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T. Rowe Price
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Annual Report
New Jersey Tax-Free Bond Fund
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February 28, 1998
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REPORT HIGHLIGHTS
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NEW JERSEY TAX-FREE BOND FUND
* Municipal bonds, nationally and in New Jersey, performed well during the
past 6- and 12-month periods, buoyed by strong economic growth and subdued
inflation.
* With 5.05% for the six-month period and 9.24% for 12 months, your fund
posted significantly better returns than its peer group average.
* Duration management and select lower-rated bonds benefited results and
helped keep the fund's income level consistent despite falling interest
rates.
* Supply of new issues was heavy in New Jersey, keeping prices in check and
providing us with some buying opportunities.
* We expect to maintain our slightly long interest rate posture as long as
the inflation outlook remains favorable.
FELLOW SHAREHOLDERS
The municipal bond market and your fund enjoyed very good returns for the
past 6- and 12-month periods, fueled by strong economic growth and low inflation
both in New Jersey and across the nation. In the aftermath of the crises in
Southeast Asia, domestic bonds, including municipals, benefited from a flight to
the relative stability of the U.S. fixed income markets.
<PAGE>
MARKET ENVIRONMENT
After a sharp rise last March, interest rates plummeted for most of the
past year and especially during the six months ended February 28, 1998.
Nationally, municipal bond prices rose as yields declined, with long-term
AAA-rated bonds breaking below the 5% level. The tax-exempt market benefited
from the positive impact of subdued inflation on all fixed income investments.
However, municipals underperformed Treasuries as issuers rushed to the market to
take advantage of low borrowing costs, driving up supply.
[The New Jersey Bond Yield Index chart. A line chart showing the New Jersey
Bond Yield Index between 2/28/97 and 2/28/98.]
The major influence on rates was, and continues to be, the lack of
inflation in the U.S. Consumer prices increased at a 1.7% annual rate in 1997,
the lowest since 1986. The economy grew at an impressive rate of 3.8%, which,
when combined with the robust labor market and tame inflation, has driven
consumer confidence to an all-time high. New Jersey's economic growth improved
over the past year, converging with national averages. The state has now
recovered essentially all the jobs lost since the last recession. Because of the
strong economy, state tax receipts exceeded expectations and are estimated to
grow by a healthy 10.7% this fiscal year. Constrained spending resulted in a
projected budget surplus of $1 billion for June 30, 1998.
Municipal new issuance increased by 20% nationally in 1997, and supply for
1998 so far is the highest ever for the first two months of the year. In
addition, the New Jersey market had to digest a $2.75 billion state taxable
issue, used to fund a portion of the state's pension liability. This heavy
supply kept downward pressure on prices, allowing us to add new issues to the
portfolio at attractive yields.
STRATEGY AND PERFORMANCE REVIEW
================================================================================
Performance Comparison
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Periods Ended 2/28/98 6 Months 12 Months
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New Jersey Tax-Free
Bond Fund 5.05% 9.24%
Lipper New Jersey Municipal
Debt Funds Average 4.70 8.41
================================================================================
<PAGE>
Our focus on relatively high tax-free income and long-term bonds positioned
the fund for a very good year. Total returns of 5.05% and 9.24% for the
six-month and one-year periods, respectively, compared favorably with the Lipper
New Jersey Municipal Debt Funds Average. Indeed, the fund has outperformed its
benchmark average in every year since its inception. The fund's income
distribution also remained constant from six months ago, even though interest
rates dropped dramatically. We believe in maintaining a higher yield than our
competitors, consistent with a prudent risk level. Our below-average expense
ratio contributed to this goal.
Also important to fund performance was careful management of interest rate
exposure. Shortly after the beginning of the fiscal year, we were conservatively
postured as the Fed prepared to raise short-term interest rates. As the year
progressed, however, we became increasingly confident that no further rate
increases were imminent and extended the fund's duration to just over 7.5 years,
where it remains today. Duration is a measure of interest rate sensitivity, and
a longer duration allows the fund to do two things: first, to maximize the
tax-free yield it pays shareholders, since longer bonds generally have higher
yields; and second, to participate more fully in any drop in interest rates,
since long bonds are more interest rate-sensitive. Both of these factors
contributed to your fund's strong returns for the year, especially compared with
its peer group.
