ANNUAL REPORT
----------------------
GEORGIA 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
Georgia Tax-Free Bond Fund.
- --------------------------------------------------------------------------------
REPTGAB 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 were
pleased that your fund outperformed its peer group average for the fiscal year.
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.
After moving only slightly lower during the first half of the fiscal
year ended February 29, long-term municipal yields fell further in the second
half. Thirty-year prime general obligation (GO) bonds yielded 5.95% on February
28, 1995, and on August 31 they were only 10 basis points lower (100 basis
points equal one percent). During the most recent six months, prices rose
further as yields dropped an additional 45 basis points to 5.4%.
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.
[edgar description: 1-line chart showing yields on Ga. municipal bonds from
2/28/95 to 2/29/96]
Source: T. Rowe Price
<PAGE>
Georgia's economy remains the fastest growing in the Southeast. Nonfarm
employment grew by 4.6% last year, ranking Georgia fourth in the U.S., and
population expanded at an above-average 2% rate. The Atlanta metro area is
already benefiting from its role as host city for the 1996 summer Olympic games.
This event is expected to have an economic impact of over $5 billion and provide
increased tax revenue for the state and local governments. In preparation, the
airport and transit system are both being expanded and upgraded in time for the
games. Last year, the state's GO rating outlook was revised to "positive" by
Standard & Poor's, a reflection of the state's strong economy and fiscal
condition.
STRATEGY AND PERFORMANCE REVIEW
- --------------------------------------------------------------------------------
We maintained an aggressive investment posture during most of the last six
months, given the weak economic environment and falling interest rates. To
increase the fund's sensitivity to interest rate changes, we gradually increased
duration through year-end. (Duration measures a fund's sensitivity to interest
rate changes. For instance, a duration of seven years tells you that the fund's
price would fall or rise about 7% in response to a one percentage point increase
or decrease in interest rate levels.)
As yields reached low levels in January and as the projected supply of
municipal bonds increased, we reduced the fund's duration from 8.0 years to 7.7
years, the level at which we began the most recent six-month period.
Also in January, approximately 5% of the fund's holdings were advance
refunded, creating shorter-term, higher-quality holdings that complemented our
efforts to reduce the fund's duration. We raised cash in February as municipal
yields reached less attractive levels compared with taxable yields.
As in the first half of the year, we sought a balance between high-coupon,
premium-priced bonds that bolster income and discount and noncallable bonds that
have better potential for significant price appreciation. Further
diversification of credit risk was another of our goals, and the fund now holds
obligations of about 30 issuers. We were able to maintain the fund's income
level but not increase it, since rates were falling and lower-quality issues
offered little incremental yield. Issuance in Georgia was also light in 1995,
approximately 25% below 1994's levels, although it picked up as the year
progressed.
The fund provided strong returns over the last six months and the year that
exceeded the average for comparable funds in each period.
<PAGE>
================================================================================
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 2/29/96
6 Months 12 Months
--------- ---------
Georgia Tax-Free Bond Fund 5.96% 10.62%
Lipper Georgia Municipal
Debt Funds Average 5.13 10.20
================================================================================
OUTLOOK
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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 munici pal securities from performing quite as well as
taxable alternatives. As we anticipated, these fears have lessened somewhat as
tax reform discussions have been put on hold, for the moment at least.
Municipals have already recaptured some of the ground lost to taxable bonds,
which we attribute to reduced worries about the impact of tax reform.
Unusually fierce weather this winter tended to distort many recent economic
statistics, but it looks as though the economy is on track for a year of
moderate growth. This should be enough to keep the unemployment rate in its
current zone without significantly exacerbating inflationary pressures. This
March the economic upturn completed its fifth year, making it one of the longest
peacetime expansions on record, but still without signs of an impending
recession.
More modest growth is expected for Georgia beyond the next year. Bank
consolidations and slowed construction should be offset by continuing business
relocations. State and local government finances remain in generally good shape,
while a continuing challenge will be the funding of school construction and
other needs associated with above average growth.
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 prospect for sharp deficit
reduction and the moderate inflation outlook that encouraged the bond market
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.
