<PAGE>
Annual Report
GEORGIA
TAX-FREE
BOND FUND
------------------------
FEBRUARY 28, 1997
------------------------
[LOGO OF T. ROWE PRICE APPEARS HERE]
<PAGE>
REPORT HIGHLIGHTS
------------------------------------------------------------------------------
. Interest rates ended the fiscal year slightly higher than a year ago,
resulting in moderate returns for municipal bond investors.
. The state's economy remained buoyant, and government finances were generally
in good shape.
. The Georgia Tax-Free Bond Fund's 6- and 12-month returns of 4.70% and 5.15%,
respectively, exceeded its Lipper peer group average for both periods.
. To enhance performance, we continued to focus on general obligation bonds and
to balance high-coupon bonds with noncallable and discount issues.
. With the economy showing ongoing strength and the Federal Reserve indicating
a bias toward tighter monetary policy, our outlook is somewhat cautious for
the coming months.
<PAGE>
FELLOW SHAREHOLDERS
The municipal bond market and your fund generated moderate returns during the
fiscal year ended February 28, 1997. Interest rates fluctuated during the year
and ended slightly higher than where they started at the end of last February.
The U.S. economy was characterized by modest wage inflation with low
unemployment, prompting the Federal Reserve to leave monetary policy unchanged
since January 1996.
MARKET ENVIRONMENT
Much of the movement in interest rates last year reflected the market's
anticipation of action or inaction by the Federal Reserve. Your fund's
fiscal year began with interest rates rising due to signs of stronger
growth and the realization that balanced budget legislation would not be
passed in 1996. As market expectations for a tightening in monetary
policy grew throughout the first half, rates continued to increase. The
long-term Treasury bond yield remained in a trading range between 6.75%
and 7.20% during the third quarter. Intermediate and long-term rates
then reversed course and fell through November, as it became evident
that the economy was slowing and the Federal Reserve was not going to
raise rates. Another uptick in rates took place late in 1996 as the
economy showed renewed strength and investors once again anticipated
possible tightening by the Federal Reserve.
In the municipal market, rates came full circle over the year, rising
about 45 basis points (100 basis points equal one percent) during the
first six months before settling at virtually the same level as a year
ago. Long-term high-grade general obligation bonds yielded 5.50% on
February 28, 1997, versus 5.75% on August 31, 1996, and
------------------------
GEORGIA BOND YIELD INDEX
------------------------
[LINE GRAPH OF GEORGIA BOND YIELD INDEX APPEARS HERE]
Source: T. Rowe Price Associates
1
<PAGE>
5.45% a year ago. Five-year high-grade bonds were 20 basis points higher
in yield than in February 1996. One-year note rates traded within a 70-
basis point range during the year, ending at 3.70% compared with 3.25% a
year ago.
GEORGIA'S ECONOMY REMAINED AMONG THE STRONGEST IN THE NATION ...
Georgia's economy remained among the strongest in the nation in 1996.
Nonfarm employment grew by 2.8% compared with 2.0% for the nation, and
the state's December unemployment rate was 4.3%, below the national
level. Job growth and a construction boom helped personal income achieve
a strong year-over-year growth of 8.2% through last year's third
quarter. Overall, growth has been centered in the trade, transportation,
and services sectors. Although a significant amount of activity was
related to last summer's Olympic games, recent employment and tax
receipt data indicate that Georgia's economy remains buoyant. Expansion
of the airport and transit systems along with construction of athletic
facilities should benefit the area over the longer term. For the coming
year, we expect a more modest pace, as the positive impact of continuing
business and population growth should be only partly offset by bank
consolidations and slower construction activity.
State and local government finances remain in generally good shape. A
continuing challenge for Georgia's state and local governments is the
funding for education and other needs associated with above-average
growth. A number of school systems are considering adopting a 1% sales
tax dedicated to capital spending authorized by a recent law. New issue
volume in Georgia in 1996 was even with that of 1995, continuing to
level off after the sharp declines that followed 1993's record total.
Large bond issuers last year included the state and the Atlanta airport.
PERFORMANCE REVIEW
The municipal market in Georgia regained strength in the six months
ended February 28, following a lackluster first half of the fiscal year.