The low inflation rate and the government's progress toward a balanced
budget gave us comfort as we took on this more aggressive positioning. The
recent problems in Asia only sped up a move toward lower rates and may
contribute to further declines. In times of international uncertainty the world
has flocked to U.S. bonds. New Jersey bonds were able to share in the ensuing
rally.
The fund's sector diversification-including its most significant stake in
the hospital sector-was essentially unchanged. In keeping with a longstanding
investment theme, we continued to add to our BBB and lower-rated holdings, which
now make up roughly 25% of fund assets. For example, as discussed in past
reports, the fund holds one uninsured incinerator project, Union County
Utilities Authority. Incinerator projects have been under tremendous competitive
pressure, but we think Union County is addressing the challenges successfully.
Union County and our other BBB holdings have benefited from a broad trend
in favor of lower-quality municipals: nationwide and in New Jersey, good
economic developments have produced numerous credit upgrades, and, in an
environment of low interest rates, many investors are opting for the higher
yields these bonds provide. Currently, however, the difference (or spread) in
yield between AAA rated bonds and BBB rated issues is narrow, limiting the
potential for future rallies and increasing the chances of a reversal. Moving
forward, we will likely maintain our holdings, but we do not plan to add to them
significantly.
<PAGE>
OUTLOOK
The problems in Asia could affect the U.S. economy and slice a bit off 1998
growth, but the so-called Asian flu does not appear serious enough to
precipitate a downturn while domestic consumer demand remains healthy. The
recent Congressional testimony of Federal Reserve officials suggests that the
Fed will leave monetary policy unchanged until it fully appraises the impact of
Asia's problems on the U.S. economy.
We expect to maintain our somewhat aggressive interest rate profile as long
as the inflation and budget outlooks remain favorable. We will also carefully
analyze new issues in 1998 for more opportunities to maintain both upside
potential and yield for the fund.
Respectfully submitted,
/s/
William F. Snider
Chairman of the Investment Advisory Committee
March 20, 1998
<PAGE>
T. Rowe Price New Jersey Tax-Free Bond Fund
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Portfolio Highlights
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Key statistics
8/31/97 2/28/98
Price Per Share ...................................... $11.23 $11.51
Dividends Per Share
For 6 months ................................. 0.28 0.28
For 12 months ................................ 0.57 0.57
Dividend Yield *
For 6 months ................................. 5.18% 5.04%
For 12 months ................................ 5.29 5.18
Weighted Average Maturity (years) .................... 19.3 19.5
Weighted Average Effective Duration (years) .......... 7.6 7.5
Weighted Average Quality ** .......................... A+ A+
* 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.
SECTOR Diversification
Percent of Percent of
Net Assets Net Assets
8/31/97 2/28/98
Hospital Revenue ....................................... 21% 21%
Dedicated Tax Revenue .................................. 10 12
Water and Sewer Revenue 12 ............................. 10
Educational Revenue .................................... 9 9
General Obligation - Local ............................. 5 7
Air and Sea Transportation Revenue ..................... 7 7
Prerefunded Bonds ...................................... 6 6
Industrial and Pollution Control Revenue ............... 6 6
General Obligation - State ............................. 5 5
Electric Revenue ....................................... 5 4
Nuclear Revenue 4 ...................................... 4
Life Care/Nursing Home Revenue ......................... 1 3
Housing Finance Revenue 3 .............................. 3
Miscellaneous Revenue .................................. 3 2
All Other .............................................. 5 4
Other Assets Less Liabilities .......................... -2 -3
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Total .................................................. 100% 100%
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<PAGE>
T. Rowe Price New Jersey Tax-Free Bond Fund
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================================================================================
Performance Comparison
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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.
================================================================================
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.
================================================================================
Since Inception
Periods Ended 2/28/98 1 Year 3 Years 5 Years Inception Date
New Jersey Tax-Free Bond Fund 9.24% 8.13% 6.10% 8.00% 4/30/91
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original purchase.
