Building, 7.50%, 6/15/18. . . 2,305 2,433
Fairfax County IDA, Fairfax Hosp. System,
VRDN (Currently 3.40%) . . . . . . . . . . 200 200
VRDN (Currently 3.50%) . . . . . . . . 700 700
Inova Health System, 5.25%, 8/15/19. . . . 2,500 2,405
Fairfax County Water Auth., 5.80%, 1/1/16
(Escrowed to Maturity) . . . . . . . . . . 4,005 4,259
7.30%, 1/1/21 (Prerefunded 1/1/00!). . 900 1,015
Frederick County IDA, Gov't. Complex Fac.,
(MBIA Insured), 6.50%, 12/1/14 . . . . . . 1,500 1,652
Fredericksburg IDA, Hosp. Fac.
(MWH MediCorp Obligated Group), (FGIC Insured),
Floating Rate, 8/15/23 (Currently 9.423%). 3,000 3,472
George Mason Univ., (MBIA Insured),
6.375%, 2/1/13 . . . . . . . . . . . . . . 1,415 1,542
Hampton, Museum, 7.30%, 1/1/14
(Prerefunded 1/1/00! ) . . . . . . . . . . 1,100 1,237
Hampton Roads Medical College,
6.875%, 11/15/11 . . . . . . . . . . . 1,500 1,639
6.875%, 11/15/16 . . . . . . . . . . . 500 541
Hampton Roads Sanitation Dist.,
5.00%, 10/1/23 . . . . . . . . . . . . . . 5,600 5,227
Hanover County IDA, Memorial Regional
Medical Center, (MBIA Insured),
6.50%, 8/15/08 . . . . . . . . . . . . 1,000 1,130
6.375%, 8/15/18. . . . . . . . . . . . 2,185 2,433
Henrico County IDA, Bon Secours Health System,
St. John's Hosp., 7.50%, 9/1/15. . . . . . 1,850 2,051
Bon Secours Health System, St. Mary's Hosp.,
7.50%, 9/1/07. . . . . . . . . . . . . . . 420 464
Regional Jail, 7.00%, 8/1/13 . . . . . . . 1,485 1,699
6.00%, 8/1/15. . . . . . . . . . . . . 2,415 2,528
Isle of Wight IDA, Union Camp Corp.,
6.55%, 4/1/24 *. . . . . . . . . . . . . . 4,250 4,461
Loudoun County IDA, Loudoun Hosp. Center,
(FSA Insured), 6.00%, 6/1/05 . . . . . . . $ 1,000 $ 1,086
5.80%, 6/1/20. . . . . . . . . . . . . 1,750 1,783
Lynchburg Housing Auth., Waldon Pond,
6.125%, 7/20/15. . . . . . . . . . . . . . 1,170 1,189
Martinsville IDA, Memorial Hosp. of Martinsville
and Henry County, 7.00%, 1/1/11. . . . . . 950 1,010
Norfolk IDA, Children's Hosp. of
The King's Daughters, (AMBAC Insured),
7.00%, 6/1/11 (Prerefunded 6/1/01!). . . . 1,150 1,315
Sentara Hosp.,
7.10%, 11/1/10 (Prerefunded 11/1/00!). 850 968
6.50%, 11/1/13 . . . . . . . . . . . . 500 538
7.00%, 11/1/20 (Prerefunded 11/1/00!). 1,045 1,185
Norfolk Water Auth., (MBIA Insured),
5.875%, 11/1/20. . . . . . . . . . . . . . 5,000 5,129
Peninsula Ports Auth., Shell Oil,
VRDN (Currently 3.40%) . . . . . . . . . . 2,750 2,750
Pittsylvania County, GO, 5.50%, 2/1/16 . . 1,000 972
Prince William County, COP,
(MBIA Insured), 5.50%, 12/1/15 . . . . . . 4,455 4,386
Richmond, GO, 7.00%, 1/15/20
(Prerefunded 1/15/00!) . . . . . . . . . . 1,515 1,694
(FGIC Insured), 5.00%, 1/15/21 . . . . . 2,125 1,976
Riverside Regional Jail Auth.,
(MBIA Insured), 5.875%, 7/1/14 . . . . . . 2,000 2,068
Roanoke County, Public Improvement,
GO, 5.00%, 6/1/21. . . . . . . . . . . . . 600 563
Roanoke IDA, Roanoke Memorial Hosp.,
Carilion Health System, (MBIA Insured),
6.125%, 7/1/17 . . . . . . . . . . . . 3,905 4,235
7.25%, 7/1/17 (Prerefunded 7/1/00!). . 1,000 1,138
Univ. of Virginia, VRDN (Currently 3.40%). 1,600 1,600
Univ. of Virginia Hosp., 7.00%, 6/1/10 . . 855 925