After a dip during the year, the fund's share price ended the year
exactly where it began ($10.44), so 12-month returns were driven by the
portfolio's income component. For the prior 6- and 12-month periods,
your fund continued to outperform its peer group average, with the
longer-term return of 5.15% substantially exceeding the peer group
average of 4.54%, as shown in the table.
2
<PAGE>
- ----------------------
PERFORMANCE COMPARISON
- ------------------------------------------------
<TABLE>
<CAPTION>
Periods Ended 2/28/97 6 Months 12 Months
- ------------------------------------------------
<S> <C> <C>
Georgia Tax-Free
Bond Fund 4.70% 5.15%
- ------------------------------------------------
Lipper Georgia Municipal
Debt Funds Average 4.63 4.54
- ------------------------------------------------
</TABLE>
We are pleased to report that your fund ranked second among 21 Georgia
municipal bond funds based on total return for the three-year period
ended February 28, 1997, according to Lipper Analytical Services. (For
the one-year period, the fund ranked ninth among 30 funds, and for the
period since its inception on 3/31/93 it has ranked second among nine
funds. Of course, there is no assurance past trends will continue.)
STRATEGY
We maintained a market neutral posture during most of the past six
months, with effective duration varying between 7.5 and 8 years.
(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.) The 7.8-year duration at
the close of the fiscal year was slightly above the 7.5-year level of
six months ago. To offset this modest increase in the fund's interest
rate sensitivity, we shortened the average effective maturity of the
portfolio to 16 years from 16.5 years six months ago and 16.9 years a
year ago by altering the mix of callable bonds. In addition, a
significant bond position was prerefunded to an earlier maturity date.
The net effect of these changes provided better price performance while
allowing us to preserve income.
As in prior periods, we emphasized two approaches to enhance the fund's
total return. First, we focused on general obligations and other local
tax-supported debt, since Georgia's economy remained strong. Second, we
continued to balance high-coupon, premium-priced bonds that bolster
income with a sizable commitment to noncallable and discount bonds that
offer more favorable and predictable price performance.
We expect the Georgia municipal market to maintain its present strength,
and we will continue to look for opportunities in the new issue and
secondary markets to further diversify the fund's holdings and credit
exposure.
3
<PAGE>
OUTLOOK
The economy is in its sixth year of expansion, and while it has
exhibited few signs of inflationary pressure, the Federal Reserve
remains on alert. Fed chairman Alan Greenspan stated in recent testimony
to the Senate Banking Committee that the Fed cannot rule out a
preemptive tightening in monetary policy before signs of actual higher
inflation become evident.
We expect economic growth and inflation to remain moderate throughout
the rest of 1997, with no evidence of recession visible to date.
Consumer and business sentiment remain high, inventories are not
excessive, and availability of credit is ample. The Federal Reserve, as
indicated, could push the fed funds rate higher to keep prices in check,
but we believe any increase will be small since short-term rates are
well above the recent trend rate of inflation. This was not the case in
1994, when the Fed was forced to move aggressively.
Overall, we are cautious on interest rates but do not expect to see a
significant move in bond prices in the months ahead. As in the past
year, the returns from municipal securities should come primarily from
income.
Respectfully submitted,
/s/ Mary J. Miller
Mary J. Miller
President
/s/ Hugh D. McGuirk
Hugh D. McGuirk
Chairman of the Investment Advisory Committee
March 20, 1997
- --------------------------------------------------------------------------------
Hugh D. McGuirk has assumed day-to-day responsibility for management of the
Georgia Tax-Free Bond Fund as chairman of the fund's Investment Advisory
Committee. With previous experience in the municipal finance area of a
brokerage firm, Mr. McGuirk joined T. Rowe Price's municipal bond department in
1993 and has worked closely with Mary Miller as a member of the fund's
Investment Advisory Committee for the past three years. Ms. Miller, who is the
director of the municipal bond department, remains on the fund's Investment
Advisory Committee.
