ANNUAL REPORT
----------------------
New Jersey Tax-Free Bond Fund
----------------------
FOR YIELD, PRICE, LAST TRANSACTION,
AND CURRENT BALANCE, 24 HOURS,
7 DAYS A WEEK, CALL:
1-800-638-2587 toll free
625-7676 Baltimore area
----------------------
FOR ASSISTANCE WITH YOUR EXISTING
FUND ACCOUNT, CALL:
Shareholder Service Center
1-800-225-5132 toll free
625-6500 Baltimore area
----------------------
T. ROWE PRICE
100 East Pratt Street
Baltimore, Maryland 21202
----------------------
This report is authorized for distribution only to shareholders and to
others who have received a copy of the prospectus of the T. Rowe Price
New Jersey Tax-Free Bond Fund.
REPTNJB 2/29/96
<PAGE>
Fellow Shareholders
- -------------------------------------------------------------------------------
The fiscal year ended February 29, 1996, was a banner year for bonds and
the funds that invest in them. Prices rose as yields fell through much of the
year, generating good returns for investors in fixed income securities. We are
happy to report that your fund provided solid results, exceeding its peer group
average.
MARKET ENVIRONMENT
The economy slowed in 1995, and the rate of 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 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.
[Edgar description: A 1-line chart showing New Jersey Bond Yield Index from 2/95
through 2/96. 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 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 5.4%.
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.
The supply of New Jersey tax-exempt securities fell for the third straight
year, with issuance down 5% compared with a 3% drop nationwide. (See the chart
on the next page.) The largest reductions occurred in the water and sewer and
the health care sectors. While interest rates fell and prices rose
significantly, prices on New Jersey tax-free issues rose slightly less than
those of comparable municipals because Governor Whitman's income tax cuts
reduced their tax advantage to some degree.
<PAGE>
STRATEGY AND PERFORMANCE REVIEW
The fund began the last six-month period with an aggressive weighted
average maturity of 19 years, which was reduced to a more neutral 17.7 years at
the end of February. Early on, your fund benefited from the long-maturity
holdings, which appreciated sharply in price when interest rates declined. As
rates fell, however, we grew concerned that most of the runup in prices was over
and began to shorten maturities. This strategy served us well when the trend
reversed. Prices fell as yields rose in February on the heels of
stronger-than-expected economic data and a breakdown in budget negotiations in
Washington.
Meanwhile, our decision to slash exposure to solid waste disposal and New
Jersey Turnpike issues paid off for shareholders. The Turnpike Authority
recently had its credit rating downgraded from A to BBB because of a decision to
delay much-needed toll increases. In January, the feasibility of several
municipal solid waste projects was jeopardized when the U.S. House of
Representatives rejected a bill protecting them from out-of-state competition.
The fund holds only one solid waste issue, an intermediate bond covered by
insurance, representing just 1% of net assets, and has no uninsured Turnpike
issues.
[Edgar description: A bar chart showing New Jersey Bond Issuance for 2/92
through 2/96 Source: Securities Data Company]
We also reduced the fund's exposure to Puerto Rican issues because most
balanced budget proposals would phase out tax breaks for U.S. companies that do
business in the commonwealth. In our opinion, those proposals could affect the
credit quality and market value of certain issuers. Nevertheless, we still hold
some bonds that we believe represent reasonable value.
We are pleased to report that for the fourth consecutive year --
representing every full fiscal year since the fund's inception -- your fund
produced better results than the Lipper average of similar funds. It also
compared favorably with its peer group for the six months ended February 29, as
shown in the table.
<PAGE>
- -----------------------------------------------------
Performance Comparison
- -----------------------------------------------------
Periods Ended 2/29/96
-----------------------
6 Months 12 Months
-------- ---------
New Jersey Tax-Free
Bond Fund 5.24% 10.67%
Lipper New Jersey Municipal
Debt Funds Average 4.62 9.47
- -----------------------------------------------------
<PAGE>
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 impendin g 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.