7.00%, 6/1/10 (Prerefunded 6/1/99!). . 545 603
Upper Occoquan Sewage Auth., (FGIC Insured),
5.00%, 7/1/21. . . . . . . . . . . . . . . 1,550 1,437
Virginia, GO, 6.50%, 6/1/15
(Prerefunded 6/1/03!). . . . . . . . . . . 3,000 3,417
Virginia Beach Dev. Auth., Sentara Bayside Hosp.,
6.60%, 11/1/09 . . . . . . . . . . . . . . 2,150 2,295
Virginia Beach General Hosp., (AMBAC Insured),
6.00%, 2/15/10 . . . . . . . . . . . . . . 1,000 1,087
Virginia Commonwealth Univ., 5.625%, 5/1/10 1,000 1,029
Virginia Ed. Loan Auth., Student Loan Program,
5.55%, 9/1/10 (Prerefunded 3/1/06!)* . . . 3,360 3,436
Virginia HDA, 6.35%, 11/1/01 . . . . . . . 1,000 1,047
6.80%, 7/1/06 *. . . . . . . . . . . . 1,000 1,057
7.40%, 7/1/09. . . . . . . . . . . . . 300 319
6.70%, 7/1/11. . . . . . . . . . . . . 2,660 2,834
6.50%, 5/1/13 *. . . . . . . . . . . . 2,000 2,052
7.10%, 5/1/13. . . . . . . . . . . . . 1,500 1,592
6.90%, 7/1/13. . . . . . . . . . . . . 1,800 1,876
7.10%, 1/1/17. . . . . . . . . . . . . 2,230 2,363
6.85%, 7/1/17. . . . . . . . . . . . . 1,000 1,034
6.90%, 7/1/17. . . . . . . . . . . . . 3,500 3,694
7.05%, 5/1/18. . . . . . . . . . . . . 840 891
7.10%, 1/1/22. . . . . . . . . . . . . 4,760 5,013
(MBIA Insured), 6.45%, 7/1/28 *. . . . . 2,000 2,072
Virginia Public Building Auth.,
6.50%, 8/1/11 (Prerefunded 8/1/01!). . $ 3,500 $ 3,926
6.25%, 8/1/15 (Prerefunded 8/1/04!). . 1,550 1,739
Virginia Public School Auth., 7.125%, 1/1/10
(Prerefunded 1/1/98!). . . . . . . . . . . 100 108
6.50%, 8/1/12. . . . . . . . . . . . . 1,700 1,837
6.50%, 8/1/16. . . . . . . . . . . . . 2,890 3,164
Chesapeake School, GO, 5.40%, 6/1/06 . . . 3,000 3,164
Virginia Resources Auth., Solid Waste Disposal,
5.50%, 4/1/15. . . . . . . . . . . . . . . 3,000 2,937
Washington County IDA, Johnston Memorial Hosp.,
6.25%, 7/1/06. . . . . . . . . . . . . 660 706
6.75%, 7/1/12. . . . . . . . . . . . . 1,500 1,616
6.00%, 7/1/14. . . . . . . . . . . . . 1,000 1,015
Winchester IDA, Winchester Medical Center, Inc.,
(AMBAC Insured), Embedded Interest Rate Swap,
1/1/04 (Currently 5.27%) . . . . . . . . . 1,400 1,388
DISTRICT OF COLUMBIA - 3.0%
Metropolitan Washington D.C. Airport Auth.,
(MBIA Insured), 5.50%, 10/1/05 * . . . . . 1,000 1,040
6.625%, 10/1/19 *. . . . . . . . . . . 4,000 4,304
PUERTO RICO - 4.2%
Puerto Rico Commonwealth, GO, 7.75%, 7/1/13
(Prerefunded 7/1/98! ) . . . . . . . . . . 100 110
7.75%, 7/1/17 (Prerefunded 7/1/99!). . 250 283
(MBIA Insured), 6.50%, 7/1/08. . . . . . 1,100 1,265
5.65%, 7/1/15. . . . . . . . . . . . . 1,000 1,041
Puerto Rico Commonwealth Highway and
Transportation Auth., (FSA Insured),
5.50%, 7/1/15. . . . . . . . . . . . . . . 2,000 2,045
Puerto Rico Electric Power Auth.,
7.00%, 7/1/07 (Prerefunded 7/1/99!). . 630 696
8.00%, 7/1/08 (Prerefunded 7/1/98!). . 125 139
Puerto Rico Infrastructure Fin. Auth.,
7.75%, 7/1/08. . . . . . . . . . . . . 115 126
7.50%, 7/1/09. . . . . . . . . . . . . 1,500 1,635
Puerto Rico Public Buildings Auth.,
GO, 7.25%, 7/1/17 (Prerefunded 7/1/98!). . 100 109
Total Investments in Securities -
98.4% of Net Assets (Cost $167,159). . . . $175,846
Futures Contracts
Contract Unrealized