4
<PAGE>
T. Rowe Price Georgia Tax-Free Bond Fund
- --------------------------------------------------------------------------------
- --------------------
Portfolio Highlights
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
KEY STATISTICS
8/31/96 2/28/97
--------------------------------------------------------------------------------
<S> <C> <C>
Price Per Share $10.22 $10.44
--------------------------------------------------------------------------------
Dividends Per Share +
--------------------------------------------------------------------------------
For 6 months 0.26 0.26
---------------------------------------------------------------------------
For 12 months 0.52 0.52
---------------------------------------------------------------------------
Dividend Yield *
--------------------------------------------------------------------------------
For 6 months 5.08% 5.04%
---------------------------------------------------------------------------
For 12 months 5.13 5.13
---------------------------------------------------------------------------
Weighted Average Maturity (years) 16.5 16.0
--------------------------------------------------------------------------------
Weighted Average Effective Duration (years) 7.5 7.8
--------------------------------------------------------------------------------
Weighted Average Quality ** AA AA-
--------------------------------------------------------------------------------
</TABLE>
+ Taxability of dividends: 100% of the dividends paid for the 12 months
ended 2/28/97 were exempt from federal and Georgia income taxes.
* 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.
5
<PAGE>
T. Rowe Price Georgia Tax-Free Bond Fund
- --------------------------------------------------------------------------------
- --------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECTOR DIVERSIFICATION
Percent of Percent of
Net Assets Net Assets
8/31/96 2/28/97
================================================================================
<S> <C> <C>
General Obligation - Local 15% 22%
--------------------------------------------------------------------------------
Nuclear Revenue 12 13
--------------------------------------------------------------------------------
Hospital Revenue 6 10
--------------------------------------------------------------------------------
Housing Finance Revenue 11 9
--------------------------------------------------------------------------------
Water and Sewer Revenue 9 8
--------------------------------------------------------------------------------
Prerefunded Bonds 4 8
--------------------------------------------------------------------------------
Dedicated Tax Revenue 9 6
--------------------------------------------------------------------------------
Industrial and Pollution Control Revenue 6 6
--------------------------------------------------------------------------------
Escrowed to Maturity 5 4
--------------------------------------------------------------------------------
General Obligation - State 5 4
--------------------------------------------------------------------------------
Lease Revenue 6 3
--------------------------------------------------------------------------------
All Others 10 7
--------------------------------------------------------------------------------
Other Assets Less Liabilities 2 -
================================================================================
Total 100% 100%
</TABLE>
6
<PAGE>
T. Rowe Price Georgia Tax-Free Bond Fund
- --------------------------------------------------------------------------------
- ----------------------
Performance Comparison
- --------------------------------------------------------------------------------
This chart shows the value of a hypothetical $10,000 investment in the
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.
GEORGIA TAX-FREE BOND FUND
------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Georgia Tax-Free Lehman Municipal Lipper Georgia Municipal
Bond Fund Bond Index Debt Funds Average
---------------- ---------------- ------------------------
<S> <C> <C> <C>
3/31/93 $10,000 $10,000 $10,000
2/28/97 12,793 12,732 12,468
</TABLE>
- ------------------------------------
Average Annual Compound Total Return
- --------------------------------------------------------------------------------
This table shows how the fund would have performed each year if its
actual (or cumulative) returns for the periods shown had been earned at
a constant rate.
<TABLE>
<CAPTION>
Since Inception
Periods Ended 2/28/97 1 Year 3 Years Inception Date
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Georgia Tax-Free Bond Fund 5.15% 5.66% 6.49% 3/31/93
------------------------------------------------------------------------
</TABLE>
Investment return and principal value represent past performance and
will vary. Shares may be worth more or less at redemption than at
original purchase.