================================================================================
<PAGE>
<TABLE>
T. Rowe Price New Jersey Tax-Free Bond Fund
====================================================================================================================================
For a share outstanding throughout each period
====================================================================================================================================
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year
Ended
2/28/98 2/28/97 2/29/96 2/28/95 2/28/94
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period ...................... $ 11.08 $ 11.16 $ 10.63 $ 11.19 $ 11.23
Investment activities
Net investment income ............ 0.57* 0.57* 0.58* 0.57* 0.56*
Net realized and
unrealized gain (loss) ........... 0.43 (0.08) 0.53 (0.55) 0.10
Total from
investment activities ............ 1.00 0.49 1.11 0.02 0.66
Distributions
Net investment income ............ (0.57) (0.57) (0.58) (0.57) (0.56)
Net realized gain ................ -- -- -- (0.01) (0.14)
Total distributions .............. (0.57) (0.57) (0.58) (0.58) (0.70)
NET ASSET VALUE
End of period ............................ $ 11.51 $ 11.08 $ 11.16 $ 10.63 $ 11.19
Ratios/Supplemental Data
Total return ............................. 9.24%* 4.57%* 10.67%* 0.37%* 5.97%*
Ratio of expenses to
average net assets ....................... 0.65%* 0.65%* 0.65%* 0.65%* 0.65%*
Ratio of net investment
income to average
net assets ............................... 5.05%* 5.18%* 5.28%* 5.41%* 4.90%*
Portfolio turnover rate .................. 34.3% 78.9% 98.4% 139.1% 68.8%
Net assets, end of period
(in thousands) ........................... $ 99,765 $ 80,289 $ 70,304 $ 58,074 $ 63,160
<FN>
* Excludes expenses in excess of a 0.65% voluntary expense limitation in effect through 2/28/99.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price New Jersey Tax-Free Bond Fund
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February 28, 1998
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Statement of Net Assets
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Par Value
In thousands
NEW JERSEY 84.5%
Cape May County, Industrial Pollution Control Fin. Auth ......
Atlantic City Electric
6.80%, 3/1/21 (MBIA Insured) ................. $1,500 $1,851
Edison Township, GO, 6.50%, 6/1/08 ........................... 350 407
Freehold Township, GO, Monmouth County Water and Sewer
6.35%, 10/1/11 (MBIA Insured) ................ 250 293
Jersey City, GO, School Bonds, 6.50%, 2/15/04 ................ 500 549
Mercer County Public Improvement Auth., GO, Solid Waste
5.75%, 9/15/16 ............................... 2,000 2,150
Middlesex County Pollution Control Fin. Auth., Amerada Hess
6.875%, 12/1/22 .............................. 1,500 1,643
Middlesex County Utilities Auth., Sewer
6.25%, 8/15/10 (MBIA Insured) ................ 500 579
New Jersey, GO, 7.05%, 7/15/12 * ............................. 1,335 1,553
New Jersey Economic Dev. Auth ................................
American Water
6.00%, 5/1/36 (FGIC Insured) * ............... 1,000 1,081
6.875%, 11/1/34 (FGIC Insured) * ............. 1,000 1,132
Franciscan Oaks, 5.75%, 10/1/23 ...................... 375 379
Harrogate
5.50%, 12/1/06 ............................... 400 421
5.65%, 12/1/08 ............................... 200 213
5.75%, 12/1/16 ............................... 500 513
5.875%, 12/1/26 .............................. 550 569
Lawrenceville School, 5.75%, 7/1/16 .................. 2,000 2,139
Natural Gas
VRDN (Currently 3.35%) ....................... 100 100
VRDN (Currently 3.50%) (AMBAC Insured) ....... 200 200
PCR, Dow Chemical El Dorado
VRDN (Currently 3.25%) ....................... 300 300
Saint Barnabas
Zero Coupon, 7/1/15 (MBIA Insured) ........... 2,310 981
Zero Coupon, 7/1/16 (MBIA Insured) ........... 3,500 1,402
Zero Coupon, 7/1/17 (MBIA Insured) ........... 1,500 566
The Evergreens, 6.00%, 10/1/22 ....................... 965 993
<PAGE>
New Jersey EFA
Monmouth Univ ........................................