Expiration Value Gain (Loss)
_________ ___________________
Long, 20 U.S. Treasury
thirty-year contracts,
$135,000 of Municipal Bonds
pledged as
initial margin 6/96 $ 2,286 $(14)
Net payments (receipts)
of variation margin to date. . . . . . . . 15
______
Variation margin receivable (payable) on open
futures contracts. . . . . . . . . . . . . 1
Other Assets Less Liabilities . . . . . . 2,903
__________
Net Assets Consist of: Value
__________
Accumulated net investment income -
net of distributions . . . . . . . . . . . $ 6
Accumulated net realized gain/loss -
net of distributions . . . . . . . . . . . (2,347)
Net unrealized gain (loss) . . . . . . . . 8,673
Paid-in-capital applicable to 16,119,522
no par value shares of beneficial
interest outstanding;
unlimited number of shares authorized. . . 172,418
__________
NET ASSETS . . . . . . . . . . . . . . . . $178,750
__________
__________
NET ASSET VALUE PER SHARE. . . . . . . . . $11.09
______
______
* Interest subject to alternative minimum tax
! Used in determining portfolio maturity
AMBACAMBAC Indemnity Corp.
COP Certificates of Participation
FGIC Financial Guaranty Insurance Company
FSA Financial Security Assurance Corp.
GO General Obligation
HDA Housing Development Authority
IDA Industrial Development Authority
MBIA Municipal Bond Investors Assurance Corp.
PCR Pollution Control Revenue
VRDN Variable Rate Demand Note
Statement of Operations
T. Rowe Price Virginia Tax-Free Funds/Year Ended February 29, 1996
(in thousands)
Short-Term
Bond Fund Bond Fund
___________ ___________
INVESTMENT INCOME
Interest income. . . . . . . . . . . . $ 465 $ 9,976
______________________
Expenses
Investment management . . . . . . . . - 770
Shareholder servicing . . . . . . . . 21 170
Custodian and accounting. . . . . . . 86 108
Prospectus and shareholder reports. . 6 18
Legal and audit . . . . . . . . . . . 7 13
Trustees. . . . . . . . . . . . . . . 5 7
Registration. . . . . . . . . . . . . 5 -
Miscellaneous . . . . . . . . . . . . 3 9
Reimbursed by Manager . . . . . . . . (69) -
______________________
Total expenses. . . . . . . . . . . . 64 1,095
______________________
Net investment income. . . . . . . . . 401 8,881
______________________
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Securities. . . . . . . . . . . . . . 30 4,011
Futures . . . . . . . . . . . . . . . - (174)
______________________
Net realized gain (loss) . . . . . . . 30 3,837
______________________
Change in net unrealized gain or loss on:
Securities. . . . . . . . . . . . . . 154 4,355
Futures . . . . . . . . . . . . . . . - (14)
______________________
Change in net unrealized gain or loss. 154 4,341
______________________
Net realized and unrealized gain (loss) 184 8,178
______________________
INCREASE (DECREASE) IN
NET ASSETS FROM OPERATIONS . . . . . . $ 585 $17,059
______________________
______________________
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
T. Rowe Price Virginia Tax-Free Funds
(in thousands)
Short-Term Bond Fund Bond Fund
________________________________________
Year Nov. 30, Year Year
Ended Feb. 1994!! to Ended Feb.Ended Feb.