In New Jersey, nonfarm employment growth slowed to 1.5% in 1995 compared
with 2.2% for # the U.S. as a whole. The tepid pace of growth should continue
this year, restrained by announced job losses at AT&T and likely cutbacks from
the merger of Ciba Geigy and Sandoz. The state plans to offset slowing revenue
growth by reducing spending, possibly merging government departments, offering
less aid to municipalities, and cutting welfare spending. If interest rates
continue to rise in coming months and inflation does not show signs of
accelerating, we may have opportunities to improve the fund's yield and total
return potential.
Thank you for your continued confidence.
Respectfully submitted,
[Signature]
William T. Reynolds
President and Chairman of the
Investment Advisory Committee
March 20, 1996
<PAGE>
[Performance Comparison line graph for Small-Cap Value Fund annual report
(February 29, 1996)
- ----------------------------------------
Average Annual Compound Total Return
Periods Ended February 29, 1996
========================================
Since
Inception
1 Year 3 Year (4/30/91)
-------- -------- ---------
10.67% 5.58% 8.46%
Investment return and principal value
represent past performance and will vary.
Shares may be worth more or less at
redemption than at original purchase.
- -----------------------------------------
- --------------------------------------------------------------------------------
Statistical Highlights
================================================================================
- --------------------------------------------------
Key Statistics
==================================================
Periods Ended
Dividend Yield* 2/29/96
- --------------------------- ---------------
6 Months 5.29%
12 Months 5.44
Dividend Per Share
- ---------------------------
6 Months $0.29
12 Months** 0.58
Change in Price Per Share
- ---------------------------
6 Months (From $10.88 to $11.16) $0.28
12 Months (From $10.63 to $11.16) 0.53
Weighted Average Quality*** 2.5
Weighted Average Maturity 17.7 years
Weighted Average Effective Duration 8.0 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: 100.0% and 99.7% of dividends were exempt from
federal and New Jersey state income taxes, respectively.
***On a T. Rowe Price scale of 1 to 10, with Grade 1 representing highest
quality.
<PAGE>
- ---------------------------------------------------
Sector Diversification
- ---------------------------------------------------
Percent of Net Assets
2/29/96
---------------------
Water and Sewer Revenue 17%
Hospital Revenue 14
Educational Revenue 11
Dedicated Tax Revenue 9
General Obligation - Local 7
Ground Transportation Revenue 6
Air and Sea Transportation Revenue 5
Lease Revenue 5
Prerefunded Bonds 4
Industrial and Pollution Control
Revenue 4
General Obligation - State 4
Escrowed to Maturity 4
Electric Revenue 3
Nuclear Revenue 2
Housing Finance Revenue 2
Miscellaneous Revenue 1
Solid Waste Revenue 1
Other Assets Less Liabilities 1
- ---------------------------------------------------
<PAGE>
================================================================================
Statement of Net Assets T. Rowe Price New Jersey
Tax-Free Bond Fund / February 29, 1996
================================================================================
(AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
Amount Value
-------- -------
NEW JERSEY -- 85.2%
Camden County Municipal Utility Auth.,
(FGIC Insured), 5.125%, 7/15/17 .......................... $3,000 $2,874
Cape May County, Industrial Pollution
Control Fin. Auth., Atlantic City Electric,
(MBIA Insured), 6.80%, 3/1/21 ............................ 1,500 1,789
Delaware River Port Auth. of Pennsylvania and New Jersey, ..