<PAGE>
Respectfully submitted,
[signature]
Mary J. Miller
Chairman of the
Investment Advisory Committee
March 20, 1996
================================================================================
Portfolio Highlights
Key Statistics
- --------------------------------------------------------------------------------
Periods Ended
Dividend Yield* 2/29/96
- --------------------------- ---------------
6 Months 5.05%
12 Months 5.21
Dividend Per Share
- ---------------------------
6 Months $0.26
12 Months** 0.52
Change in Price Per Share
- ---------------------------
6 Months (From $10.10 to $10.44) $0.34
12 Months (From $9.93 to $10.44) 0.51
Weighted Average Quality*** 2.3
Weighted Average Maturity 16.9 years
Weighted Average Effective Duration 7.7 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% and 99.8% of dividends were exempt from
federal and Georgia 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
---------------------
General Obligation - Local 14%
Nuclear Revenue 13
Hospital Revenue 13
Water and Sewer Revenue 11
Housing Finance Revenue 10
Lease Revenue 7
Dedicated Tax Revenue 7
Air and Sea Transportation Revenue 5
Prerefunded Bonds 5
Educational Revenue 5
Electric Revenue 4
Industrial and Pollution Control
Revenue 2
Miscellaneous Revenue 2
Solid Waste Revenue 1
Other Assets Less Liabilities 1
================================================================================
Average Annual Compound Total Return
Periods Ended February 29, 1996
- --------------------------------------------------------------------------------
Since
Inception
1 Year (3/31/93)
-------- ---------------------
10.62% 6.96%
Investment return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
[Performance Comparison line graph for Georgia Tax-Free Bond Fund Annual
Report March 31, 1996)
================================================================================
<PAGE>
Statement of Net Assets
T. Rowe Price Georgia Tax-Free Bond Fund / February 29, 1996
(AMOUNTS IN THOUSANDS)
================================================================================
Amount Value
---------- ----------
GEORGIA---93.9%
Albany Dougherty County Hosp., Phoebe
Putney Memorial Hosp., (AMBAC Insured),
5.00%, 9/1/20 ....................................... $ 1,000 $ 923
Association County Commissioners of
Georgia, DeKalb County, COP,
(FGIC Insured), 6.80%, 12/1/15 ...................... 1,000 1,128
Atlanta, Airport Fac., 6.30%, 1/1/07 .................. 1,270 1,272
(FGIC Insured), 6.50%, 1/1/13* ...................... 500 537
Barrow County School Dist., GO, (MBIA Insured),
5.40%, 2/1/10 ....................................... 1,120 1,140
Burke County Dev. Auth., PCR, Oglethorpe Power,
(FGIC Insured),VRDN (Currently 3.05%) ............... 100 100
(MBIA Insured), 7.80%, 1/1/08 ....................... 560 666
Georgia Power, VRDN (Currently 3.40%) ................. 500 500
Chatham County School Dist., GO, 6.25%, 8/1/16
(Prerefunded 8/1/03^)................................ 625 704
(MBIA Insured), 6.75%, 8/1/18 (Prerefunded 8/1/03^... 750 868
Cherokee County School System, GO, (AMBAC Insured),
5.875%, 2/1/09...................................... 250 270
Crisp County Hosp. Auth., Crisp Regional Hosp.,
(FSA Insured) 5.40%, 7/1/12......................... 1,000 998
DeKalb County Dev. Auth., Emory Univ., 5.25%, 11/1/15.. 1,000 988
DeKalb Hosp. Auth., Egleston Childrens Health Care
System (Currently 3.05%)............................ 1,000 1,000
Emory Univ., 5.25%, 11/1/02......................... 500 527
Douglasville-Douglas County, Water and Sewer Auth.,
(AMBAC Insured), 5.625%, 6/1/15 750 768
Fulton County Housing Auth., Single Family,
(GNMA Collateralized), 6.55%, 3/1/18* 1,000 1,003
Fulton County Water and Sewage, (FGIC Insured),
6.25%, 1/1/09....................................... 1,000 1,122
6.375%, 1/1/14...................................... 500 555
Gainesville and Hall Counties Hosp. Auth., Northeast
Georgia Healthcare, RAC,
(MBIA Insured), 5.75%, 10/1/17...................... 1,200 1,207
Gainesville Water and Sewage, (FGIC Insured),
6.00%, 11/15/12..................................... 1,000 1,089
<PAGE>
Amount Value
---------- ----------
Georgia Housing and Fin. Auth., Home Ownership
Program,6.60%, 6/1/25*.............................. 250 255
Single Family Mortgage, 6.65%, 12/1/20* ............... 500 513
(FHA Guaranteed), 6.50%, 12/1/17* .................. 1,000 1,021
6.60%, 12/1/23*..................................... 450 460
Georgia Municipal Gas Auth., 6.00%, 7/1/04 ............ 500 533
Metropolitan Atlanta Rapid Transit Auth., Sales Tax,
(MBIA Insured),6.90%, 7/1/20........................ 1,000 1,135
Monroe County, PCR, Gulf Power,VRDN(Currently 3.50%)... 900 900
Municipal Electric Auth. of Georgia, 5.50%, 1/1/20 .... 500 489
(AMBAC Insured), 7.25%, 1/1/24...................... 1,000 1,258
(MBIA Insured), 5.50%, 1/1/20....................... 300 301
Paulding County School Dist., GO, (MBIA Insured),
6.00%,2/1/13....................................... 1,000 1,083
Peach County School Dist., GO, (MBIA Insured),
6.50%, 2/1/07...................................... 300 343
6.40%, 2/1/19...................................... 500 540
Putnam County Dev. Auth.,PCR,Georgia Power,(FGIC Insured),
7.25%, 7/1/21...................................... 1,000 1,032
Rockdale County School Dist., GO, 6.50%, 1/1/09........ 1,000 1,106
Rockdale IDA, Solid Waste Disposal, 7.40%, 1/1/16*..... 500 513
Savannah Economic Dev. Auth., Union Camp Corp.,
6.15%, 3/1/17...................................... 500 538
Smyrna Downtown Dev. Auth., (MBIA Insured),
6.70%, 2/1/20...................................... 1,000 1,118