29, 1996Feb. 28, 199529, 1996 28, 1995
________ _________ _________ _________
INCREASE (DECREASE) IN
NET ASSETS FROM
Operations
Net investment
income . . . . . . . $ 401 $ 28 $ 8,881 $ 8,423
Net realized
gain (loss). . . . . 30 - 3,837 (6,075)
Change in net unrealized
gain or loss . . . . 154 40 4,341 (1,060)
________________________________________
Increase (decrease) in
net assets from
operations . . . . . 585 68 17,059 1,288
________________________________________
Distributions to shareholders
Net investment
income . . . . . . . (401) (28) (8,881) (8,423)
Net realized gain. . (23) - - (151)
________________________________________
Decrease in net
assets from
distributions. . . . (424) (28) (8,881) (8,574)
________________________________________
Capital share transactions*
Shares sold. . . . . 10,194 4,921 38,919 42,140
Distributions
reinvested . . . . . 284 4 6,804 6,686
Shares redeemed. . . (3,124) - (30,429) (54,977)
______________________________ __________
Increase (decrease) in
net assets from capital
share transactions . 7,354 4,925 15,294 (6,151)
________________________________________
Increase (decrease) in
net assets . . . . . . 7,515 4,965 23,472 (13,437)
NET ASSETS
Beginning of period. . 4,965 - 155,278 168,715
________________________________________
End of period. . . . . $12,480 $4,965 $178,750 $155,278
______________________________ __________
______________________________ __________
*Share information
Shares sold. . . . . 1,991 981 3,592 4,058
Distributions
reinvested . . . . . 55 - 627 645
Shares redeemed. . . (607) - (2,805) (5,337)
______________________________ __________
Increase (decrease)
in shares
outstanding. . . . . 1,439 981 1,414 (634)
________________________________________
________________________________________
!! Commencement of operations.
The accompanying notes are an integral part of these financial statements.
Notes To Financial Statements
T. Rowe Price Virginia Tax-Free Funds / February 29, 1996
Note 1 - Significant Accounting Policies
T. Rowe Price State Tax-Free Income Trust (the Trust) is registered under the
Investment Company Act of 1940. The Virginia Short-Term Tax-Free Bond Fund
(the Short-Term Bond Fund) and the Virginia Tax-Free Bond Fund (the Bond
Fund), nondiversified, open-end management investment companies, are two of
the portfolios established by the Trust.
A) Valuation - Debt securities are generally traded in the over-the-counter
market. Investments in securities originally issued with maturities of one
year or more are stated at fair value as furnished by dealers who make markets
in such securities or by an independent pricing service, which considers yield
or price of bonds of comparable quality, coupon, maturity, and type, as well
as prices quoted by dealers who make markets in such securities. Securities
with maturities when issued of less than one year are stated at fair value,
which is determined by using a matrix system that establishes a value for each
security based on money market yields. Financial futures contracts are valued
at closing settlement prices.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair value
as determined in good faith by or under the supervision of the officers of
each fund, as authorized by the Board of Trustees.
B) Premiums and Discounts - Premiums and original issue discounts on municipal
securities are amortized for both financial reporting and tax purposes. Market
discounts are recognized upon disposition of the security as gain or loss for
financial reporting purposes and as ordinary income for tax purposes.
C) Other - Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses
are reported on the identified cost basis. Income and capital gain
distributions are determined in accordance with federal income tax regulations
and may differ from those determined in accordance with generally accepted
accounting principles. Payments ("variation margin") made or received by each
fund to settle the daily fluctuations in the value of futures contracts are
recorded as unrealized gain or loss until the contracts are closed. Unrealized
gains and losses on futures contracts are included in Change in net unrealized
gain or loss in the accompanying financial statements.
Note 2 - Investment Transactions
Consistent with their investment objectives, the funds engage in the following
practices to manage exposure to certain risks or enhance performance. The
investment objective, policies, program, and risk factors of each fund are
described more fully in each fund's prospectus and Statement of Additional
Information.
A) Futures Contracts - At February 29, 1996, the Bond Fund was a party to
futures contracts, which provide for the future sale by one party and purchase
by another of a specified amount of a specific financial instrument at an
agreed upon price, date, time, and place. Risks arise from possible
illiquidity of the futures market and from movements in security values.