5.60%, 7/1/11 ................................ $ 425 $ 445
5.60%, 7/1/12 ................................ 450 470
Princeton Univ., 5.875%, 7/1/14 ...................... 1,050 1,125
Rowan College, 6.00%, 7/1/21 (AMBAC Insured) ......... 1,000 1,085
Seton Hall Univ ......................................
6.875%, 7/1/10 ............................... 375 404
7.00%, 7/1/21 ................................ 200 215
New Jersey Health Care Fac. Fin. Auth ........................
Atlantic Health System
5.00%, 7/1/27 (AMBAC Insured) ................ 1,000 972
Bayonne Hosp., 4.75%, 7/1/27 (FSA Insured) ........... 2,500 2,324
Kennedy Health
5.00%, 7/1/10 (MBIA Insured) ................. 500 520
5.00%, 7/1/11 (MBIA Insured) ................. 500 515
5.25%, 7/1/15 (MBIA Insured) ................. 700 713
Kimbal Medical Center
5.25%, 7/1/12 (FSA Insured) .................. 1,250 1,282
New Jersey HFFA
Atlantic City Medical Center, 6.80%, 7/1/11 .......... 1,500 1,654
Chilton Memorial Hosp., 5.00%, 7/1/13 ................ 875 868
Columbus Hosp., 7.50%, 7/1/21 ........................ 1,580 1,702
Hackensack Medical Center
6.625%, 7/1/11 (FGIC Insured) ................ 500 544
6.625%, 7/1/17 (FGIC Insured) ................ 500 543
Irvington General Hosp ...............................
5.875%, 8/1/06 (FHA Guaranteed) .............. 1,170 1,271
6.375%, 8/1/15 (FHA Guaranteed) .............. 500 552
Morristown Memorial Hosp .............................
7.00%, 7/1/17 (Prerefunded 7/1/99+) .......... 800 841
Raritan Bay Medical Center, 7.25%, 7/1/27 ............ 700 758
St. Elizabeth Hosp ...................................
6.00%, 7/1/14 ................................ 1,500 1,587
6.00%, 7/1/20 ................................ 570 601
St. Joseph Hosp. and Medical Center
5.75%, 7/1/16 ................................ 1,000 1,060
New Jersey Higher Ed. Assistance Auth., Student Loan
5.80%, 6/1/16 (MBIA Insured) * ............... 1,250 1,307
New Jersey Housing and Mortgage Fin. Agency
6.35%, 10/1/27 (MBIA Insured) * $ ............ 2,000 $2,121
7.10%, 11/1/11 ............................... 300 319
7.10%, 11/1/12 ............................... 175 186
New Jersey Sports and Exposition Auth., Monmouth Park
8.00%, 1/1/25 ................................ 650 742
New Jersey Transportation Trust Fund Auth., 5.25%, 6/15/15 ... 3,000 3,064
New Jersey Turnpike Auth .....................................
10.375%, 1/1/03 (Escrowed to Maturity) ....... 1,635 1,916
New Jersey Wastewater Treatment Trust
6.30%, 4/1/10 ................................ 1,180 1,310
6.375%, 4/1/11 ............................... 750 833
<PAGE>
Newark, GO
School Qualified Bond Act
5.30%, 9/1/11 (MBIA Insured) ................. 1,545 1,608
5.30%, 9/1/17 (MBIA Insured) ................. 1,000 1,015
Ocean County Utilities Auth ..................................
Wastewater
6.125%, 1/1/02 ............................... 500 537
6.30%, 1/1/11 ................................ 1,300 1,436
Port Auth. of New York and New Jersey
VRDN (Currently 3.50%) ....................... 500 500
5.00%, 10/1/22 ............................... 2,500 2,438
6.125%, 6/1/94 ............................... 1,000 1,154
6.125%, 7/15/22 * ............................ 1,000 1,070
6.50%, 10/1/01 * ............................. 500 532
6.50%, 7/15/19 (FGIC Insured) * .............. 500 549
6.50%, 11/1/26 * ............................. 1,000 1,076
Special Project, 6.75%, 10/1/11 * .................... 1,000 1,119
Versatile Structures, VRDN (Currently 3.50%) ......... 400 400
Rutgers St. University, 5.00%, 5/1/14 ........................ 1,000 1,002
Salem County Pollution Control Fin. Auth., PCR
E. I. Du Pont, 6.50%, 11/15/21 * ..................... 2,000 2,155
Public Service Electric and Gas Co. ..................
