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MARYLAND TAX-FREE FUNDS
SEMIANNUAL REPORT
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August 31,1996
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Report Highlights
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* The bond market reversed course over the last six months as the economy
gained unexpected strength, leading to sharply rising interest rates and
losses for most bond funds.
* Municipal bonds outperformed their taxable counterparts as pressure from
last year's tax reform proposals subsided.
* Both Maryland funds produced small but positive six-month returns, in a
difficult environment. The Short-Term Fund underperformed its peers, while
the Bond Fund outperformed.
* The Short-Term Fund maintained a defensive posture in anticipation of
further increases in interest rates. The Maryland Bond Fund was again
helped by the higher income of its older investments.
* The Maryland funds may come under pressure in coming months from higher
interest rates and a pickup in new supply. However, we will be alert for
opportunities to increase income.
<PAGE>
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Fellow Shareholders
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The last six months saw the fixed income markets give back the gains
realized during the prior six months, as the economy strengthened and market
expectations of further easing by the Federal Reserve evaporated. The municipal
market declined less than the taxable market after the issue of tax reform
faded, but six-month returns were virtually flat.
MARKET ENVIRONMENT
The economy regained strength in 1996 after slowing in 1995, with only a
modest pickup in inflation. Stronger growth alone was enough to reverse
expectations of any further Federal Reserve easing after two interest rate cuts
in the second half of 1995 and one earlier this year. While the Fed has not yet
tightened in 1996, it adopted a bias toward tightening in July, and bond yields
moved up in anticipation of higher rates.
In the municipal market, rates rose roughly 50 basis points (100 basis
points equal one percent) from the lowest point reached in early 1996, but not
as high as the levels of late 1994. Long-term high-grade general obligation
bonds yielded 5.75% on August 31, 1996, versus 5.45% six months ago and 5.85% a
year ago. Five-year high-grade bonds were 25 basis points higher in yield than
in August 1995. Maryland bond yields followed a similar pattern.
All was not doom and gloom in the municipal bond market over the past six
months. The fading of tax reform concerns caused the municipal market to
outperform taxable markets by a wide margin. As rates approached and then
exceeded 6%, strong retail demand for municipals provided support for the
market. Last summer, long-term municipal yields equaled 90% or more of
comparable taxable yields; this year, yields moved down to 81% of taxable
alternatives, allowing the municipal market to regain the ground it lost.
While the Maryland economy ranks favorably among the rest of the states in
terms of high personal income and low unemployment, its growth rate in recent
years has been lackluster. Maryland lagged the national economy in recovering
from the recession of the early 1990s, principally due to the contraction of the
manufacturing and defense industries and the federal government. Judging by
early indicators, the state may return to moderate growth levels this year, led
by the service sector, particularly the computer and data processing industries.
<PAGE>
==============================
Judging by early indicators,
the state may return to
moderate growth levels this
year . . .
- ------------------------------
Two local developments of interest were the proposed merger of Baltimore
Gas & Electric and Potomac Edison and a recent change in reimbursement policies
for nonprofit hospitals. The financial markets applauded the merger of the two
utilities, both of which have tax-exempt debt outstanding, because the new
company is expected to be leaner and more competitive. The merger is awaiting
regulatory approval.
Meanwhile, urban nonprofit hospitals, which serve a disproportionate number
of patients with little or no health insurance, should benefit from a recently
approved rate increase for all hospitals. The extra money is earmarked for a
fund to cover uninsured patients. As a result of this relief, urban nonprofits
should be able to reduce rates and compete more effectively for the growing
number of patients covered by managed care contracts.
MARYLAND SHORT-TERM TAX-FREE BOND FUND
Over the last six months, as interest rates rose, we continued our
defensive strategy by shortening the fund's average maturity and duration. As of
August 31, its maturity stood at 2.0 years (down from 2.7 years last February),
and duration, a more accurate measure of the portfolio's sensitivity to rising
interest rates, settled at 1.8 years (down from 2.3 years in February). Moving
into shorter-term issues helps protect the fund's share price against rising
interest rates and hastens the rollover of assets into higher-yielding
securities.
In retrospect, however, we did not shorten quickly enough. The shutdown of
the government last winter delayed key economic statistics, making it difficult
to accurately estimate growth. As a result, in early March the financial markets
were surprised by a report showing unexpectedly robust job growth for February.
The report caused the overbought market to swiftly reverse course, moving
three-year AAA yields 25 basis points higher in one day. That single event was
the main reason your fund underperformed its peer group over the last six
months, as shown in the table.
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Performance Comparison
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Periods Ended 8/31/96 6 Months 12 Months
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Maryland Short-Term
Tax-Free Bond Fund 0.83% 3.50%
Lipper Short Municipal
Debt Funds Average 1.18 3.61
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<PAGE>
Since March, the market has remained in a trading range with a bias toward
higher short-term rates. We used periods of market strength to continue reducing
the fund's exposure to rising interest rates. As long as economic statistics
continue to provide reasons for the Federal Reserve to increase the federal
funds rate, we will maintain a defensive strategy.
MARYLAND TAX-FREE BOND FUND
Our conservative posture, characterized by older investments with high
coupon income, allowed the fund to weather the upturn in rates this year better
than our Lipper peer group. Our older bonds, purchased in the late 1980s and
early 1990s, offer higher income than comparable issues available in recent
years, helping to offset the price depreciation caused by rising interest rates.
The rise in new supply this year (Maryland bond issuance was up 21% through
August versus the same period in 1995) was another welcome development,
affording us the opportunity to invest at higher interest rate levels.
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Performance Comparison
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Periods Ended 8/31/96 6 Months 12 Months
- --------------------------------------------------------------------------------
Maryland Tax-Free
Bond Fund 0.44% 5.22%
Lipper Maryland Municipal
Debt Funds Average -0.03 4.69
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We shortened a bit at the beginning of 1996, but as new issuance picked up
in the second quarter, we put some money back to work to take advantage of
spikes in yields. As a result, the fund's duration ended the period unchanged at
7.2 years. We did not feel the need to adopt a more defensive strategy because
the fund already had many characteristics that helped it outperform in a rising
rate environment. This is borne out by the fact that your fund's returns
exceeded its peer group average for the 6- and 12-month periods ended August 31.
OUTLOOK
The last six months have seen a major change in the outlook for the
economy, causing a shift in the shape and level of the municipal yield curve.
The risk of an overheating economy has grown, and the Fed will likely nudge
rates higher to cool things down in coming months. The current expansion is now
over five years old, roughly twice the length of an average expansion prior to
1982. However, old age is not a cause for an expansion to end. There is no
reason why the current expansion could not continue if interest rates are high
enough to restrain inflation, yet low enough to keep unemployment at bay.
<PAGE>
Little has changed from a year ago in terms of interest rate levels, but
much has changed about market psychology. A year ago, this market was consumed
with worries about the impact of tax reform proposals on municipal bonds, and it
was convinced the economy was slowing down. Today, tax reform is on the back
burner, and the economy has picked up steam.
Economic growth is particularly evident here in Maryland, where a slow
recovery from the early-1990s recession is gathering momentum. Both Maryland
funds are poised to take advantage of any increases in interest rates and the
rising supply of new securities.
Respectfully submitted,
[Signature]
Charles B. Hill
Chairman of the Investment Advisory Committee,
Maryland Short-Term Tax-Free Bond Fund
[Signature]
Mary J. Miller
Chairman of the Investment Advisory Committee,
Maryland Tax-Free Bond Fund September 20, 1996
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Keeping Taxes To A Minimum
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As the saying goes, it's not what you earn but what you keep that counts.