PUERTO RICO----5.0%
Puerto Rico Electric Power Auth., 6.00%, 7/1/15........ 500 515
Puerto Rico Highway and Transportation Auth.,
(FSA Insured),6.625%, 7/1/12....................... 1,000 1,110
================================================================================
TOTAL INVESTMENTS IN SECURITIES -- 98.9% OF
NET ASSETS (COST $30,440) 32,128
================================================================================
<PAGE>
FUTURES CONTRACTS
- --------------------------------------------------------------------------------
Contract Unrealized
Expiration Value Gain (Loss)
---------- -------- -----------
Long, 10 U.S. Treasury
thirty-year contracts,
$75,000 of Municipal Bonds
pledged as initial margin....... 6/96 $1,143 $ (6)
Net payments (receipts) of
variation margin to date........ 7
Variation margin receivable
(payable) on open
futures contracts 1
OTHER ASSETS LESS LIABILITIES.................... 371
------
NET ASSETS CONSIST OF: Value
---------
Accumulated net investment
income - net of distributions......... $ 1
Accumulated net realized gain/loss
- net of distributions................ (1,166)
Net unrealized gain (loss)............. 1,682
Paid-in-capital applicable to
3,112,555 no par value shares
of beneficial interest outstanding;
unlimited number of shares
authorized........................... 31,983
----------
NET ASSETS............................................................ $ 32,500
=========
NET ASSET VALUE PER SHARE............................................. $10.44
=======
* Interest subject to alternative minimum tax
^ Used in determining portfolio maturity
AMBAC AMBAC Indemnity Corp.
COP Certificates of Participation
FGIC Financial Guaranty Insurance Company
FHA Federal Housing Authority
FSA Financial Security Assurance Corp.
GNMA Government National Mortgage
GO General Obligation
IDA Industrial Development Authority
MBIA Municipal Bond Investors Assurance Corp.
PCR Pollution Control Revenue
RAC Revenue Anticipation Certificate
VRDN Variable Rate Demand Note
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
Statement of Operations
T. Rowe Price Georgia Tax-Free Bond Fund / Year Ended February 29, 1996
(IN THOUSANDS)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income............................................. $ 1,583
-----------
Expenses
Custody and accounting...................................... 87
Shareholder servicing....................................... 49
Investment management....................................... 13
Legal and audit............................................. 13
Prospectus and shareholder reports.......................... 8
Directors................................................... 5
Registration................................................ 1
Miscellaneous............................................... 3
-----------
Total expenses.............................................. 179
-----------
Net investment income......................................... 1,404
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Securities.................................................. 310
Futures..................................................... (58)
-----------
Net realized gain (loss).................................... 252
-----------
Change in net unrealized gain or loss on:
Securities.................................................. 1,101
Futures..................................................... (6)
-----------
Change in net unrealized gain or loss....................... 1,095
-----------
Net realized and unrealized gain (loss)....................... 1,347
-----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS............. $2,751
-----------
-----------
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
Statement of Changes in Net Assets
T. Rowe Price Georgia 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....................... $ 1,404 $ 1,109
Net realized gain (loss).................... 252 (1,415)
Change in net unrealized gain or loss....... 1,095 599
------------- -------------
Increase(decrease)in net assets
from operations............................ 2,751 293
------------- -------------
Distributions to shareholders
Net investment income....................... (1,404) (1,109)
Net realized gain........................... -- (102)
------------- -------------
Decrease in net assets from distributions... (1,404) (1,211)
------------- -------------
Capital share transactions*
Shares sold................................. 11,855 10,668
Distributions reinvested.................... 1,059 1,002
Shares redeemed............................. (5,099) (10,028)
------------- -------------
Increase (decrease) in net assets from
capital share transactions................. 7,815 1,642
------------- -------------
Increase (decrease) in net assets.............. 9,162 724
NET ASSETS
Beginning of period......................... 23,338 22,614
------------- -------------
End of period............................... $32,500 $23,338
------------- -------------
------------- -------------
*Share information
Shares sold................................. 1,159 1,099
Distributions reinvested.................... 104 103
Shares redeemed............................. (500) (1,032)
------------- -------------
Increase (decrease) in shares outstanding.... 763 170
------------- -------------
------------- -------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
Notes To Financial Statements
- --------------------------------------------------------------------------------
T. Rowe Price Georgia 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 Georgia 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.