6.25%, 6/1/31 (MBIA Insured) ................. 1,500 1,654
South Brunswick Township, GO
Board of Ed ..........................................
6.40%, 8/1/09 (FGIC Insured)
(Prerefunded 8/1/05+) ........................ $ 1,250 $ 1,417
6.40%, 8/1/10 (FGIC Insured)
(Prerefunded 8/1/05+) ........................ 1,500 1,700
South Jersey Transportation Auth., Raytheon Aircraft Service
6.15%, 1/1/22 ................................ 1,010 1,078
Southeast Morris County Municipal Utilities Auth., Water
6.50%, 1/1/11 (FGIC Insured) ................. 750 808
Union County Industrial Pollution Control Fin. Auth., PCR
Exxon, VRDN (Currently 3.20%) ........................ 600 600
Union County Utilities Auth ..................................
Solid Waste
7.15%, 6/15/09 * ............................. 600 601
7.20%, 6/15/14 * ............................. 360 361
Univ. of Medicine and Dentistry of New Jersey
5.00%, 9/1/22 (MBIA Insured) ................. 1,000 978
6.50%, 12/1/18 (MBIA Insured)
(Prerefunded 12/1/01+) ....................... 750 827
Wanaque Borough Sewage Auth., GO, 5.25%, 12/1/21 ............. 1,000 1,001
Wanaque Valley Regional Sewage Auth ..........................
5.75%, 9/1/18 (AMBAC Insured) ................ 2,000 2,191
Warren County, PCR, Warren Energy Resource
6.55%, 12/1/06 (MBIA Insured) ................ 600 621
Total New Jersey (Cost $78,757) .............................. 84,291
<PAGE>
PUERTO RICO 17.2%
Puerto Rico Commonwealth, GO
6.45%, 7/1/17 (Prerefunded 7/1/04+) .......... 500 566
6.80%, 7/1/21 (Prerefunded 7/1/02+) .......... 200 224
7.75%, 7/1/13 (Prerefunded 7/1/98+) .......... 25 26
Public Improvement, 4.50%, 7/1/23 .................... 1,250 1,126
Puerto Rico Electric Power Auth ..............................
5.50%, 7/1/11 ................................ 1,000 1,041
5.50%, 7/1/25 ................................ 2,750 2,796
7.125%, 7/1/14 ............................... 500 527
8.00%, 7/1/08 (Prerefunded 7/1/98+) .......... 625 647
Puerto Rico Highway and Transportation Auth ..................
5.00%, 7/1/36 ................................ $ 500 $ 485
5.00%, 7/1/38 ................................ 1,500 1,425
5.50%, 7/1/15 (MBIA Insured) ................. 1,000 1,081
6.375%, 7/1/08 (FSA Insured) ................. 1,000 1,099
6.625%, 7/1/12 ............................... 1,000 1,100
6.625%, 7/1/12 (FSA Insured) ................. 500 551
Puerto Rico Infrastructure Fin. Auth .........................
5.00%, 7/1/28 ................................ 1,000 977
5.25%, 7/1/10 (AMBAC Insured) ................ 1,000 1,066
7.50%, 7/1/09 ................................ 475 491
Puerto Rico Public Building Auth., GO
Gov't. Fac ...........................................