The ability to provide tax-exempt income is the chief appeal of municipal bond
funds, and investors in higher tax brackets often find these funds advantageous.
Some funds invest in securities that offer the triple benefit of being free from
federal, state, and local taxes.
Investors should remember, however, that the total return on most municipal
bond funds may not be entirely tax-free. To avoid federal income taxes,
municipal funds must distribute all of their capital gains to shareholders each
year. These distributions are fully taxable. On infrequent occasions, municipal
funds may also purchase securities whose income is taxable, if permitted by the
prospectus.
Therefore, to judge accurately how well a fund minimizes taxes, investors
should focus not just on income but on the gain or loss from the sale of
securities, since both components make up total return. A fund's overall tax
efficiency -- the percentage of its return that actually winds up in
shareholders' pockets -- is calculated by dividing its after-tax total return by
its pretax total return. For example, an optimum tax efficiency of 100% would
indicate that these two returns were equal -- the shareholders paid no taxes. In
reality, most municipal funds fall somewhat below this level due primarily to
taxable capital gain distributions.
<PAGE>
At T. Rowe Price, our main goal in managing municipal bond portfolios is to
provide competitive total return performance. At the same time, we strive to
minimize capital gain distributions and other factors that would saddle our
shareholders with taxes. "We don't allow tax considerations to drive our
portfolio management, but we remain sensitive to taxes in our overall approach
to management," says Mary J. Miller, Director of T. Rowe Price's Municipal Bond
Department. Inevitably, there are times when market conditions necessitate the
sale of a security despite the tax consequences. However, we are generally able
to offset capital gains with losses incurred on the sale of other securities.
Under Internal Revenue Service rules, losses can be carried for up to eight
years to offset gains. "Our goal is to minimize capital gains by offsetting them
with losses, so there would be no taxable event to the shareholder," says Ms.
Miller.
==============================
WE REMAIN SENSITIVE TO TAXES
IN OUR OVERALL APPROACH . . .
- ------------------------------
While not intentionally pursuing losses, T. Rowe Price aims to take
advantage of them when they occur. For instance, when municipal bond prices have
reached a cyclical low, we may sell some securities that are trading below our
purchase price and reinvest the proceeds in higher-yielding securities. That
strategy enhances the fund's income and also provides a tax loss that can be
employed anytime in the following eight years to offset capital gains.
According to Morningstar,* the Maryland Tax-Free Bond Fund's average tax
efficiency rating for the five-year period ended August 31, 1996, was 98.3%. The
Short-Term Tax-Free Bond Fund's average rating for the three-year period ended
in August was 100%. While our foremost goal is to provide competitive total
returns, we will continue to do our best to limit the amount of money you have
to surrender to the IRS.
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* Although data are gathered from reliable sources, completeness and
accuracy cannot be guaranteed.
================================================================================
<PAGE>
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Portfolio Highlights
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Key statistics
Maryland Short-Term Tax-Free Bond Fund 2/29/96 8/31/96
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Price Per Share $5.15 $5.09
Dividends Per Share
For 6 months 0.10 0.10
For 12 months 0.21 0.21
Dividend Yield *
For 6 months 4.12% 3.96%
For 12 months 4.21 4.08
Weighted Average Maturity (years) 2.7 2.0
Weighted Average Effective Duration (years) 2.3 1.8
Weighted Average Quality ** AA+ AA+
Maryland Tax-Free Bond Fund
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Price Per Share $10.40 $10.16
Dividends Per Share
For 6 months 0.28 0.28
For 12 months 0.57 0.56
Dividend Yield *
For 6 months 5.50% 5.53%
For 12 months 5.66 5.59
Weighted Average Maturity (years) 15.9 16.4
Weighted Average Effective Duration (years) 7.2 7.2
Weighted Average Quality ** AA- AA-
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* Dividends earned and reinvested for the periods indicated are annualized
and divided by the average daily net asset values per share for the same
period.
** Based on T. Rowe Price research.
================================================================================
<PAGE>
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Portfolio Highlights
Sector Diversification
Percent of Percent of
Net Assets Net Assets
2/29/96 8/31/96
Maryland Short-Term Tax-Free Fund
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Prerefunded Bonds 47% 44%
General Obligation-Local 19 22
Dedicated Tax Revenue 8 8
Solid Waste Revenue 5 5
General Obligation-State 6 5
Hospitial Revenue 3 5
Educational Revenue 4 4
Escrowed to Maturity 3 3
Industrial and Pollution Control Revenue 1 3
All Other 3 3
Other Assets Less Liabilities 1 -2
- --------------------------------------------------------------------------------
Total 100% 100%
Maryland Tax-Free Bond
- --------------------------------------------------------------------------------
Prerefunded Bonds 18% 17%
Hospital Revenue 16 17
Housing Finance Revenue 15 16
General Obligation-Local 10 12
Water and Sewer Revenue 4 5
Miscellaneous Revenue 3 5
Lease Revenue 4 5
Educational Revenue 5 4
Solid Waste Revenue 3 3
General Obligation-State 7 3
LifeCare/Nursing Home Revenue 2 2
Industrial and Pollution Control Revenue 2 2
Dedicated Tax Reveue 2 2
Air and Sea Transportation Revenue 2 2
All Other 7 4
Other Assets Less Liabilities -- 1
- --------------------------------------------------------------------------------
Total 100% 100%
<PAGE>
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Performance Comparison
These charts show the value of a hypothetical $10,000 investment in each
fund over the past 10 fiscal year periods or since inception (for funds lacking
10-year records). The result is compared with a broad-based average or index.
The index return does not reflect expenses, which have been deducted from the
fund's return.
[Maryland Short-Term Tax-Free Bond Fund SEC graph shown here]
[Maryland Tax-Free Bond Fund SEC graph shown here]
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Average Annual Compound Total Return
This table shows how each fund would have performed each year if its actual
(or cumulative) returns for the periods shown had been earned at a constant
rate.
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Since Inception
Periods Ended 8/31/96 1 Year 3 Years 5 Years Inception Date
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MD Short-Term Tax-Free Bond Fund 3.50% 3.76% -- 4.21% 1/29/93
Maryland Tax-Free Bond Fund 5.22 4.15 7.20% 6.52 3/31/87
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Investment return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
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<PAGE>
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T. Rowe Price Maryland Short-Term Tax-Free Bond Fund
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<TABLE>
Unaudited For a share outstanding throughout each period
====================================================================================================================================
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
6 Months Year 1/29/93
Ended Ended to
8/31/96 2/29/96 2/28/95 2/28/94 2/28/93
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
Beginning of period $ 5.15 $ 5.04 $ 5.09 $ 5.07 $ 5.00
Investment activities
Net investment income 0.10* 0.21* 0.18* 0.15* 0.01*
Net realized and
unrealized gain (loss) (0.06) 0.11 (0.05) 0.02 0.07
Total from
investment activities 0.04 0.32 0.13 0.17 0.08
Distributions
Net investment income (0.10) (0.21) (0.18) (0.15) (0.01)
NET ASSET VALUE
End of period $ 5.09 $ 5.15 $ 5.04 $ 5.09 $ 5.07
Ratios/Supplemental Data
Total return 0.83%* 6.49%* 2.64%* 3.49%* 1.67%*
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 3.93%*+ 4.14%* 3.59%* 3.09%* 2.96%+*
Portfolio turnover rate 13.7%+ 39.3% 105.3% 20.5% 96.9%+
Net assets, end of period
(in thousands) $ 93,327 $ 85,784 $ 74,808 $ 76,049 $ 8,323
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
* Excludes expenses in excess of a 0.65% voluntary expense limitation in effect through 2/28/97.