(FGIC Insured), 5.50%, 1/1/26 ............................ 1,000 984
Edison Township, GO, 6.50%, 6/1/08 ......................... 350 396
Jersey City, School Bonds, GO, 6.50%, 2/15/04 .............. 500 556
Middlesex County Pollution Control Fin. Auth., Amerada
Hess Corp., 6.875%, 12/1/22 ................................ 1,500 1,559
Middlesex County Utilities Auth., Sewer, 5.375%, 9/15/15 ... 785 774
(MBIA Insured), Residual Interest Bond/Inverse Floater,
8/15/10 (Currently 7.75%) ................................ 500 568
Monmouth County Water and Sewer, GO, (MBIA Insured),
6.35%, 10/1/11 ........................................... 250 282
Morris County, GO, 5.00%, 7/15/09 .......................... 100 100
5.00%, 7/15/12 ........................................... 750 730
New Jersey, GO, 7.05%, 7/15/12* ............................ 1,335 1,531
Wastewater Treatment Trust, 4.90%, 9/1/07 .................. 1,130 1,139
6.30%, 4/1/10 ............................................ 1,180 1,284
6.375%, 4/1/11 ........................................... 750 814
New Jersey Building Auth., Garden State Savings,
Zero Coupon, 6/15/11 ..................................... 1,000 442
State Building, 5.00%, 6/15/16 ........................... 2,000 1,874
5.00%, 6/15/17 ........................................... 1,000 935
New Jersey Economic Dev. Auth., Clara Maas Health System,
(FSA Insured), 5.00%, 7/1/25 ............................ 1,800 1,667
New Jersey Natural Gas, VRDN (Currently 3.30%) ............. 700 700
PCR, Exxon, VRDN (Currently 3.00%) ....................... 600 600
Water Fac., American Water Company, (FGIC Insured),
6.875%, 11/1/34* ......................................... 1,000 1,111
New Jersey EFA, Princeton Univ., 5.875%, 7/1/14 ............ 1,050 1,090
5.25%, 7/1/15 ............................................ 1,245 1,224
Seton Hall Univ., 6.875%, 7/1/10 ........................... 375 406
7.00%, 7/1/21 ............................................ 200 219
University of Medicine and Dentistry, (AMBAC Insured),
5.25%, 12/1/25 ........................................... 3,000 2,878
(MBIA Insured), 6.50%, 12/1/18 (Prerefunded 12/1/01**)...... 750 846
New Jersey HFFA, Atlantic City Medical Center,
6.80%, 7/1/11 ............................................ 625 681
<PAGE>
Amount Value
-------- -------
Columbus Hosp., 7.50%, 7/1/21 .............................. 990 1,022
Hackensack Medical Center, (FGIC Insured), 6.625%, 7/1/11 .. 500 551
6.625%, 7/1/17 ........................................... 500 548
Irvington General Hosp., (FHA Guaranteed), 6.375%, 8/1/15 .. 500 530
5.875%, 8/1/06 ........................................... 1,455 1,532
Monmouth Medical Center, (CGIC Insured), 6.25%, 7/1/24 ..... 1,000 1,064
Morristown Memorial Hosp., 7.00%, 7/1/17 ................... 800 855
Overlook Hosp. Assoc., (FGIC Insured), 6.70%, 7/1/13 ....... 500 528
Raritan Bay Medical Center, 7.25%, 7/1/27 .................. 890 907
New Jersey Highway Auth., Garden State Parkway,
7.25%, 1/1/09 (Prerefunded 1/1/99**) ..................... 200 221
7.25%, 1/1/16 (Prerefunded 1/1/99**) ..................... 260 287
New Jersey Housing and Mortgage Fin. Agency,
7.10%, 11/1/11 ........................................... 300 320
7.10%, 11/1/12 ........................................... 175 187
(MBIA Insured), 6.90%, 10/1/16* ............................ 1,000 1,050
New Jersey Sports and Exposition Auth., Monmouth Park,
8.00%, 1/1/25 ............................................ 650 716
New Jersey Transportation Trust Fund Auth., (MBIA Insured),
5.00%, 6/15/15 ........................................... 3,500 3,317
New Jersey Turnpike Auth., 10.375%, 1/1/03
(Escrowed to Maturity) ................................... 2,095 2,595
(FGIC Insured), VRDN (Currently 2.80%) ..................... 3,100 3,100
Ocean County Utilities Auth., Wastewater, 6.125%, 1/1/01 ... 500 541
6.125%, 1/1/02 ........................................... 500 545