7
<PAGE>
T. Rowe Price Georgia Tax-free Bond Fund
- --------------------------------------------------------------------------------
- --------------------
Financial Highlights For a share outstanding throughout each period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year 3/31/93
Ended to
2/28/97 2/29/96 2/28/95 2/28/94
<S> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 10.44 $ 9.93 $ 10.37 $ 10.00
----------------------------------------------------
Investment activities
Net investment income 0.52* 0.52* 0.51* 0.43*
Net realized and
unrealized gain (loss) - 0.51 (0.39) 0.41
----------------------------------------------------
Total from
investment activities 0.52 1.03 0.12 0.84
----------------------------------------------------
Distributions
Net investment income (0.52) (0.52) (0.51) (0.43)
Net realized gain - - (0.05) (0.04)
----------------------------------------------------
Total distributions (0.52) (0.52) (0.56) (0.47)
----------------------------------------------------
NET ASSET VALUE
End of period $ 10.44 $ 10.44 $ 9.93 $ 10.37
====================================================
Ratios/Supplemental Data
Total return 5.15%* 10.62%* 1.42%* 8.45%*
- -----------------------------------------------------------------------------------
Ratio of expenses to
average net assets 0.65%* 0.65%* 0.65%* 0.65%*+
- -----------------------------------------------------------------------------------
Ratio of net investment
income to average
net assets 5.01%* 5.09%* 5.26%* 4.48%*+
- -----------------------------------------------------------------------------------
Portfolio turnover rate 71.1% 71.5% 170.2% 154.8%+
- -----------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $38,726 $32,500 $23,338 $22,614
- -----------------------------------------------------------------------------------
</TABLE>
* Excludes expenses in excess of a 0.65% voluntary expense limitation in effect
through 2/28/97.
+ Annualized.
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
T. Rowe Price Georgia Tax-Free Bond Fund
- --------------------------------------------------------------------------------
February 28, 1997
<TABLE>
<CAPTION>
- -----------------------
Statement of Net Assets Par Value
- ---------------------------------------------------------------------------------------------
In thousands
<S> <C> <C>
GEORGIA 96.0%
Atlanta, Airport Fac., 6.50%, 1/1/13 (FGIC Insured) * $ 500 $ 531
------------------------------------------------------------------------------------------
Atlanta and Fulton Counties Recreation Auth., Downtown Arena
5.375%, 12/1/26 (MBIA Insured) 250 239
------------------------------------------------------------------------------------------
Barrow County School Dist., GO
5.40%, 2/1/10 (MBIA Insured) 1,000 1,010
------------------------------------------------------------------------------------------
Burke County Dev. Auth., PCR
Georgia Power
VRDN (Currently 3.45%) 1,800 1,800
------------------------------------------------------------------------------------
VRDN (Currently 3.55%) 200 200
---------------------------------------------------------------------------------------
Oglethorpe Power, 7.80%, 1/1/08 (MBIA Insured) 560 654
------------------------------------------------------------------------------------------
Cartersville Dev. Auth., PCR, Anheuser Busch, 6.75%, 2/1/12 * 1,000 1,082
------------------------------------------------------------------------------------------
Chatham County Hosp. Auth., Memorial Medical Center
5.25%, 1/1/16 (AMBAC Insured) 1,000 955
------------------------------------------------------------------------------------------
Chatham County School Dist., GO
6.25%, 8/1/16 (Prerefunded 8/1/03+) 625 692
------------------------------------------------------------------------------------
6.75%, 8/1/18 (MBIA Insured)
(Prerefunded 8/1/03+) 750 853
------------------------------------------------------------------------------------------
Clarke County Hosp. Auth., Athens Regional Medical Center
5.00%, 1/1/22 (MBIA Insured) 845 770
------------------------------------------------------------------------------------------
Cobb County, GO
5.125%, 1/1/15 1,000 971
------------------------------------------------------------------------------------
5.125%, 1/1/17 500 481
------------------------------------------------------------------------------------------
Coffee County Hosp. Auth., Coffee Regional Medical Center
6.25%, 12/1/06 500 488
------------------------------------------------------------------------------------------
Coweta County Residential Care Fac. for the Elderly Auth.
Wesley Woods of Newnan-Peachtree City
8.25%, 10/1/26 500 506
------------------------------------------------------------------------------------------
Dalton Dev. Auth., Hamilton Health Care System
5.50%, 8/15/26 (MBIA Insured) 1,000 988
------------------------------------------------------------------------------------------
DeKalb County Dev. Auth., Emory Univ., 6.00%, 10/1/14 550 573
------------------------------------------------------------------------------------------
Fulton County Dev. Auth., PCR, Special Fac., Delta Airlines
6.95%, 11/1/12 500 535
------------------------------------------------------------------------------------------
Fulton County Housing Auth., Single Family
6.55%, 3/1/18 (GNMA Guaranteed) * 185 189
------------------------------------------------------------------------------------------
Fulton County School Dist., GO, 6.375%, 5/1/17 700 780
------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
T. Rowe Price Georgia Tax-Free Bond Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
- ------------------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Fulton County Water and Sewage
6.25%, 1/1/09 (FGIC Insured) $1,000 $1,106
-----------------------------------------------------------------------------------
6.375%, 1/1/14 (FGIC Insured) 500 560
---------------------------------------------------------------------------------------
Gainesville and Hall Counties Hosp. Auth.