+ Annualized.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
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T. Rowe Price Maryland Tax-Free Bond Fund
================================================================================
<TABLE>
Unaudited For a share outstanding throughout each period
====================================================================================================================================
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6 Months Year
Ended Ended
8/31/96 2/29/96 2/28/95 2/28/94 2/28/93 2/29/92
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
Beginning of period $ 10.40 $ 9.99 $ 10.45 $ 10.50 $ 9.82 $ 9.61
Investment activities
Net investment income 0.28 0.57 0.56 0.56 0.57 0.59
Net realized and
unrealized gain (loss) (0.24) 0.41 (0.44) 0.05 0.73 0.26
Total from
investment activities 0.04 0.98 0.12 0.61 1.30 0.85
Distributions
Net investment income (0.28) (0.57) (0.56) (0.56) (0.57) (0.59)
Net realized gain -- -- (0.02) (0.10) (0.05) (0.05)
Total distributions (0.28) (0.57) (0.58) (0.66) (0.62) (0.64)
NET ASSET VALUE
End of period $ 10.16 $ 10.40 $ 9.99 $ 10.45 $ 10.50 $ 9.82
Ratios/Supplemental Data
Total return 0.44% 10.00% 1.43% 5.93% 13.75% 9.13%
Ratio of expenses to
average net assets 0.54%+ 0.54% 0.57% 0.57% 0.61% 0.64%
Ratio of net investment
income to average
net assets 5.46%+ 5.53% 5.73% 5.31% 5.72% 6.04%
Portfolio turnover rate 35.1%+ 23.9% 28.9% 24.3% 23.3% 21.9%
Net assets, end of period
(in thousands) $ 785,932 $ 798,589 $ 724,823 $ 821,402 $ 724,469 $ 475,188
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
+ Annualized.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price Maryland Short-Term Tax-Free Bond Fund
================================================================================
Statement of Net Assets
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Par Value
In thousands
MARYLAND 97.2%
Allegany County, PCR, Westvaco Corp., 5.20%, 1/1/98 ........... $ 700 $ 707
Anne Arundel County
GO, 6.70%, 6/1/02 (Prerefunded 6/1/98+) ....... 1,125 1,192
Consolidated Water and Sewer, GO
6.00%, 3/1/10 (Prerefunded 3/1/97+) .......... 800 825
Baltimore City
GO, 8.90%, 10/15/99 (MBIA Insured) ............ 650 734
Consolidated Public Improvement, GO
7.50%, 10/15/00 (FGIC Insured) ................ 500 554
9.00%, 10/15/98 (MBIA Insured)
(Escrowed to Maturity) ....................... 2,500 2,738
Wastewater, 6.50%, 7/1/20 (MBIA Insured)
(Prerefunded 7/1/00+) ........................ 600 640
Water, 4.50%, 7/1/97 (FGIC Insured) ................... 570 573
Baltimore County
Consolidated Public Improvement, 6.90%, 4/1/06
(Prerefunded 4/1/00+) ........................ 1,000 1,094
Metropolitan Dist. 6.80%, 4/1/01 (Prerefunded 4/1/00+) 1,000 1,090
Baltimore County Spring Hill Apartments, VRDN (Currently 3.55%)
(GNMA Guaranteed) ............................ 1,100 1,100
Carroll County, Consolidated Public Improvement, GO
4.45%, 11/1/97 ............................... 1,000 1,005
Charles County, GO, 6.375%, 12/1/03 (Prerefunded 12/1/99+) .... 1,580 1,700
Harford County, Public Improvement, GO, 5.10%, 9/1/97 ......... 1,000 1,011
Howard County, Consolidated Public Improvement, GO
5.00%, 2/15/98 ............................... 1,100 1,113
Maryland, GO
5.20%, 10/15/98 ............................ 1,000 1,021
6.50%, 3/1/99 .............................. 1,000 1,052
6.70%, 7/15/99 ............................. 500 532
6.70%, 5/15/01 (Prerefunded 5/15/98+) ...... 2,000 2,100
8.20%, 3/1/97 .............................. 1,000 1,022
State and Local Fac., 4.50%, 10/15/98 .............. 1,000 1,007
<PAGE>
Maryland DOT
6.30%, 11/1/97 ............................. 100 103
6.375%, 11/1/98 ............................ 1,875 1,957
6.40%, 7/15/97 ............................. 2,525 2,578
6.40%, 7/15/98 ............................. 1,925 2,000
6.50%, 7/15/01 (Prerefunded 7/15/98+) ...... $1,200 $1,263
6.50%, 7/15/02 (Prerefunded 7/15/98+) ...... 1,000 1,055
6.60%, 11/15/97 ............................ 500 515
6.70%, 11/15/99 (Prerefunded 11/15/98+) .... 2,000 2,116
6.70%, 8/15/05 (Prerefunded 8/15/99+) ...... 1,000 1,080
6.80%, 11/15/02 (Prerefunded 11/15/98+) .... 2,000 2,133
6.80%, 11/1/05 (Prerefunded 11/1/99+) ...... 525 571
Maryland Economic Dev. Corp. ...............................
Roland Park Country School
5.20%, 11/1/96 ............................. 735 736
5.35%, 11/1/97 ............................. 730 738
5.50%, 11/1/98 ............................. 725 737
Maryland Energy Fin. Administration
International Paper, 4.10%, 9/1/10 * ............... 1,900 1,899
Solid Waste Disposal, 5.10%, 12/1/99 * ............. 450 452
Maryland Environmental Service
Cecil County Landfill
5.50%, 3/1/97 .............................. 385 388
5.50%, 9/1/97 .............................. 395 399
Midshore Landfill
5.20%, 9/1/96 (AMBAC Insured) ............. 760 760
Maryland HHEFA
Anne Arundel Medical Center
3.85%, 7/1/97 (AMBAC Insured) ................... 940 939
Doctor's Community Hosp ..................................