5.00%, 7/1/27 (AMBAC Insured) ................ 1,000 978
5.25%, 7/1/21 ................................ 1,000 997
Total Puerto Rico (Cost $16,337) ............................. 17,203
GUAM 1.1%
Guam Government Limited, Infrastructure Improvement
5.50%, 11/1/08 (AMBAC Insured) ............... 1,000 1,092
Total Guam (Cost $ 1,074) ................................... 1,092
Total Investments in Securities
102.8% of Net Assets (Cost $ 96,168) ......................... $102,586
Other Assets Less Liabilities ................................ (2,821)
NET ASSETS ................................................... $ 99,765
Net Assets Consist of:
Accumulated net investment income -
net of distributions ......................................... $ 4
Accumulated net realized gain/loss -
net of distributions ......................................... (1,310)
Net unrealized gain (loss) ................................... 6,418
Paid-in-capital applicable to 8,666,523
no par value shares of beneficial
interest outstanding; unlimited
number of shares authorized .................................. 94,653
NET ASSETS ................................................... $ 99,765
NET ASSET VALUE PER SHARE .................................... $ 11.51
<PAGE>
* Interest subject to alternative minimum tax
+ Used in determining portfolio maturity
AMBAC AMBAC Indemnity Corp.
EFA Educational Facility Authority
FGIC Financial Guaranty Insurance Company
FHA Federal Housing Authority
FSA Financial Security Assurance Corp.
GO General Obligation
HFFA Health Facility Financing Authority
MBIA Municipal Bond Investors Assurance Corp.
PCR Pollution Control Revenue
VRDN Variable Rate Demand Note
The accompanying notes are an integral part of these financial statements.
T. Rowe Price New Jersey Tax-Free Bond Fund
================================================================================
================================================================================
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
Year
Ended
2/28/98
Investment Income
Interest income ................................................. $ 5,015
Expenses
Investment management ................................... 352
Custody and accounting .................................. 89
Shareholder servicing ................................... 83
Prospectus and shareholder reports ...................... 20
Legal and audit ......................................... 8
Registration ............................................ 8
Trustees ................................................ 6
Miscellaneous ........................................... 6
Total expenses .......................................... 572
Net investment income ........................................... 4,443
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities .............................................. 639
Futures ................................................. (135)
Net realized gain (loss) ................................ 504
Change in net unrealized gain or loss on securities ............. 2,871
Net realized and unrealized gain (loss) ......................... 3,375
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS .......................................... $ 7,818
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price New Jersey Tax-Free Bond Fund
================================================================================
================================================================================
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
Year
Ended
2/28/98 2/28/97
Increase (Decrease) in Net Assets
Operations
Net investment income ........................... $ 4,443 $ 3,842
Net realized gain (loss) ........................ 504 (381)
Change in net unrealized gain or loss ........... 2,871 (65)
Increase (decrease) in net assets from operations 7,818 3,396
Distributions to shareholders
Net investment income ........................... (4,443) (3,842)
Capital share transactions *
Shares sold ..................................... 28,813 20,966
Distributions reinvested ........................ 3,415 2,921
Shares redeemed ................................. (16,127) (13,456)
Increase (decrease) in net assets from capital
share transactions .............................. 16,101 10,431
Net Assets
Increase (decrease) during period ....................... 19,476 9,985
Beginning of period ..................................... 80,289 70,304
End of period ........................................... $ 99,765 $ 80,289
*Share information
Shares sold ..................................... 2,553 1,913
Distributions reinvested ........................ 303 266
Shares redeemed ................................. (1,437) (1,230)
Increase (decrease) in shares outstanding ....... 1,419 949
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price New Jersey Tax-Free Bond Fund
================================================================================
February 28, 1998
================================================================================
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 New Jersey 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 April 30, 1991.
The accompanying financial statements are prepared in accordance with
generally accepted accounting principles for the investment company industry;
these principles may require the use of estimates by fund management.
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. In vestment
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 $48,382,000 and $29,722,000, respectively, for the year
ended February 28, 1998.
<PAGE>
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 $1,084,000, of which $664,000 expires in 2003, and
$420,000 in 2005. Capital loss carryforwards utilized in fiscal 1998 amounted to
$634,000. 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, 1998. The results
of operations and net assets were not affected by the increases/(decreases) to
these accounts.