Northeast Georgia Health Care
6.00%, 10/1/25 (MBIA Insured) 475 485
---------------------------------------------------------------------------------------
Gainesville Water and Sewage, 6.00%, 11/15/12 (FGIC Insured) 1,000 1,082
---------------------------------------------------------------------------------------
Georgia, GO
6.30%, 3/1/08 1,000 1,119
-----------------------------------------------------------------------------------
6.50%, 4/1/09 450 511
---------------------------------------------------------------------------------------
Georgia Housing and Fin. Auth.
Home Ownership Program, 6.60%, 6/1/25 * 250 258
-------------------------------------------------------------------------------------
Single Family Mortgage
6.05%, 12/1/16 * 500 502
-----------------------------------------------------------------------------------
6.125%, 12/1/15 500 511
-----------------------------------------------------------------------------------
6.65%, 12/1/20 * 480 497
-----------------------------------------------------------------------------------
6.50%, 12/1/17 (FHA Guaranteed) * 1,000 1,027
-----------------------------------------------------------------------------------
6.60%, 12/1/23 (FHA Guaranteed) * 450 464
---------------------------------------------------------------------------------------
Georgia Municipal Gas Auth., Southern Storage Gas Project
6.00%, 7/1/04 500 536
---------------------------------------------------------------------------------------
Hall County School Dist., GO
6.30%, 12/1/07 (AMBAC Insured) 1,000 1,098
---------------------------------------------------------------------------------------
Jackson County School Dist., GO
6.00%, 7/1/14 (MBIA Insured) 1,000 1,042
---------------------------------------------------------------------------------------
Liberty County Hosp. Auth., RAC
5.25%, 8/1/21 (MBIA Insured) 180 169
---------------------------------------------------------------------------------------
Metropolitan Atlanta Rapid Transit Auth.
Sales Tax
7.00%, 7/1/11 (Escrowed to Maturity) 825 955
-----------------------------------------------------------------------------------
6.25%, 7/1/20 (AMBAC Insured) 500 547
-----------------------------------------------------------------------------------
6.90%, 7/1/20 (MBIA Insured)
(Prerefunded 7/1/04+) 1,300 1,503
-----------------------------------------------------------------------------------
7.00%, 7/1/11 (MBIA Insured)
(Escrowed to Maturity) 635 740
---------------------------------------------------------------------------------------
Milledgeville, Water and Sewer, 6.00%, 12/1/21 (FSA Insured) 500 529
---------------------------------------------------------------------------------------
Monroe County Dev. Auth., PCR, Gulf Power Co.
VRDN (Currently 3.55%) 100 100
---------------------------------------------------------------------------------------
10
</TABLE>
<PAGE>
T. Rowe Price Georgia Tax-Free Bond Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
- ------------------------------------------------------------------------------------
In thousands
Municipal Electric Auth. of Georgia
<S> <C> <C>
7.25%, 1/1/24 (AMBAC Insured) $ 1,000 $ 1,234
-----------------------------------------------------------------------------
6.25%, 1/1/12 (FGIC Insured) 1,000 1,100
---------------------------------------------------------------------------------
Paulding County School Dist., GO
6.00%, 2/1/13 (MBIA Insured) 1,000 1,079
---------------------------------------------------------------------------------
Peach County School Dist., GO
6.40%, 2/1/19 (MBIA Insured) 500 542
-----------------------------------------------------------------------------
6.50%, 2/1/07 (MBIA Insured) 300 337
---------------------------------------------------------------------------------
Rockdale County Dev. Auth., Solid Waste Disposal, Visy
Paper
7.40%, 1/1/16 * 495 512
---------------------------------------------------------------------------------
Rockdale County School Dist., GO, 6.50%, 1/1/09 1,000 1,095
---------------------------------------------------------------------------------
Savannah Economic Dev. Auth., Union Camp, 6.15%, 3/1/17 500 529
---------------------------------------------------------------------------------
Smyrna Downtown Dev. Auth., 6.70%, 2/1/20 (MBIA Insured) 1,000 1,108
---------------------------------------------------------------------------------
Total Georgia (Cost $35,661) 37,174
-----------
PUERTO RICO 4.2%
Puerto Rico Highway and Transportation Auth.