<PAGE>
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.
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 $24,634,000 and $18,700,000, 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 $1,078,000, which expires in 2003. Capital loss
carryforwards utilized in fiscal 1996 amounted to $42,000. The fund intends to
retain gains realized in future periods that may be offset by available capital
loss carryforwards.
At February 29, 1996, the aggregate cost of investments for federal income
tax and financial reporting purposes was $30,440,000 and net unrealized gain
aggregated $1,688,000, of which $1,700,000 related to appreciated investments
and $12,000 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 $2,000 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,
$108,000 of management fees were not accrued by the fund for the year ended
February 29, 1996. Additionally, $285,000 of unaccrued fees and expenses 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 $102,000 for the year
ended February 29, 1996, of which $10,000 was payable at period-end.
================================================================================
<PAGE>
Financial Highlights
T. Rowe Price Georgia Tax-Free Bond Fund
- --------------------------------------------------------------------------------
For a share outstanding throughout each period
March 31, 1993^
Year Ended, to
Feb 29, 1996 Feb 28, 1995 Feb 28, 1994
================================================================================
NET ASSET VALUE,
BEGINNING OF PERIOD........... $ 9.93 $ 10.37 $ 10.00
------- --------- ---------
Investment activities
Net investment income......... 0.52* 0.51* 0.43*
Net realized and unrealized
gain (loss).................. 0.51 (0.39) 0.41
------- --------- ---------
Total from investment
activities................... 1.03 0.12 0.84
------- --------- ---------
Distributions
Net investment income......... (0.52) (0.51) (0.43)
Net realized gain............. -- (0.05) (0.04)
------- --------- ---------
Total distributions........... (0.52) (0.56) (0.47)
------- --------- ---------
NET ASSET VALUE,
END OF PERIOD................ $10.44 $9.93 $10.37
------- --------- ---------
------- --------- ---------
RATIOS/SUPPLEMENTAL DATA
Total return.................... 10.62% 1.42% 8.45%
Ratio of expenses to average
net assets..................... 0.65%* 0.65%* 0.65%*#
Ratio of net investment income
to average net assets......... 5.09% 5.26% 4.48%#
Portfolio turnover rate......... 71.5% 170.2% 154.8%#
Net assets, end of period
(in thousands)................ $32,500 $23,338 $22,614
- --------------------------------------------------------------------------------
# Annualized.
* Excludes expenses in excess of a 0.65% voluntary expense limitation in
effect through February 28, 1997.
^ Commencement of operations.
================================================================================
<PAGE>
Report of Independent Accountants
================================================================================
To the Shareholders and Board of Trustees
of T. Rowe Price Georgia Tax-Free Bond Fund
- --------------------------------------------------------------------------------
We have audited the accompanying statement of net assets of T.Rowe Price
Georgia 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, statement of changes in net assets, and financial highlights for
the year then ended. 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
audit. The statement of changes in net assets and financial highlights for each
of the preceding periods presented were audited by other auditors, whose report,
dated March 17, 1995, expressed an unqualified opinion thereon.
We conducted our audit 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 audit provides 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 Georgia Tax-Free Bond Fund as of February 29, 1996, the results of
its operations, the changes in its net assets, and financial highlights for the
year then ended, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
March 19, 1996