8.75%, 7/1/22 (Prerefunded 7/1/00+) ............. 3,965 4,602
Francis Scott Key Medical Center
6.50%, 7/1/97 (FGIC Insured) ..................... 100 102
6.75%, 7/1/23 (FGIC Insured) (Prerefunded 7/1/00+) 3,600 3,931
Greater Baltimore Medical Center
VRDN (Currently 3.60%) .......................... 100 100
Kennedy Kreiger Institute
VRDN (Currently 3.50%) .......................... 1,600 1,600
Memorial Hosp. of Cumberland
9.25%, 7/1/17 (Prerefunded 7/1/97+) ............. 3,000 3,189
Mercy Medical Center
7.90%, 7/1/09 (Prerefunded 7/1/99+) ............. 150 167
North Arundel Hosp., 7.875%, 7/1/21 (BIGI Insured)
(Prerefunded 7/1/98+) ........................... 1,250 1,353
<PAGE>
Maryland Industrial Dev. Fin. Auth
Holy Cross Health Systems, 5.00%, 12/1/98 ............... $1,460 $1,481
Maryland Water Quality Fin. Administration
6.40%, 9/1/97 .................................... 100 102
Revolving Loan Fund, 5.60%, 9/1/99 ....................... 500 517
Montgomery County
Consolidated Public Improvement, GO
5.25%, 10/1/97 ................................... 885 897
6.30%, 4/1/97 .................................... 900 913
6.80%, 11/1/02 (Prerefunded 11/1/99+) ............ 2,000 2,174
Western County Swim Fac., 7.375%, 10/1/09
(Prerefunded 10/1/97+) .......................... 1,500 1,582
Northeast Maryland Waste Disposal Auth., Southwest Resource
Recovery Fac., 6.85%, 1/1/99 (MBIA Insured) ............. 3,425 3,592
Prince George's County, GO
Consolidated Public Improvement
7.20%, 2/1/06 (Prerefunded 2/1/99+) .............. 600 645
7.00%, 1/15/98 ................................... 1,450 1,501
7.00%, 2/1/98 .................................... 1,500 1,555
Solid Waste Management, 6.30%, 6/30/97
(Escrowed to Maturity) ...................... 100 102
aint Mary's County, GO, 7.00%, 3/1/98 (MBIA Insured) ........ 585 608
Univ. of Maryland
VRDN (Currently 3.35%) ....................... 1,100 1,100
7.00%, 10/1/05 (Prerefunded 10/1/99+) ........ 500 546
Equipment Loan, VRDN (Currently 3.35%) ............... 300 300
Washington Suburban Sanitary Dist., GO
6.70%, 7/1/00 (Prerefunded 7/1/99+) .......... 1,000 1,078
7.00%, 12/1/99 (Prerefunded 12/1/98+) ........ 1,250 1,346
5.50%, 6/1/97 ................................ 1,000 1,012
5.90%, 11/1/98 ............................... 2,000 2,069
7.25%, 6/1/97 ................................ 750 769
8.00%, 1/1/00 ................................ 3,295 3,647
Wicomico County, Consolidated Public Improvement, GO
7.00%, 2/1/98 (FGIC Insured) ................ 750 778
Worcester County
Consolidated Public Improvement, GO
5.00%, 8/1/97 ................................ 550 555
5.00%, 8/1/98 ................................ 570 578
5.00%, 8/1/99 ................................ $ 1,000 $ 1,017
Total Maryland (Cost $89,966) 90,737
<PAGE>
PUERTO RICO 4.6%
Puerto Rico Commonwealth, Highway and Transportation Auth
8.125%, 7/1/13
(Prerefunded 7/1/98+) ........................ 1,500 1,633
Puerto Rico Electric Power Auth ..............................
7.125%, 7/1/14 (Prerefunded 7/1/99+) ......... 2,070 2,254
Puerto Rico Ind., Med., Higher Ed. and Environmental Pollution
Control Fac. Fin. Auth ...............................
Catholic Univ. of Puerto Rico
4.10%, 12/1/96 ............................... 210 210
4.40%, 12/1/97 ............................... 215 215
Total Puerto Rico (Cost $ 4,243) 4,312
Total Investments in Securities
101.8% of Net Assets (Cost$ 94,209) $ 95,049
Other Assets Less Liabilities ...................................... (1,722)
NET ASSETS ......................................................... $ 93,327
Net Assets Consist of:
Accumulated net investment income - net of distributions ........... $ 1
Accumulated net realized gain/loss - net of distributions .......... (863)
Net unrealized gain (loss) ......................................... 840
Paid-in-capital applicable to 18,341,245 no par
value shares of beneficial interest outstanding;
unlimited number of shares authorized .............................. 93,349
NET ASSETS ......................................................... $ 93,327
NET ASSET VALUE PER SHARE .......................................... $ 5.09
* Interest subject to alternative minimum tax
+ Used in determining portfolio maturity
AMBAC AMBAC Indemnity Corp.
BIGI Bond Investors Guaranty Insurance
DOT Departent of Transportation
FGIC Financial Guaranty Insurance Company
GO General Obligation
GNMA Government National Mortgage Association
HHEFA Health & Higher Educational Facility Authority
MBIA Municipal Bond Investors Assurance Corp.
PCR Pollution Control Revenue
VRDN Variable Rate Demand Note
<PAGE>
T. Rowe Price Maryland Tax-Free Bond Fund
================================================================================
Statement of Net Assets
Par Value
In thousands
MARYLAND 95.5%
Allegany Co., PCR, Westvaco Corp., 6.20%,1/1/08 ................ $1,350 $1,435
Anne Arundel County, GO
Consolidated General Improvement
6.30%, 8/1/16 ................................... 775 813
6.30%, 8/1/19 ................................... 725 757
6.30%, 8/1/20 ................................... 705 736
6.30%, 8/1/21 ................................... 790 823
6.90%, 1/15/08 (Prerefunded 1/15/99+) ........... 1,150 1,236
Consolidated Water and Sewer
5.00%, 9/1/13 ................................... 2,330 2,161
5.00%, 9/1/14 ................................... 2,330 2,143
5.00%, 9/1/15 ................................... 2,330 2,125
5.00%, 9/1/16 ................................... 2,325 2,114
6.30%, 8/1/22 ................................... 450 469
6.30%, 8/1/24 ................................... 720 750
7.20%, 4/15/13 (Prerefunded 4/15/00+) ........... 625 689
7.20%, 4/15/14 (Prerefunded 4/15/00+) ........... 625 689
Anne Arundel County, PCR, Baltimore Gas and Electric, TECP
3.45%, 9/3/96 * ................................ 3,100 3,100
Baltimore City
Board of Ed. Administration Headquarters, COP
7.25%, 4/1/16 (MBIA Insured) ................... 3,200 3,480
Consolidated Public Improvement, GO
Zero Coupon, 10/15/06 (FGIC Insured) ............ 3,100 1,808
Zero Coupon, 10/15/08 (FGIC Insured) ............ 3,800 1,931
Zero Coupon, 10/15/09 (FGIC Insured) ............ 4,600 2,195
Zero Coupon, 10/15/11 (FGIC Insured) ............ 7,500 3,118
7.50%, 10/15/09 (FGIC Insured) .................. 2,635 3,163
7.00%, 10/15/07 (MBIA Insured) .................. 500 577
7.00%, 10/15/08 (MBIA Insured) .................. 5,190 6,002
Convention Center, 6.00%, 9/1/17 (FGIC Insured) ......... 5,285 5,335
Rivoli Office Building Fac., COP
7.20%, 4/1/10 (MBIA Insured) .................... 1,950 2,117