B) Other - Purchases and sales of portfolio securities, other than short-term
securities, for the year ended February 29, 1996, were as follows:
Short-Term
Bond Fund Bond Fund
_____________ ____________
Purchases $10,615,000 $166,113,000
Sales 3,321,000 150,241,000
Note 3 - Federal Income Taxes
No provision for federal income taxes is required since each fund intends to
continue to qualify as a regulated investment company and distribute all of
its income. The Bond Fund has unused realized capital loss carryforwards for
federal income tax purposes of $2,318,000, which expires in 2003. The Bond
Fund intends to retain gains realized in future periods that may be offset by
available capital loss carryforwards.
In order for the Bond Fund's capital accounts and distributions to
shareholders to reflect the tax character of certain transactions, $3,000 of
undistributed net investment income was reclassified as a decrease to
undistributed net realized gains during the year ended February 29, 1996. The
results of operations and net assets were not affected by the
reclassifications.
At February 29, 1996, the aggregate cost of investments for the
Short-Term Bond and Bond funds for federal income tax and financial reporting
purposes was $12,099,000 and $167,159,000, respectively. Net unrealized gain
(loss) on investments was as follows:
Short-Term
Bond Fund Bond Fund
____________ ____________
Appreciated
Investments$194,000 $8,993,000
Depreciated
Investments - (306,000)
________ __________
Net Unrealized
Gain (Loss)$194,000 $8,687,000
________ __________
________ __________
Note 4 - Related Party Transactions
The investment management agreement between each fund and T. Rowe Price
Associates, Inc. (the Manager), provides for an annual investment management
fee, of which $65,000 was payable at February 29, 1996 by the Bond Fund. The
fee is computed daily and paid monthly, and consists of an Individual Fund Fee
equal to 0.10% of average daily net assets and a Group Fee. The Group Fee is
based on the combined assets of certain mutual funds sponsored by the Manager
or Rowe Price-Fleming International, Inc. (the Group). The Group Fee rate
ranges from 0.48% for the first $1 billion of assets to 0.31% for assets in
excess of $34 billion. At February 29, 1996, and for the year then ended, the
effective annual Group Fee rate was 0.33% and 0.34%, respectively. Each fund
pays a pro rata share of the Group Fee based on the ratio of its net assets to
those of the Group.
Under the terms of the investment management agreement, the Manager is
required to bear any expenses through February 29, 1996 for the Short-Term
Bond Fund and through February 28, 1997 for the Bond Fund which would cause
each fund's ratio of expenses to average net assets to exceed 0.65%.
Thereafter through February 28, 1998 for the Short-Term Bond Fund and February
29, 1999 for the Bond Fund, each fund is required to reimburse the Manager for
these expenses, provided that average net assets have grown or expenses have
declined sufficiently to allow reimbursement without causing each fund's ratio
of expenses to average net assets to exceed 0.65%. Pursuant to these
agreements, $43,000 of management fees were not accrued by the Short-Term Bond
Fund for the year ended February 29, 1996, and $69,000 of other expenses were
borne by the Manager. Pursuant to this agreement, $25,000 of unaccrued fees
and expenses remain subject to reimbursement through February 28, 1998 by the
Short-Term Bond Fund. Pursuant to a previous agreement, $31,000 of unaccrued
fees were repaid by the Bond Fund during the year ended February 29, 1996, and
$156,000 remains subject to reimbursement through February 28, 1997.
In addition, each fund has entered into agreements with the Manager and
a wholly owned subsidiary of the Manager, pursuant to which each fund receives
certain other services. The Manager computes the daily share price and
maintains the financial records of each fund. T. Rowe Price Services, Inc., is
each fund's transfer and dividend disbursing agent and provides shareholder
and administrative services to the funds. The Short-Term Bond and Bond funds
incurred expenses pursuant to these related party agreements totaling
approximately $78,000 and $205,000, respectively, for the year ended February
29, 1996, of which $9,000 and $21,000, respectively, were payable at
period-end.
Financial Highlights
T. Rowe Price Virginia Short-Term Tax-Free Bond Fund
For a share outstanding throughout each period
______________________________________________
November 30, 1994!!