6.30%, 1/1/11 ............................................ 1,300 1,403
Port Auth. of New York and New Jersey, 6.125%, 7/15/22* .... 1,000 1,036
7.875%, 3/1/24* .......................................... 1,500 1,539
(FGIC Insured), 6.50%, 7/15/19* .......................... 500 545
(MBIA Insured), 6.75%, 4/15/26* .......................... 235 257
South Brunswick Township, Board of Ed., GO, (FGIC Insured),
6.40%, 8/1/09 ............................................ 1,250 1,378
6.40%, 8/1/10 ............................................ 1,500 1,644
Southeast Morris County Municipal Utilities Auth., Water,
(FGIC Insured), 6.50%, 1/1/11 ............................ 750 820
Union County, General Improvement, GO, 6.50%, 2/1/11
(Prerefunded 2/1/01**) ................................... 100 111
Warren County, PCR, Warren Energy Resource Co.,
(MBIA Insured), 6.55%, 12/1/06 ............................. 600 671
PUERTO RICO -- 13.9%
Puerto Rico Aqueduct and Sewer Auth., 7.875%, 7/1/17
(Prerefunded 7/1/00) ..................................... 500 555
Puerto Rico Commonwealth, GO, 7.625%, 7/1/10
(Prerefunded 7/1/00**) ................................... 80 92
7.75%, 7/1/13 (Prerefunded 7/1/98**) ..................... 25 28
6.80%, 7/1/21 (Prerefunded 7/1/02**) ..................... 200 230
<PAGE>
Amount Value
-------- -------
Puerto Rico Electric Power Auth., 8.00%, 7/1/08
(Prerefunded 7/1/98**) ................................... 625 696
7.125%, 7/1/14 ........................................... 500 550
5.25%, 7/1/21 ............................................ 1,500 1,399
Puerto Rico Highway and Transportation Auth.,
6.625%, 7/1/12 ........................................... 1,000 1,100
7.75%, 7/1/16 (Prerefunded 7/1/00**) ..................... 10 12
(FSA Insured), 6.375%, 7/1/08 .......................... 1,000 1,092
6.625%, 7/1/12 ........................................... 500 555
Puerto Rico Infrastructure Fin. Auth., 7.75%, 7/1/08 ....... 45 49
7.50%, 7/1/09 ............................................ 475 518
Puerto Rico Public Buildings Auth., Gov't. Fac., GO,
(AMBAC Insured), Zero Coupon, 7/1/07 ..................... 2,000 1,150
Univ. of Puerto Rico, (MBIA Insured), Zero Coupon, 6/1/09 .. 1,000 509
Zero Coupon, 6/1/10 ........................................ 580 276
5.25%, 6/1/25 ............................................ 1,000 961
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES -- 99.1% OF NET ASSETS
(COST $66,028) 69,645
- --------------------------------------------------------------------------------
FUTURES CONTRACTS
Contract Unrealized
Expiration Value Gain (Loss)
---------- -------- ----------
Long, 10 U.S. Treasury thirty-year
contracts, $166,578 of Municipal
Bonds pledged as initial margin .... 6/96 $1,143,125 $ (5)
Net payments (receipts) of variation
margin to date ..................... 6
----------
Variation margin receivable (payable)
on open futures contracts .................................. 1
OTHER ASSETS LESS LIABILITIES ................................ 658
----------
NET ASSETS CONSIST OF:
Value
---------
Accumulated net investment income -
net of distributions ........................ $ 1
Accumulated net realized gain/loss -
net of distributions ........................ (1,420)
Net unrealized gain (loss) .................... 3,612
Paid-in-capital applicable to 6,299,045 no
par value shares of beneficial interest
outstanding; unlimited number of shares
authorized .................................. 68,111
---------
NET ASSETS ................................................... $ 70,304
==========
NET ASSET VALUE PER SHARE .................................... $11.16
=======
<PAGE>
* Interest subject to alternative minimum tax
** Used in determining portfolio maturity
AMBAC AMBAC Indemnity Corp.
CGIC Capital Guaranty Insurance Corp.
EFA Educational Facility Authority
FGIC Financial Guaranty Insurance Company
FHA Federal Housing Authority
FSA Financial Security Assurance Corp.