7.20%, 4/1/10 (MBIA Insured)(Prerefunded 4/1/00+) 1,300 1,435
7.25%, 4/1/16 (MBIA Insured) .................... 5,845 6,355
7.25%, 4/1/16 (MBIA Insured)(Prerefunded 4/1/00+) 1,655 1,829
<PAGE>
Wastewater
5.50%, 7/1/26 (FGIC Insured) ............... $ 6,000 $ 5,688
5.60%, 7/1/13 (MBIA Insured) ............... 19,300 19,030
Water
5.50%, 7/1/26 (FGIC Insured) ............... 5,000 4,741
6.00%, 7/1/15 (FGIC Insured) ............... 6,250 6,442
Baltimore City
Port Fac., E.I. DuPont - CONOCO
6.50%, 10/1/11 ............................. 10,400 11,249
Tindeco Wharf Apartments, 6.60%, 12/20/24
(GNMA Guaranteed) .......................... 1,000 1,028
Baltimore County, GO
TECP, BAN, 3.35%, 9/4/96 ................... 1,000 1,000
Consolidated Public Improvement
5.50%, 6/1/16 .............................. 3,850 3,768
Pension Funding, GO, 7.10%, 10/1/12
(Prerefunded 10/1/99+) ..................... 3,195 3,495
Special Assessment, 5.50%, 6/1/16 .................. 1,240 1,214
Baltimore County
North Brooke Apartment, 6.35%, 1/20/21
(GNMA Guaranteed) .......................... 3,000 3,061
PCR, Bethlehem Steel, 7.55%, 6/1/17 ................ 3,300 3,404
Pickersgill Retirement Community, 7.70%, 1/1/21 .... 3,550 3,685
Spring Hill Apartments, VRDN (Currently 3.55%)
(GNMA Guaranteed) ......................... 9,200 9,200
Stella Maris, 7.50%, 3/1/21 ........................ 2,760 2,906
Bel Air, Parking, COP
7.80%, 6/1/10 (CGIC Insured)
(Prerefunded 12/1/98+) .................... 1,500 1,640
Calvert County, PCR, Baltimore Gas and Electric
5.55%, 7/15/14 ............................ 8,800 8,552
<PAGE>
Carroll County
Consolidated Public Improvement, GO
5.30%, 11/1/13 ............................... 2,210 2,124
6.00%, 11/1/06 (Prerefunded 11/1/99+) ........ 800 851
7.30%, 10/1/20 ............................... 2,000 2,212
Copper Ridge, 7.75%, 1/1/18 .......................... 3,000 3,135
Fairhaven, 7.75%, 1/1/11 ............................. 1,000 1,065
Charles County, Holly Station
6.45%, 5/1/26 (FHA Guaranteed) $ ............ 1,780 $1,813
Damascus Gardens Dev. Corp., Multi Family
7.375%, 11/1/21 (FHA Guaranteed) ............ 3,927 3,935
Frederick, GO
General Improvement
VRDN (Currently 3.65%) ....................... 2,300 2,300
6.125%, 12/1/09 (FGIC Insured) ............... 1,840 1,929
Frederick County, GO, 7.20%, 4/1/05 (Prerefunded 4/1/99+) .... 1,000 1,086
Gaithersburg Economic Auth., Asbury Methodist Home
7.85%, 1/1/20 (Prerefunded 1/1/00+) ......... 6,500 7,275
Gaithersburg Hosp. Fac., Shady Grove Adventist Hosp ..........
6.50%, 9/1/12 (FSA Insured) ................. 5,000 5,494
Harford County
Consolidated Public Improvement, GO
5.00%, 3/1/13 ................................ 1,500 1,393
5.00%, 3/1/14 ................................ 1,500 1,382
5.00%, 3/1/15 ................................ 1,400 1,278
Howard County
Consolidated Public Improvement, GO
5.875%, 5/15/12 .............................. 3,020 3,078
7.30%, 2/15/02 (Prerefunded 1/1/99+) ......... 650 693
7.40%, 2/15/09 (Prerefunded 1/1/99+) ......... 250 269
Metropolitan Dist., GO, 7.15%, 5/15/14
(Prerefunded 5/15/00+) ...................... 1,005 1,100
7.15%, 5/15/15 (Prerefunded 5/15/00+) ........ 1,080 1,182
7.15%, 5/15/16 (Prerefunded 5/15/00+) ........ 1,160 1,270
7.15%, 5/15/17 (Prerefunded 5/15/00+) ........ 1,245 1,363
Special Fac., 6.00%, 2/15/21 ......................... 3,110 3,168
Laurel, GO
6.90%, 7/1/07 (MBIA Insured) 1,000 1,102
7.00%, 7/1/09 (MBIA Insured) 550 606
<PAGE>
Maryland
GO, 7.00%, 10/15/03 (Prerefunded 10/15/00+) .. 2,000 2,196
GO, 7.10%, 10/15/04 (Prerefunded 10/15/00+) .. 3,000 3,317
St. Mary's County Building Commission, COP
7.625%, 12/1/03 (Prerefunded 6/1/98+) ....... 1,500 1,613
State and Local Fac. Loan, GO
4.70%, 2/15/10 ............................... $8,000 $7,341
5.70%, 3/15/10 ............................... 5,000 5,112
Maryland CDA
Dept. of Housing and Community Dev., GO
5.90%, 6/1/26 (MBIA Insured) ................ 1,180 1,172
Infrastructure
8.375%, 6/1/08 ............................... 775 838
8.50%, 6/1/18 ................................ 1,350 1,464
Single Family
5.875%, 4/1/17 * ............................. 1,910 1,907
5.95%, 4/1/16 ................................ 1,500 1,481
6.00%, 4/1/17 ................................ 2,500 2,479
6.45%, 4/1/14 ................................ 1,000 1,027
6.75%, 4/1/10 * .............................. 5,000 5,185
6.75%, 4/1/26 * .............................. 3,995 4,097
6.80%, 4/1/22 * .............................. 4,115 4,209
6.80%, 4/1/24 * .............................. 2,740 2,802
6.85%, 4/1/11 ................................ 4,895 5,091
7.00%, 4/1/14 ................................ 2,720 2,861
7.05%, 4/1/17 ................................ 4,750 4,986
7.25%, 4/1/11 * .............................. 2,000 2,106
7.25%, 4/1/19 ................................ 9,000 9,414
7.25%, 4/1/27 ................................ 9,250 9,621
7.375%, 4/1/10 ............................... 495 521
7.40%, 4/1/17 ................................ 5,395 5,686
7.50%, 4/1/00 ................................ 500 518
7.60%, 4/1/17 ................................ 2,200 2,277
7.625%, 4/1/29 * ............................. 1,860 1,926
7.875%, 4/1/07 ............................... 300 310
8.00%, 4/1/18 ................................ 1,200 1,221
8.125%, 4/1/17 ............................... 1,335 1,350
8.20%, 4/1/18 ................................ 1,150 1,185
Maryland DOT, 6.80%, 11/1/05 (Prerefunded 11/1/99+) 5,500 5,978
Maryland Economic Dev. Corp., Gull Creek, 8.10%, 4/1/26 2,500 2,473
<PAGE>
Maryland Energy Fin. Administration
Wheelabrator, 6.30%, 12/1/10 * 2,895 2,949
Maryland Environmental Service
Cecil County Landfill, 5.25%, 9/1/96 ..................... $ 375 $ 375
Maryland HHEFA
Broadmead, 7.625%, 7/1/10 ................................ 1,345 1,411
Church Hosp., 8.00%, 7/1/09 .............................. 1,200 1,280
Doctor's Community Hosp ..................................
5.50%, 7/1/24 .................................... 3,000 2,582
8.75%, 7/1/22 (Prerefunded 7/1/00+) .............. 6,800 7,893
Francis Scott Key Medical Center
5.00%, 7/1/18 (FGIC Insured) ..................... 4,880 4,378
5.00%, 7/1/23 (FGIC Insured) ..................... 5,850 5,123
7.00%, 7/1/10 (FGIC Insured) (Prerefunded 7/1/00+) 2,000 2,201
Franklin Square Hosp.,
7.50%, 7/1/19 (MBIA Insured) ..................... 4,750 5,166
Frederick Memorial Hosp ..................................
5.00%, 7/1/28 .................................... 4,750 4,120
5.00%, 7/1/23 (FGIC Insured) ..................... 5,500 4,817
Good Samaritan Hosp ......................................