6.625%, 7/1/12 (FSA Insured) 1,000 1,097
---------------------------------------------------------------------------------
Puerto Rico Infrastructure Fin. Auth., 7.50%, 7/1/09 500 531
---------------------------------------------------------------------------------
Total Puerto Rico (Cost $ 1,558) 1,628
-----------
</TABLE>
11
<PAGE>
T. Rowe Price Georgia Tax-Free Bond Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
- --------------------------------------------------------------------------------
In thousands
<S> <C>
Total Investments in Securities
100.2% of Net Assets (Cost $37,219) $ 38,802
Other Assets Less Liabilities (76)
-----------
NET ASSETS $ 38,726
===========
Net Assets Consist of:
Accumulated net investment income - net of distributions $ 1
Accumulated net realized gain/loss - net of distributions (997)
Net unrealized gain (loss) 1,583
Paid-in-capital applicable to 3,708,575 no par value
shares of beneficial interest outstanding; unlimited
number of shares authorized 38,139
-----------
NET ASSETS $ 38,726
===========
NET ASSET VALUE PER SHARE $ 10.44
===========
</TABLE>
* Interest subject to alternative minimum tax
+ Used in determining portfolio maturity
AMBAC AMBAC Indemnity Corp.
FGIC Financial Guaranty Insurance Company
FHA Federal Housing Authority
FSA Financial Security Assurance Corp.
GNMA Government National Mortgage Association
GO General Obligation
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.
12
<PAGE>
T. Rowe Price Georgia Tax-Free Bond Fund
- --------------------------------------------------------------------------------
- -----------------------
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
<TABLE>
<CAPTION>
Year
Ended
2/28/97
<S> <C>
Investment Income
Interest income $ 1,959
-----------
Expenses
Custody and accounting 92
Shareholder servicing 52
Investment management 41
Prospectus and shareholder reports 13
Legal and audit 10
Registration 7
Trustees 5
Miscellaneous 5
-----------
Total expenses 225
-----------
Net investment income 1,734
-----------
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 156
Futures 14
-----------
Net realized gain (loss) 170
-----------
Change in net unrealized gain or loss
Securities (106)
Futures 7
-----------
Change in net unrealized gain or loss (99)
-----------
Net realized and unrealized gain (loss) 71
-----------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 1,805
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
T. Rowe Price Georgia Tax-Free Bond Fund
- --------------------------------------------------------------------------------
- ----------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
<TABLE>
<CAPTION>
Year
Ended
2/28/97 2/29/96
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations
Net investment income $ 1,734 $ 1,404
Net realized gain (loss) 170 252
Change in net unrealized gain or loss (99) 1,095
--------------------
Increase (decrease) in net assets from
operations 1,805 2,751
--------------------
Distributions to shareholders
Net investment income (1,734) (1,404)
--------------------
Capital share transactions*
Shares sold 10,973 11,855
Distributions reinvested 1,312 1,059
Shares redeemed (6,130) (5,099)
--------------------
Increase (decrease) in net assets from capital
share transactions 6,155 7,815
--------------------
Net Assets
Increase (decrease) during period 6,226 9,162
Beginning of period 32,500 23,338
--------------------
End of period $ 38,726 $32,500
====================
*Share information
Shares sold 1,066 1,159
Distributions reinvested 127 104
Shares redeemed (597) (500)
--------------------
Increase (decrease) in shares outstanding 596 763
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
T. Rowe Price Georgia Tax-Free Bond Fund
- --------------------------------------------------------------------------------
February 28, 1997
- -----------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
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 and commenced operations on March 31,
1993.
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.
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.
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.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $30,653,000 and $23,570,000, respectively, for the
year ended February 28, 1997.