================================================================================
Undistributed net investment income $ 2,000
Undistributed net realized gain (7,000)
Paid-in-capital 5,000
At February 28, 1998, the aggregate cost of investments for federal income
tax and financial reporting purposes was $96,168,000, and net unrealized gain
aggregated $6,418,000, of which $6,523,000 related to appreciated investments
and $105,000 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 $28,000 was payable at February 28, 1998. 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 0.30% for assets in excess of $80 billion. At
February 28, 1998, and for the year then ended, the effective annual group fee
rate was 0.32%. 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, 1999, which would cause the
fund's ratio of expenses to average net assets to exceed 0.65%. Thereafter,
through February 28, 2001, 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,
$21,000 of management fees were not accrued by the fund for the year ended
February 28, 1998. Additionally, $151,000 of unaccrued management fees related
to a previous expense limitation are subject to reimbursement through February
28, 1999.
<PAGE>
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 $130,000 for the year
ended February 28, 1998, of which $11,000 was payable at period-end.
================================================================================
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED 2/28/98
- --------------------------------------------------------------------------------
We are providing this information as required by the Internal Revenue Code.
The amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The fund's dividend income included $4,375,000 which qualified as
exempt-interest dividends.
================================================================================
<PAGE>
T. Rowe Price New Jersey Tax-Free Bond Fund
================================================================================
================================================================================
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
T. ROWE PRICE NEW JERSEY TAX-FREE BOND FUND
We have audited the accompanying statement of net assets of T. Rowe Price
New Jersey Tax-Free Bond Fund (one of the portfolios comprising the T. Rowe
Price State Tax-Free Income Trust) as of February 28, 1998, and the related
statement of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended, and the financial
highlights for each of the five 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.
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, 1998, by correspondence with the custodian and the brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of T. Rowe Price New Jersey Tax-Free Fund as of February 28, 1998, 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 18, 1998
<PAGE>
T. Rowe Price Shareholder Services
================================================================================
INVESTMENT SERVICES AND INFORMATION
KNOWLEDGEABLE SERVICE REPRESENTATIVES
BY PHONE Shareholder service representatives are available from 8
a.m. to 10 p.m. ET Monday through Friday and from 8:30 a.m. to 5
p.m. ET on weekends. Call 1-800-225-5132 to speak directly with a
representative who will be able to assist you with your accounts.
IN PERSON Visit one of our investor center locations to meet with
a representative who will be able to assist you with your
accounts. You can also drop off applications or obtain
prospectuses and other literature at these centers.
AUTOMATED 24-HOUR SERVICES
TELE*ACCESS [Registration Mark] Call 1-800-638-2587 to obtain
information such as account balance, date and amount of your last
transaction, latest dividend payment, fund prices, and yields.
Additionally, you have the ability to request prospectuses,
statements, and account and tax forms; to reorder checks; and to
initiate purchase, redemption, and exchange orders for
identically registered accounts.
T.ROWE PRICE ONLINE Through a personal computer via dial-up
modem, you can replicate all the services available on
Tele*Access plus conduct transactions in your Discount Brokerage
and Variable Annuity accounts.
ACCOUNT SERVICES
CHECKING Write checks for $500 or more on any money market and
most bond fund accounts (except the High Yield and Emerging
Markets Bond Funds).
AUTOMATIC INVESTING Build your account over time by investing
directly from your bank account or paycheck with Automatic Asset
Builder. Additionally, Automatic Exchange enables you to set up
systematic investments from one fund account into another, such
as from a money fund into a stock fund. A $50 minimum makes it
easy to get started.
AUTOMATIC WITHDRAWAL If you need money from your fund account on
a regular basis, you can establish scheduled, automatic
redemptions.
<PAGE>
DIVIDEND AND CAPITAL GAINS PAYMENT OPTIONS Reinvest all or some
of your distributions, or take them in cash. We give you maximum
flexibility and convenience.
DISCOUNT BROKERAGE*
INVESTMENTS AVAILABLE You can trade stocks, bonds, options,
precious metals, and other securities at a savings over regular
commission rates.
TO OPEN AN ACCOUNT Call a shareholder service representative for
more information.
INVESTMENT INFORMATION
COMBINED STATEMENT A comprehensive overview of your T. Rowe Price
accounts is provided. The summary page gives you earnings by tax
category, provides total portfolio value, and lists your
investments by type-stock, bond, and money market. Detail pages
itemize account transactions by fund.
SHAREHOLDER REPORTS Portfolio managers review the performance of
the funds in plain language and discuss T. Rowe Price's economic
outlook.