5.60%, 7/1/06 .................................... 1,795 1,808
5.60%, 7/1/07 .................................... 1,875 1,875
5.75%, 7/1/13 .................................... 4,000 3,966
7.40%, 7/1/09 (Prerefunded 7/1/99+) .............. 1,000 1,097
7.50%, 7/1/21 (Prerefunded 7/1/99+) .............. 4,000 4,397
Greater Baltimore Medical Center
VRDN (Currently 3.60%) ........................... 1,500 1,500
5.00%, 7/1/19 (FGIC Insured) ..................... 2,860 2,529
Holy Cross Hosp ..........................................
7.125%, 7/1/10 (AMBAC Insured)
(Prerefunded 7/1/00+) ............................ 1,400 1,547
7.50%, 7/1/01 (AMBAC Insured)
(Prerefunded 7/1/00+) ............................ 1,655 1,850
Howard County General Hosp., 5.50%, 7/1/21 ............... 5,000 4,345
Johns Hopkins Hosp .....................................
Zero Coupon, 7/1/19 ............................ 9,460 2,409
7.00%, 7/1/23 (Prerefunded 7/1/00+) .......... 1,305 1,437
Johns Hopkins Medical Institute Parking Fac ..........
5.375%, 7/1/20 (AMBAC Insured) ............... 6,800 6,404
5.50%, 7/1/26 (AMBAC Insured) ................ 2,500 2,367
<PAGE>
Johns Hopkins Univ ...................................
7.375%, 7/1/08 ............................... $ 1,500 $ 1,605
7.50%, 7/1/20 ................................ 11,015 11,769
Kaiser Permanente, VRDN (Currently 3.40%) ............ 400 400
Kennedy Kreiger Institute
VRDN (Currently 3.50%) ....................... 2,300 2,300
6.75%, 7/1/22 ................................ 2,850 2,861
7.40%, 7/1/11 ................................ 370 386
Loyola College, VRDN (Currently 3.65%) ............... 5,000 5,000
Maryland General Hosp., 6.20%, 7/1/24
(MBIA Insured) .............................. 4,000 4,109
Mercy Medical Center
5.625%, 7/1/17 ............................... 1,530 1,491
5.75%, 7/1/26 ................................ 3,260 3,178
7.90%, 7/1/09 (Prerefunded 7/1/99+) .......... 2,000 2,219
8.00%, 7/1/20 (Prerefunded 7/1/99+) .......... 6,500 7,228
Peninsula Regional Medical Center
5.00%, 7/1/23 (MBIA Insured) ................ 11,035 9,664
Pooled Loan Program, VRDN (Currently 3.50%) .......... 1,000 1,000
Sinai Hosp ...........................................
5.25%, 7/1/19 (AMBAC Insured) ................ 3,070 2,811
7.30%, 7/1/05 (AMBAC Insured)
(Prerefunded 7/1/00+) ....................... 2,000 2,222
Suburban Hosp., 7.60%, 7/1/18
(Prerefunded 7/1/98+) ....................... 300 323
Union Hosp. of Cecil County, 6.625%, 7/1/12 .......... 1,545 1,547
Union Memorial Hosp ..................................
6.60%, 7/1/06 (MBIA Insured) ................. 500 544
6.75%, 7/1/11 (MBIA Insured) ................. 3,000 3,279
6.75%, 7/1/21 (MBIA Insured) ................. 7,895 8,472
Univ. of Maryland Medical System
5.00%, 7/1/20 (FGIC Insured) ..................... 11,950 10,541
7.00%, 7/1/17 (FGIC Insured) (Prerefunded 7/1/01+) 7,770 8,662
7.00%, 7/1/22 (FGIC Insured) ..................... 2,000 2,313
7.00%, 7/1/11 (MBIA Insured) (Prerefunded 7/1/01+) 4,550 5,072
Maryland Ind. Dev. Fin. Auth
American Center for Physics Headquarters Fac
6.25%, 1/1/07 .................................... 5,770 5,835
6.375%, 1/1/12 ................................... $ 5,900 $ 5,983
6.625%, 1/1/17 ................................... 4,250 4,284
Associated Catholic Charities, 9.00%, 1/1/10 ............. 930 1,016
Bon Secours Health System
5.929%, 8/26/22 (FSA Insured) ................... 10,000 10,133
Holy Cross Health, 5.60%, 12/1/09 ........................ 2,780 2,806
<PAGE>
Maryland Local Gov't. Income Trust Capitalization
Program, GO, COP
6.80%, 8/1/01 .................................... 1,615 1,764
7.125%, 8/1/09 ................................... 3,000 3,290
Maryland Stadium Auth
Baltimore Convention Center Expansion
5.875%, 12/15/11 ................................. 2,025 2,062
5.875%, 12/15/10 (AMBAC Insured) ................. 1,500 1,533
Sports Fac
5.60%, 3/1/14 (AMBAC Insured) .................... 1,560 1,533
5.75%, 3/1/22 (AMBAC Insured) .................... 6,500 6,330
5.80%, 3/1/26 (AMBAC Insured) .................... 10,090 9,867
Maryland Transportation Auth
6.80%, 7/1/16 (Escrowed to Maturity) ............. 6,120 6,774
Zero Coupon, 7/1/07 (FGIC Insured) ............... 8,500 4,787
Zero Coupon, 7/1/08 (FGIC Insured) ............... 2,000 1,056
Zero Coupon, 7/1/09 (FGIC Insured) ............... 10,410 5,142
Baltimore-Washington Int'l. Airport
6.25%, 7/1/14 (FGIC Insured) * ................... 3,105 3,218
6.40%, 7/1/19 (FGIC Insured) * ................... 10,920 11,170
Maryland Water Quality Fin. Administration
Revolving Loan Fund
Zero Coupon, 9/1/02 ........................ 1,185 883
Zero Coupon, 9/1/07 ........................ 1,125 628
6.00%, 9/1/15 .............................. 1,600 1,628
6.70%, 9/1/13 (Prerefunded 9/1/01+) ........ 1,280 1,414
7.10%, 9/1/13 (Prerefunded 9/1/01+) ........ 985 1,105
7.25%, 9/1/11 (Prerefunded 9/1/00+) ........ 1,700 1,892
7.25%, 9/1/12 (Prerefunded 9/1/00+) ........ 2,000 2,226
Maryland-National Capital Park and Planning Commission
Little Bennett Golf Fac., 8.25%, 10/1/11 ........... 2,350 2,541
Prince George's County, GO, 6.90%, 7/1/05
(Prerefunded 7/1/00+) ...................... 1,400 1,536
6.90%, 7/1/06 (Prerefunded 7/1/00+) ........ 1,350 1,481
6.90%, 7/1/07 (Prerefunded 7/1/00+) ........ $1,400 $1,536
6.90%, 7/1/08 (Prerefunded 7/1/00+) ........ 1,400 1,536
6.90%, 7/1/09 (Prerefunded 7/1/00+) ........ 1,400 1,536
<PAGE>
Montgomery County, GO
TECP, BAN, 3.35%, 9/5/96 ................... 4,000 4,000
Consolidated Public Improvement
5.50%, 4/1/16 .............................. 3,000 2,936
6.125%, 10/1/13 ............................ 2,500 2,614
6.125%, 10/1/14 ............................ 3,150 3,281
6.80%, 11/1/09 (Prerefunded 11/1/99+) ...... 1,145 1,244
7.10%, 10/1/09 (Prerefunded 10/1/00+) ...... 1,000 1,109
7.10%, 10/1/10 (Prerefunded 10/1/00+) ...... 1,840 2,041
7.25%, 10/1/08 (Prerefunded 10/1/98+) ...... 500 539
Montgomery County Housing Opportunities Commission
Multi-Family
6.25%, 7/1/25 ............................ 5,500 5,543
7.50%, 7/1/24 ............................ 3,000 3,135
Single Family
6.00%, 7/1/17 ............................ 4,595 4,557
6.50%, 7/1/11 ............................ 2,910 2,997
6.65%, 7/1/16 ............................ 2,370 2,447
6.80%, 7/1/17 ............................ 2,910 3,002
6.90%, 7/1/19 ............................ 2,000 2,085
7.50%, 7/1/17 ............................ 1,815 1,910
7.625%, 7/1/17 ........................... 3,580 3,734
Montgomery County, PCR
Potomac Electric Power, 5.375%, 2/15/24 ......... 4,560 4,177
Morgan State Univ., Academic Fees and Auxiliary Fac ......