Year Ended to
February 29, 1996 February 28, 1995
______________________________________________
NET ASSET VALUE,
BEGINNING OF PERIOD. . . . .$ 5.06 $ 5.00
______ ______
Investment activities
Net investment income . . . 0.21* 0.05*
Net realized and
unrealized gain (loss). . . 0.11 0.06
______ ______
Total from investment
activities. . . . . . . . . 0.32 0.11
______ ______
Distributions
Net investment income . . . (0.21) (0.05)
Net realized gain . . . . . (0.01) -
______ ______
Total distributions . . . . (0.22) (0.05)
______ ______
NET ASSET VALUE,
END OF PERIOD. . . . . . . .$ 5.16 $ 5.06
______ ______
______ ______
RATIOS/SUPPLEMENTAL DATA
Total return . . . . . . . . 6.43% 2.28%
Ratio of expenses to average
net assets . . . . . . . . . 0.65%* 0.65%!*
Ratio of net investment income
to average net assets. . . . 4.07% 4.43%!
Portfolio turnover rate. . . 36.4% 14.8%!
Net assets, end of period
(in thousands) . . . . . . .$12,480 $4,965
! Annualized.
* Excludes expenses in excess of a 0.65% voluntary expense limitation in
effect through February 29, 1996.
!! Commencement of operations.
Financial Highlights
T. Rowe Price Virginia Tax-Free Bond Fund
For a share outstanding throughout each period
______________________________________________
Year Ended From April
___________________________________30,1991!!
to
Feb. 29,Feb. 28,Feb. 28,Feb. 28,Feb. 29,
1996 1995 1994 1993 1992
__________________________________________
NET ASSET VALUE, BEGINNING
OF PERIOD. . . . . . . .$10.56 $11.00 $11.06 $10.27 $10.00
______ ______ ______ ______ ______
Investment activities
Net investment income . 0.57* 0.57* 0.56* 0.58* 0.48*
Net realized and
unrealized gain
(loss). . . . . . . . . 0.53 (0.43) 0.09 0.82 0.31
______ ______ ______ ______ ______
Total from investment
activities. . . . . . . 1.10 0.14 0.65 1.40 0.79
______ ______ ______ ______ ______
Distributions
Net investment income . (0.57) (0.57) (0.56) (0.58) (0.48)
Net realized gain . . . - (0.01) (0.15) (0.03) (0.04)
______ ______ ______ ______ ______
Total distributions . . (0.57) (0.58) (0.71) (0.61) (0.52)
______ ______ ______ ______ ______
NET ASSET VALUE,
END OF PERIOD. . . . . .$11.09 $10.56 $11.00 $11.06 $10.27
______ ______ ______ ______ ______
______ ______ ______ ______ ______
RATIOS/SUPPLEMENTAL DATA
Total return . . . . . .10.69% 1.51% 5.99% 14.11% 8.12%
Ratio of expenses to
average net assets . . . 0.65%* 0.65%* 0.65%* 0.65%* 0.65%!*
Ratio of net investment
income to average
net assets . . . . . . . 5.27% 5.49% 5.03% 5.53% 5.80%!
Portfolio turnover
rate . . . . . . . . . . 93.7% 89.1% 61.8% 68.5% 76.3%!
Net assets, end of period
(in thousands) . . .$178,750$155,278$168,715$111,705$44,198
! Annualized.
* Excludes expenses in excess of a 0.65% voluntary expense limitation in
effect through February 28, 1997.
!! Commencement of operations.
Report of Independent Accountants
To the Shareholders and Board of Trustees of T. Rowe Price Virginia Tax-Free
Funds
We have audited the accompanying statement of net assets of T. Rowe Price
Virginia Short-Term Tax-Free Bond Fund and T. Rowe Price Virginia Tax-Free
Bond Fund (two of the portfolios comprising the T. Rowe Price State Tax-Free
Income Trust) as of February 29, 1996, and the related statement of
operations, the statement of changes in net assets, and the financial
highlights for the periods presented. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of investments
owned as of February 29, 1996, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of T. Rowe Price Virginia Short-Term Tax-Free Bond Fund and T. Rowe
Price Virginia Tax-Free Bond Fund as of February 29, 1996, the results of
their operations, the changes in their net assets, and financial highlights
for each of the periods presented, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
March 19, 1996
Chart 1: Virginia Bond Yields: A 2-line chart showing yields on the Virginia
Bond Index and the 3-year Virginia General Obligation bond from 2/95 through
2/96.
Chart 2: Virginia Bond Issues: A 7-bar chart showing annual Virginia bond
issuance from 1989 through 1995.
Chart 3: Performance line chart showing growth of $10,000 in funds versus
benchmarks from 11/94 through 2/96.
Chart 4: Performance line chart showing growth of $10,000 in funds versus
benchmarks from 4/91 through 2/96.