T. ROWE PRICE REPORT This is a quarterly newsletter with relevant
articles on market trends, personal financial planning, and T.
Rowe Price's economic perspective.
PERFORMANCE UPDATE This quarterly report reviews recent market
develop- ments and provides comprehensive performance information
for every T. Rowe Price fund.
INSIGHTS This library of information includes reports on mutual
fund tax issues, investment strategies, and financial markets.
DETAILED INVESTMENT GUIDES Our widely acclaimed Asset Mix
Worksheet, College Planning Kit, Diversifying Overseas: A Guide
to International Investing, Retirees Financial Guide, and
Retirement Planning Kit (also available on disk for PC use) can
help you determine and reach your investment goals.
* A division of T. Rowe Price Investment Services, Inc. Member NASD/SIPC.
<PAGE>
T. Rowe Price Mutual Funds
================================================================================
STOCK FUNDS
- --------------------------------------------------------------------------------
DOMESTIC
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Diversified Small-Cap Growth
Dividend Growth
Equity Income
Equity Index 500*
Extended Equity Market Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Media & Telecommunications**
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons***
Real Estate
Science & Technology
Small-Cap Stock
Small-Cap Value***
Spectrum Growth
Total Equity Market Index
Value
INTERNATIONAL/GLOBAL
Emerging Markets Stock
European Stock
Global Stock
International Discovery
International Stock
Japan
Latin America
New Asia
Spectrum International
<PAGE>
BOND FUNDS
- --------------------------------------------------------------------------------
DOMESTIC TAXABLE
Corporate Income
GNMA
High Yield
New Income
Short-Term Bond
Short-Term U.S. Government
Spectrum Income
Summit GNMA
Summit Limited-Term Bond
U.S. Treasury Intermediate
U.S. Treasury Long-Term
DOMESTIC TAX-FREE
California Tax-Free Bond
Florida Insured
Intermediate Tax-Free
Georgia Tax-Free Bond
Maryland Short-Term
Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Summit Municipal Intermediate
Tax-Free High Yield
Tax-Free Income
Tax-Free Insured
Intermediate Bond
Tax-Free Short-Intermediate
Virginia Short-Term
Tax-Free Bond
Virginia Tax-Free Bond
INTERNATIONAL/GLOBAL
Emerging Markets Bond
Global Government Bond
International Bond
MONEY MARKET FUNDS+
- --------------------------------------------------------------------------------
TAXABLE
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
<PAGE>
TAX-FREE
California Tax-Free Money
New York Tax-Free Money
Summit Municipal
Money Market
Tax-Exempt Money
BLENDED ASSET FUNDS
- --------------------------------------------------------------------------------
Balanced
Personal Strategy Balanced
Personal Strategy Growth
Personal Strategy Income
Tax-Efficient Balanced
T. ROWE PRICE NO-LOAD
VARIABLE ANNUITY
- --------------------------------------------------------------------------------
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
Mid-Cap Growth Portfolio
New America Growth Portfolio
Personal Strategy Balanced Portfolio
Prime Reserve Portfolio
* Formerly the Equity Index Fund.
** Formerly the closed-end New Age Media Fund. Converted to open-end status
on 7/28/97.
*** Closed to new investors.
+ Neither the funds nor their share prices are guaranteed or insured by the
U.S. government.
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.
<PAGE>
FOR YIELD, PRICE, LAST TRANSACTION,
CURRENT BALANCE, OR TO CONDUCT
TRANSACTIONS, 24 HOURS, 7 DAYS
A WEEK, CALL TELE*ACCESS [REGISTRATION MARK]:
1-800-638-2587 toll free
FOR ASSISTANCE
WITH YOUR EXISTING
FUND ACCOUNT, CALL:
Shareholder Service Center
1-800-225-5132 toll free
410-625-6500 Baltimore area
TO OPEN A DISCOUNT BROKERAGE
ACCOUNT OR OBTAIN INFORMATION,
CALL: 1-800-638-5660 toll free
INTERNET ADDRESS:
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 New Jersey 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
T. Rowe Price Investment Services, Inc., Distributor. F47-050 2/28/98