6.05%, 7/1/15 (MBIA Insured) ............ 1,050 1,088
Northeast Maryland Waste Disposal Auth ...................
Montgomery County Resources
6.30%, 7/1/16 (MBIA Insured) ............ 3,880 3,969
Southwest Resource Recovery Fac ..................
6.00%, 7/1/08 * .......................... 10,000 10,016
6.20%, 7/1/10 ............................ 7,275 7,378
Prince George's County
Consolidated Public Improvement, GO
5.25%, 1/1/14 (MBIA Insured) ............. 2,000 1,906
Solid Waste Management System
6.90%, 6/30/05 (Prerefunded 6/30/00+) .... $ 1,500 $ 1,646
6.90%, 6/30/06 (Prerefunded 6/30/00+) .... 1,000 1,097
7.00%, 6/30/07 (Prerefunded 6/30/00+) .... 1,120 1,233
7.00%, 6/30/09 (Prerefunded 6/30/00+) .... 1,255 1,381
<PAGE>
Prince George's County
Collington Episcopal Life Care Community, Inc. ...
5.625%, 4/1/09 ........................... 1,500 1,431
Dimensions Health Corp. ..........................
5.375%, 7/1/14 ........................... 10,435 9,672
7.00%, 7/1/01 ............................ 2,450 2,644
7.00%, 7/1/22 (Prerefunded 7/1/02+) ...... 2,660 2,995
7.20%, 7/1/06 ............................ 420 468
7.20%, 7/1/06 (Prerefunded 7/1/02+) ...... 1,985 2,255
Prince George's County, PCR, Potomac Electric
6.375%, 1/15/23 .......................... 5,000 5,197
Prince George's County Housing Auth ......................
New Keystone, 6.80%, 7/1/25 (MBIA Insured) ....... 2,600 2,701
Riverview Terrace Apts., 6.70%, 6/20/20
(GNMA Guaranteed) * ..................... 1,500 1,570
Stevenson Apartments, 6.35%, 7/20/20
(GNMA Guaranteed) ....................... 2,200 2,244
Prince George's County IDA
Gabriel DuVall Law Building, 8.00%, 9/1/07 ....... 1,185 1,240
Upper Marlboro Justice Center
5.25%, 6/30/19 (MBIA Insured) ........... 1,500 1,392
Univ. of Maryland
5.75%, 4/1/17 ............................ 5,000 4,940
6.375%, 4/1/09 ........................... 2,100 2,270
6.50%, 4/1/12 ............................ 440 472
7.00%, 10/1/05 (Prerefunded 10/1/99+) .... 2,000 2,182
7.20%, 10/1/09 (Prerefunded 10/1/99+) .... 1,400 1,536
Equipment Loan, VRDN (Currently 3.35%) ........... 1,200 1,200
Washington County Public Fac., GO, 6.70%, 12/1/05
(Prerefunded 12/1/98+) .................. 1,115 1,193
Washington County Sanitary Dist., GO
6.875%, 2/1/10 (Prerefunded 2/1/00+) ..... 3,500 3,815
7.00%, 2/1/15 (Prerefunded 2/1/00+) ...... 2,000 2,188
Washington Suburban Sanitary Dist., GO
6.20%, 6/1/11 ............................ $2,400 $2,516
6.20%, 6/1/12 ............................ 1,500 1,570
6.40%, 1/1/15 ............................ 2,270 2,406
6.625%, 6/1/18 ........................... 3,665 3,934
6.90%, 6/1/08 (Prerefunded 6/1/00+) ...... 1,500 1,643
6.90%, 6/1/09 (Prerefunded 6/1/00+) ...... 2,300 2,520
7.40%, 7/1/07 (Prerefunded 7/1/98+) ...... 700 752
BAN, 3.40%, 9/4/96 ....................... 7,000 7,000
<PAGE>
Worcester County Sanitary Dist ...........................
6.50%, 8/15/12 ........................... 735 779
6.50%, 8/15/12 (Prerefunded 8/15/02+) .... 1,265 1,397
Total Maryland (Cost $718,739) 750,889
PUERTO RICO 3.4%
Puerto Rico Commonwealth
GO, 6.25%, 7/1/11 (MBIA Insured) ........ 2,000 2,161
GO, 6.25%, 7/1/12 (MBIA Insured) ........ 1,750 1,888
Puerto Rico Highway and Transportation Auth .............
5.50%, 7/1/15 (FSA Insured) ............ 5,000 4,879
Puerto Rico Electric Power Auth .........................
7.00%, 7/1/11 (Prerefunded 7/1/01+) .... 1,200 1,343
Puerto Rico Infrastructure Fin. Auth., 7.50%, 7/1/09 .... 5,150 5,513
Puerto Rico Municipal Fin. Agency
6.00%, 7/1/14 (FSA Insured) ............ 3,030 3,072
Puerto Rico Public Building Auth., Gov't. Fac., GO
5.50%, 7/1/25 (AMBAC Insured) .......... 6,000 5,732
Univ. of Puerto Rico, 5.25%, 6/1/25 (MBIA Insured) ...... 2,325 2,147
Total Puerto Rico (Cost ................................. $25,853) 26,735
Total Investments in Securities
98.9% of Net Assets (Cost $744,592) $777,624
Futures Contracts
In thousands
Contract Unrealized
Expiration Value Gain (Loss)
Long, 20 Municipal Bond Index
contracts, $80,000 of
Municipal bonds
pledged as initial margin 12/96 $682,000 $(27)
Net payments (receipts) of
variation margin to date 16
Variation margin receivable
(payable) on open futures
contracts (11)
<PAGE>
Other Assets Less Liabilities .................................... 8,319
NET ASSETS ....................................................... $ 785,932
Net Assets Consist of:
Accumulated net investment income - net of distributions ......... $ 1
Accumulated net realized gain/loss - net of distributions ........ (4,389)
Net unrealized gain (loss) ....................................... 33,005
Paid-in-capital applicable to 77,382,147 no par value shares
of beneficial interest outstanding; unlimited number of shares
authorized ....................................................... 757,315
NET ASSETS ....................................................... $ 785,932
NET ASSET VALUE PER SHARE ........................................ $ 10.16
* Interest subject to alternative minimum tax
+ Used in determining portfolio maturity
AMBAC AMBAC Indemnity Corp.
BAN Bond Anticipation Note
CDA Community Development Administration
CGIC Capital Guaranty Insurance Corp.
COP Certificates of Participation
DOT Department of Transportation
FGIC Financial Guaranty Insurance Company
FHA Federal Housing Authority
FSA Financial Security Assurance Corp.