GO General Obligation
HFFA Health Facility Financing Authority
MBIA Municipal Bond Investors Assurance Corp.
PCR Pollution Control Revenue
VRDN Variable Rate Demand Note
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations
T. Rowe Price New Jersey Tax-Free Bond Fund / Year Ended February 29, 1996
- --------------------------------------------------------------------------------
(IN THOUSANDS)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income ................................................... $3,819
----------
Expenses
Investment management ............................................. 206
Custody and accounting ............................................ 99
Shareholder servicing ............................................. 82
Legal and audit ................................................... 13
Prospectus and shareholder reports ................................ 12
Trustees .......................................................... 5
Miscellaneous ..................................................... 1
Total expenses .................................................... 418
----------
Net investment income ............................................. 3,401
----------
REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on:
Securities ........................................................ 1,617
Futures ........................................................... (140)
Net realized gain (loss) .......................................... 1,477
----------
Change in net unrealized gain or loss on:
Securities ........................................................ 1,599
Futures ........................................................... (5)
-----------
Change in net unrealized gain or loss ............................. 1,594
-----------
Net realized and unrealized gain (loss) ........................... 3,071
-----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ................. $6,472
===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
T. Rowe Price New Jersey Tax-Free Bond Fund
- --------------------------------------------------------------------------------
(IN THOUSANDS)
- --------------------------------------------------------------------------------
Year Ended Year Ended
Feb. 29, 1996 Feb. 28, 1995
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income ........................ $3,401 $3,147
Net realized gain (loss) ..................... 1,477 (2,812)
Change in net unrealized gain or loss ........ 1,594 (419)
------------- -------------
Increase (decrease) in net assets from
operations ................................. 6,472 (84)
------------- -------------
Distributions to shareholders
Net investment income ........................ (3,401) (3,147)
Net realized gain ............................ -- (56)
------------- -------------
Decrease in net assets from distributions .... (3,401) (3,203)
------------- -------------
Capital share transactions*
Shares sold .................................. 19,425 17,020
Distributions reinvested ..................... 2,581 2,430
Shares redeemed .............................. (12,847) (21,249)
------------- -------------
Increase (decrease) in net assets from
capital share transactions ................... 9,159 (1,799)
------------- -------------
Increase (decrease) in net assets .............. 12,230 (5,086)
NET ASSETS
Beginning of period ............................ 58,074 63,160
------------- -------------
End of period .................................. $70,304 $58,074
============= =============
*Share information
Shares sold .................................. 1,774 1,623
Distributions reinvested ..................... 235 232
Shares redeemed .............................. (1,171) (2,041)
------------- -------------
Increase (decrease) in shares outstanding .... 838 (186)
============= =============
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
T. Rowe Price New Jersey Tax-Free Bond Fund / 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 New Jersey Tax-Free Bond Fund (the
fund), a nondiversified, open-end management investment company, is one 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 the
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. Distributions to shareholders
are recorded by the fund on the ex-dividend date. Income and capital gain
distributions are determined in accordance with federal income tax regulations
and may differ from those determined in accordance with generally accepted
accounting principles. Payments ("variation margin") made or received by the
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.
<PAGE>
NOTE 2 - INVESTMENT TRANSACTIONS
Consistent with its investment objective, the fund engages in the following
practices to manage exposure to certain risks or enhance performance. The
investment objective, policies, program, and risk factors of the fund are
described more fully in the fund's prospectus and Statement of Additional
Information.
A) Futures Contracts - At February 29, 1996, the 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, aggregated $66,248,000 and $60,465,000, respectively, for
the year ended February 29, 1996.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of its
income. The fund has unused realized capital loss carryforwards for federal
income tax purposes of $1,298,000, which expires in 2003. Capital loss
carryforwards utilized in fiscal 1996 amounted to $536,000. The fund intends to
retain gains realized in future periods that may be offset by available capital
loss carryforwards.
In order for the fund's capital accounts and distributions to shareholders
to reflect the tax character of certain transactions, $1,000 of undistributed
net investment income 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 federal income
tax and financial reporting purposes was $66,028,000 and net unrealized gain
aggregated $3,617,000, of which $3,684,000 related to appreciated investments
and $67,000 to depreciated investments.