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
15
<PAGE>
T. Rowe Price Georgia Tax-Free Bond Fund
- --------------------------------------------------------------------------------
income. The fund has unused realized capital loss carryforwards for federal
income tax purposes of $955,000, which expires in 2003. Capital loss
carryforwards utilized in fiscal 1997 amounted to $123,000. The fund intends
to retain gains realized in future periods that may be offset by available
capital loss carryforwards.
In order for the fund's capital accounts and distributions to shareholders to
reflect the tax character of certain transactions, the following
reclassifications were made during the year ended February 28, 1997. The
results of operations and net assets were not affected by the
reclassifications.
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Undistributed net investment income $ -
Undistributed net realized gain (1,000)
Paid-in-capital 1,000
</TABLE>
At February 28, 1997, the aggregate cost of investments for federal income
tax and financial reporting purposes was $37,219,000, and net unrealized gain
aggregated $1,583,000, of which $1,602,000 related to appreciated investments
and $19,000 to depreciated investments.
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 $3,000 was payable at February 28, 1997. 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 February 28, 1997, and for the year then ended, the
effective annual group fee rate was 0.33%. 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
16
<PAGE>
T. Rowe Price Georgia Tax-Free Bond Fund
- --------------------------------------------------------------------------------
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 28, 1997, and $108,000 remains unaccrued from the prior
period.
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 $106,000 for the
year ended February 28, 1997, of which $10,000 was payable at period-end.
During fiscal year 1996, Coopers & Lybrand L.L.P. succeeded Price Waterhouse LLP
as independent accountants for the Georgia Tax-Free Bond Fund, a decision that
was approved by the fund's Board of Directors. During the two fiscal years
preceding the change, the fund received unqualified opinions and had no
disagreements with Price Waterhouse LLP or reportable events that caused the
change.
17
<PAGE>
T. Rowe Price Georgia Tax-Free Bond Fund
- --------------------------------------------------------------------------------
- ---------------------------------
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 28, 1997, and the related
statement of operations for the year then ended, statement of changes in net
assets for each of the two years in the period then ended, and financial
highlights for each of the two years in the period 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 audits. The
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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
investments owned as of February 28, 1997, by correspondence with the
custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of T.
Rowe Price Georgia Tax-Free Bond Fund as of February 28, 1997, the results of
its operations, the changes in its net assets, and financial highlights for
each of the respective periods stated in the first paragraph, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
March 19, 1997
18
<PAGE>
T. Rowe Price Shareholder Services
- --------------------------------------------------------------------------------
Investment Services And Information
KNOWLEDGEABLE SERVICE REPRESENTATIVES
By Phone 1-800-225-5132 Available Monday through Friday from
8 a.m. to 10 p.m. ET and weekends from 8:30 a.m. to 5 p.m. ET.
In Person Available in T. Rowe Price Investor Centers.
ACCOUNT SERVICES
Checking Available on most fixed income funds ($500 minimum).
Automatic Investing From your bank account or paycheck.
Automatic Withdrawal Scheduled, automatic redemptions.
Distribution Options Reinvest all, some, or none of your distributions.
Automated 24-Hour Services Including Tele*Access/(R)/ and
T. Rowe Price OnLine.
DISCOUNT BROKERAGE*
Individual Investments Stocks, bonds, options, precious metals,
and other securities at a savings over regular commission rates.
INVESTMENT INFORMATION
Combined Statement Overview of your T. Rowe Price accounts.
Shareholder Reports Fund managers' reviews of their strategies and
results.
T. Rowe Price Report Quarterly investment newsletter discussing
markets and financial strategies.
Performance Update Quarterly review of all T. Rowe Price fund results.
Insights Educational reports on investment strategies and financial
markets.
Investment Guides Asset Mix Worksheet, College Planning Kit, Personal
Strategy Planner, Retirees Financial Guide, and Retirement Planning Kit.
*A division of T. Rowe Price Investment Services, Inc. Member
NASD/SIPC.