GNMA Government National Mortgage Association
GO General Obligation
HHEFA Health & Higher Educational Facility Authority
IDA Industrial Development Authority
MBIA Municipal Bond Investors Assurance Corp.
PCR Pollution Control Revenue
TECP Tax-Exempt Commercial Paper
VRDN Variable Rate Demand Note
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
Statement of Operations
- --------------------------------------------------------------------------------
In thousands Short -Term
Bond Fund Bond Fund
6 Months 6 Months
Ended Ended
8/31/96 8/31/96
- --------------------------------------------------------------------------------
Investment Income
Interest income $ .................................. 2,067 $ 23,610
Expenses
Investment management ...................... 181 1,696
Custody and accounting ..................... 49 84
Shareholder servicing ...................... 44 290
Legal and audit ............................ 6 9
Prospectus and shareholder reports ......... 4 30
Registration ............................... 3 2
Trustees ................................... 3 5
Miscellaneous .............................. 3 9
Total expenses ............................. 293 2,125
Net investment income .............................. 1,774 21,485
Realized and Unrealized Gain(Loss)
Net realized gain (loss)
Securities ................................. 3 18
Futures .................................... 6 378
Net realized gain (loss) ................... 9 396
Change in net unrealized gain or loss
Securities ................................. (1,001) (19,455)
Futures .................................... -- 110
Change in net unrealized gain or loss ...... (1,001) (19,345)
Net realized and unrealized gain (loss) ............ (992) (18,949)
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS ............................. $ 782 $ 2,536
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
===========================================================================================
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
In thousands Short-Term Bond Fund Bond Fund
6 Months Year 6 Months Year
Ended Ended Ended Ended
8/31/96 2/29/96 8/31/96 2/29/96
- -------------------------------------------------------------------------------------------
<CAPTION>
Increase (Decrease) in Net Assets
Operations
Net investment income .... $ 1,774 $ 3,389 $ 21,485 $ 42,251
Net realized gain (loss) . 9 286 396 4,930
Change in net unrealized
gain or loss ............. (1,001) 1,403 (19,345) 25,591
Increase (decrease) in
net assets from operations 782 5,078 2,536 72,772
Distributions to shareholders
Net investment income .... (1,774) (3,389) (21,485) (42,251)
Capital share transactions*
Shares sold .............. 24,083 40,883 63,939 133,827
Distributions reinvested . 1,531 2,841 15,982 31,291
Shares redeemed .......... (17,079) (34,437) (73,629) (121,873)
Increase (decrease) in
net assets from capital
share transactions ....... 8,535 9,287 6,292 43,245
Net Assets
Increase (decrease)
during period .................... 7,543 10,976 (12,657) 73,766
Beginning of period .............. 85,784 74,808 798,589 724,823
End of period .................... $ 93,327 $ 85,784 $ 785,932 $ 798,589
*Share information
Shares sold .............. 4,726 8,007 6,293 13,045
Distributions reinvested . 300 556 1,572 3,049
Shares redeeemed ......... (3,352) (6,739) (7,249) (11,885)
Increase (decrease)
in shares outstanding .... 1,674 1,824 616 4,209
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</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
Notes to Financial Statements
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NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
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T. Rowe Price State Tax-Free Income Trust (the trust) is registered under
the Investment Company Act of 1940. The Maryland Short-Term Tax-Free Bond Fund
(the Short-Term Bond Fund) and the Maryland Tax-Free Bond Fund (the Bond Fund),
nondiversified, open-end management investment companies, are two of the
portfolios established by the trust and commenced operations on January 29,
1993, and March 31, 1987, respectively.
Valuation
Debt securities are generally traded in the over-the-counter market.
Investments in securities are stated at fair value as furnished by dealers who
make markets in such securities or by an independent pricing service, which
considers yield or price of bonds of comparable quality, coupon, maturity, and
type, as well as prices quoted by dealers who make markets in such securities.
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.
Premiums and Discounts
Premiums and original issue discounts on municipal securities are
amortized for both financial reporting and tax purposes. Market discounts are
recognized upon disposition of the security as gain or loss for financial
reporting purposes and as ordinary income for tax purposes.
Other
Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses are
reported on the identified cost basis. Distributions to shareholders are
recorded by the fund on the ex-dividend date. Income and capital gain
distributions are determined in accordance with federal income tax regulations
and may differ from those determined in accordance with generally accepted
accounting principles. 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.
<PAGE>
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.
Futures Contracts
At August 31, 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.
Other Purchases and sales of portfolio securities, other than short-term
securities, for the six months ended August 31, 1996, were as follows:
Short-Term
Bond Fund Bond Fund
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Purchases $15,831,000 $133,633,000
Sales 5,827,000 130,680,000
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 Short-Term Bond Fund has unused realized capital loss
carryforwards for federal income tax purposes of $874,000, of which $421,000
expires in 2003 and $453,000 in 2004. The Bond Fund has unused realized capital
loss carryforwards for federal income tax purposes of $4,188,000, which expires
in 2003. Each fund intends to retain gains realized in future periods that may
be offset by available capital loss carryforwards.
At August 31, 1996, the aggregate costs of investments for the Short-Term
Bond and Bond Funds for federal income tax and financial reporting purposes were
$94,209,000 and $744,592,000, respectively. Net unrealized gain on investments
was as follows:
Short-Term
Bond Fund Bond Fund
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Appreciated investments $ 867,000 $ 34,845,000
Depreciated investments (27,000) (1,813,000)
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Net unrealized gain (loss) $ 840,000 $ 33,032,000
<PAGE>
NOTE 4 - RELATED PARTY TRANSACTIONS
The investment management agreement between each fund and T. Rowe Price
Associates, Inc. (the manager) provides for an annual investment management fee,
of which $32,000 and $289,000 were payable at August 31, 1996 by the Short-Term
Bond and Bond Funds, respectively. The fee is computed daily and paid monthly,
and consists of an individual fund fee equal to 0.10% of average daily net
assets and a group fee. The group fee is based on the combined assets of certain
mutual funds sponsored by the manager or Rowe Price-Fleming International, Inc.
(the group). The group fee rate ranges from 0.48% for the first $1 billion of
assets to 0.305% for assets in excess of $50 billion. At August 31, 1996, and
for the six months then ended, the effective annual group fee rate was 0.33%.
Each fund pays a pro-rata share of the group fee based on the ratio of its net
assets to those of the group.
Under the terms of the investment management agreement, the manager is
required to bear any expenses through February 28, 1997, which would cause the
Short-Term Bond Fund's ratio of expenses to average net assets to exceed 0.65%.
Thereafter, through February 28, 1999, the Short-Term Bond 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, $13,000 of management fees were not accrued by the
Short-Term Bond Fund for the six months ended August 31, 1996, and $33,000
remains unaccrued from the prior period. Additionally, $262,000 of unaccrued
fees and expenses related to a previous expense limitation are 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 $68,000 and $262,000, respectively, for the six months ended
August 31, 1996, of which $13,000 and $50,000, respectively, were payable at
period-end.
<PAGE>
For yield, price, last transaction,
and current balance, 24 hours,
7 days a week, call:
1-800-638-2587 toll free
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
625-6500 Baltimore area
Investor Centers:
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
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
T. Rowe Price
100 East Pratt Street
Baltimore, Maryland 21202
http://www.troweprice.com
This report is authorized for distribution only to shareholders
and to others who have received a copy of the prospectus of the
T. Rowe Price Maryland Tax-Free Funds.
T. Rowe Price Investment Services, Inc., Distributor
RPRTMDC 8/31/96