<PAGE>
NOTE 4 - RELATED PARTY TRANSACTIONS
The investment management agreement between the fund and T. Rowe Price
Associates, Inc. (the Manager) provides for an annual investment management fee,
of which $17,000 was payable at February 29, 1996. 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. The fund pays a pro rata share of the
Group Fee based on the ratio of its net assets to those of the Group.
Under the terms of the investment management agreement, the Manager is
required to bear any expenses through February 28, 1997, which would cause the
fund's ratio of expenses to average net assets to exceed 0.65%. Thereafter
through February 28, 1999, the fund is required to reimburse the Manager for
these expenses, provided that average net assets have grown or expenses have
declined sufficiently to allow reimbursement without causing the fund's ratio of
expenses to average net assets to exceed 0.65%. Pursuant to this agreement,
$77,000 of management fees were not accrued by the fund for the year ended
February 29, 1996. Additionally, $267,000 of unaccrued fees related to a
previous expense limitation are subject to reimbursement through February 28,
1997.
In addition, the fund has entered into agreements with the Manager and a
wholly owned subsidiary of the Manager, pursuant to which the fund receives
certain other services. The Manager computes the daily share price and maintains
the financial records of the fund. T. Rowe Price Services, Inc., is the fund's
transfer and dividend disbursing agent and provides shareholder and
administrative services to the fund. The fund incurred expenses pursuant to
these related party agreements totaling approximately $128,000 for the year
ended February 29, 1996, of which $12,000 was payable at period-end. #
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
T. Rowe Price New Jersey Bond Fund
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
For a share outstanding throughout each period
Year Ended April 30, 1991^
Feb. 29, Feb. 28, Feb. 28, Feb. 28, to Feb. 29,
1996 1995 1994 1993 1992
---------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD ............ $10.63 $11.19 $11.23 $10.30 $10.00
------ ------ ------ ------ ------
Investment activities
Net investment income ......................... 0.58* 0.57* 0.56* 0.58* 0.50*
Net realized and unrealized gain (loss) ....... 0.53 (0.55) 0.10 1.00 0.34
------ ------ ------ ------ ------
Total from investment activities .............. 1.11 0.02 0.66 1.58 0.84
------ ------ ------ ------ ------
Distributions
Net investment income ......................... (0.58) (0.57) (0.56) (0.58) (0.50)
Net realized gain ............................. -- (0.01) (0.14) (0.07) (0.04)
------ ------ ------ ------ ------
Total distributions ........................... (0.58) (0.58) (0.70) (0.65) (0.54)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD .................. $11.16 $10.63 $11.19 $11.23 $10.30
====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA
Total return .................................... 10.67% 0.37% 5.97% 15.90% 8.55%
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 ......................... 5.28% 5.41% 4.90% 5.47% 5.86%**
Portfolio turnover rate ......................... 98.4% 139.1% 68.8% 103.3% 152.2%**
Net assets, end of period (in thousands) ........ $70,304 $58,074 $63,160 $38,347 $14,303
<FN>
** Annualized.
* Excludes expenses in excess of a 0.65% voluntary expense limitation in
effect through February 28, 1997.
^ Commencement of operations.
</FN>
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
T. Rowe Price New Jersey Tax-Free Bond Fund
We have audited the accompanying statement of net assets of T. Rowe Price
New Jersey Tax-Free Bond Fund (one of the portfolios comprising the T. Rowe
Price State Tax-Free Income Trust) as of February 29, 1996, and the related
statement of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended, and the financial
highlights for each of the four years in the period then ended and the period
April 30, 1991 (commencement of operations) to February 29, 1992. These
financial statements and financial highlights are the responsibility of the
Fund's 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 custodia n 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 New Jersey Tax-Free Bond Fund as of February 29, 1996, the results of
its operations, the changes in its net assets, and financial highlights for each
of the respective periods stated in the first paragraph, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
March 19, 1996