19
<PAGE>
T. Rowe Price Mutual Funds
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STOCK FUNDS BOND FUNDS
- -------------- --------------------------
<S> <C> <C>
Domestic Domestic Taxable International/Global
Balanced Corporate Income Global Government Bond
Blue Chip Growth GNMA Emerging Markets Bond
Capital Appreciation High Yield International Bond
Capital Opportunity New Income
Dividend Growth Short-Term Bond MONEY MARKET FUNDS
--------------------------
Equity Income Short-Term U.S. Government Taxable
Equity Index Spectrum Income Prime Reserve
Financial Services Summit GNMA Summit Cash Reserves
Growth & Income Summit Limited-Term Bond U.S. Treasury Money
Growth Stock U.S. Treasury Intermediate
Health Sciences U.S. Treasury Long-Term Tax-Free
Mid-Cap Growth California Tax-Free Money
Mid-Cap Value Domestic Tax-free New York Tax-Free Money
New America Growth California Tax-Free Bond Summit Municipal
New Era Florida Insured Money Market
New Horizons* Intermediate Tax-Free Tax-Exempt Money
OTC** Georgia Tax-Free Bond
Science & Technology Maryland Short-Term BLENDED ASSET FUNDS
Small-Cap Value* Tax-Free Bond --------------------------
Spectrum Growth Maryland Tax-Free Bond Personal Strategy Income
Value New Jersey Tax-Free Bond Personal Strategy Balanced
New York Tax-Free Bond Personal Strategy Growth
International/Global Summit Municipal Income
Summit Municipal Intermediate T. ROWE PRICE NO-LOAD
Emerging Markets Stock Tax-Free High Yield VARIABLE ANNUITY
European Stock Tax-Free Income --------------------------
Global Stock Tax-Free Insured Equity Income Portfolio
International Discovery Intermediate Bond International Stock Portfolio
International Stock Tax-Free Short-Intermediate Limited-Term Bond Portfolio
Japan Virginia Short-Term Mid-Cap Growth Portfolio
Latin America Tax-Free Bond New America Growth Portfolio
New Asia Virginia Tax-Free Bond Personal Strategy Balanced Portfolio
Spectrum International Prime Reserve Portfolio
</TABLE>
* Closed to new investors.
**Effective May 1, 1997, the fund's name will change to Small-Cap Stock.
Please call for a prospectus. Read it carefully before you invest or send money.
The T. Rowe Price No-Load Variable Annuity [#V6021] is issued by Security
Benefit Life Insurance Company. In New York, it [#FSB201(11-96)] is issued by
First Security Benefit Life Insurance Company of New York, White Plains, NY.
T. Rowe Price refers to the underlying portfolios' investment managers and the
distributors, T. Rowe Price Investment Services, Inc., T. Rowe Price Insurance
Agency, Inc., and T. Rowe Price Insurance Agency of Texas, Inc. The Security
Benefit Group of Companies and the T. Rowe Price companies are not affiliated.
The variable annuity may not be available in all states. The contract has
limitations. Call a representative for costs and complete details of the
coverage.
20
<PAGE>
T. Rowe Price Shareholder Services
- --------------------------------------------------------------------------------
Discount Brokerage
A Division of T. Rowe Price Investment Services, Inc., Member NASD/SIPC
This low-cost service gives you the opportunity to easily consolidate
all your investments with one company. Through T. Rowe Price Discount
Brokerage, you can buy and sell individual securities -- stocks, bonds,
options, and others -- at considerable commission savings. We also
provide a wide range of services, including:
Automated Telephone and Computer Services You can enter trades, access
quotes, and review account information 24 hours a day, seven days a
week. Any trades executed through these programs save you an additional
10% on commissions.*
Investor Information A variety of informative reports, such as our
Brokerage Insights series, S&P Market Month newsletter, and optional S&P
Stock Reports, can help you better evaluate economic trends and
investment opportunities.
Dividend Reinvestment Service Virtually all stocks held in customer
accounts are eligible for this service, free of charge.
*Discount applies to our current commission schedule; subject to our $35 minimum
commission.
21
<PAGE>
For yield, price, last transaction,
current balance or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access/(R)/:
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
To open a Discount Brokerage
account or obtain information,
call: 1-800-638-5660 toll free
Internet address:
http://www.troweprice.com
T. Rowe Price Associates
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.
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
[LOGO OF T. ROWE PRICE APPEARS HERE]
T. Rowe Price Investment Services, Inc., Distributor RPRTGAB 2/28/97
