Semiannual Report
Georgia
Tax-Free
Bond Fund
August 31, 1998
T. Rowe Price
REPORT HIGHLIGHTS
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Georgia Tax-Free Bond Fund
o Municipal bonds, including those of Georgia, continued to post solid
returns in a favorable interest rate environment.
o The fund's 6- and 12-month returns exceeded those of its Lipper peer group
average.
o Performance benefited from our continued focus on noncallable bonds and
bonds in the 15- to 20-year range, and from an increase in duration.
o Georgia's economy slowed a bit but remained strong by most measures
compared with that of the nation.
o We believe the trend toward lower interest rates remains intact, and that
investors will increasingly recognize the favorable yield relationship of
tax-free bonds versus taxable bonds.
Fellow Shareholders
The municipal market and your fund continued to provide solid returns during the
six months ended August 31. Against a background of low inflation, budget
surpluses at federal and state levels, and asset shifts to fixed income
investments, bond prices rose and yields fell across the maturity spectrum. As a
result, municipals and other types of bonds have provided some of the best
returns among all asset classes thus far in 1998.
MARKET ENVIRONMENT
Interest rates continued to decline during the past six months, but did not drop
as much as over the previous six-month period. Because many investors around the
globe sought refuge in the Treasury market from problems in Asia, Russia, and
Latin America, yield declines were steepest on Treasury securities. For example,
the 30-year Treasury bond yield fell 60 basis points over the period, with most
of the drop occurring in August, but the 30-year AAA general obligation bond
fell only 15 basis points. (One hundred basis points equal one percent.) The
difference also reflected the heavy supply of new municipal issues in recent
months and the continued reduction of Treasury issuance. As a result of these
developments, yields on tax-exempt investments are now only slightly lower than
yields on fully taxable securities. When income taxes are taken into account,
municipals now yield substantially more than most other types of bonds.
Georgia Bond Yield Index
8/31/97 5.44
5.37
5.32
11/30 5.27
5.14
5.10
2/28 5.17
5.18
5.27
5/31 5.12
5.13
5.15
8/31/98 5.02
Source: T. Rowe Price Associates
As the chart shows, yields on Georgia bonds followed trends in the national
municipal market, declining about 15 basis points over the past six months.
Preparing For The Year 2000
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The Year 2000 draws closer every day, and it holds special meaning beyond the
arrival of a new millennium. The issue for investors is that many computer
programs throughout the world use two digits instead of four to identify the
year and may assume the next century starts with 1900. If these programs are not
modified, they will not be able to correctly handle the century change when the
year changes from "99" to "00" on January 1, 2000, and they will no longer be
able to perform necessary functions. The Year 2000 issue affects all companies
and organizations.
T. Rowe Price has been taking steps to assure that its computer systems and
processes are capable of functioning in the Year 2000. Detailed plans for
remediation efforts have been developed and are currently being executed.
OUR PLAN OF ACTION
We began to address these issues several years ago by requiring that all new
systems process and store four-digit years. We plan to complete all
reprogramming efforts for the major application systems, including business
applications required to service our customers and processing infrastructure
necessary to ensure the integrity of customer data and investments, by December
31, 1998, leaving a full 12 months for system testing. Because we exchange data
electronically with customers and vendors, we are working with them to assess
the adequacy of their own compliance efforts. Our goal is to ensure the
continuation of the same level of service to all our mutual fund shareholders
and clients after December 31, 1999.
We are asking all vendors and companies we do business with for a Year 2000
compliance status, with the expectation that some organizations will not be able
to modify their interface files prior to December 31, 1999. Our goal is to
identify any noncompliant files so that we can implement alternative solutions.
In addition, we are scheduling tests for critical vendors and companies that
claim Year 2000 compliance to ensure that time-related data and calculations
function properly as we move into the next century.
SMOOTH TRANSITION EXPECTED
We believe our programs and initiatives will provide a smooth transition into
the next millennium. We are assessing all systems providing products or services
to our retail mutual fund shareholders, retirement plan sponsors and
participants, and we are taking steps to make modifications where necessary for
the Year 2000. Our plan provides time to develop solutions for all noncompliant
systems and data files from customers or vendors.
The Securities Industry Association (SIA) is coordinating Year 2000 testing to
assure that securities markets, clearing corporations, depositories, and third
party software and hardware vendors can send, receive, and process files and
transactions accurately. T. Rowe Price will participate in this industry-wide
effort.
For a more detailed discussion of our Year 2000 effort, as well as continuing
updates on our progress, please check our Web site (www.troweprice.com).
Georgia's economy, which had continued to grow strongly after the 1996 Olympic
games, only recently showed signs that its rapid pace was beginning to moderate
slightly. While the state's strong annual employment growth of 3.1% as of July
1998 was still well above the national rate of 2.4%, it was less vigorous than
it had been. Georgia's reliance on a cyclical manufacturing base as well as a
smaller influx of workers from out of state contributed to this slowing.
Personal income continued to increase in the state, rising by 1.8% in the first
quarter of 1998 compared with the national average gain of 1.6%.
Georgia continued its long tradition of responsible financial management,
demonstrated by a $684 million operating surplus in fiscal 1998. The state's
cash reserves are the highest in history and its debt burden remains moderate at
2.9% of personal income (ranking sixteenth nationally) or $670 per capita.
Despite the elimination of sales tax on food, revenue growth continued to be
strong, with state tax revenues in July 1998 climbing 19% above the previous
year. Each of the major bond rating agencies recently reaffirmed the state's
general obligation rating of AAA.
PERFORMANCE AND STRATEGY REVIEW
Performance Comparison
Periods Ended 8/31/98 6 Months 12 Months
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Georgia Tax-Free
Bond Fund 3.46% 9.00%
Lipper Georgia Municipal
Debt Funds Average 3.13 8.22
While equity markets suffered from sharp swings and a major decline during the
past six-month period, the municipal market turned in a steady performance, as
it has in recent years. Your fund posted returns of 3.46% and 9.00% for the 6-
and 12-month periods, respectively, ended August 31. Both exceeded the fund's
Lipper peer group average, as shown in the table. Your fund's performance
advantage over the past six months reflected steady income, some modest price
appreciation as interest rates declined over the summer, and low expenses versus
our peer group.
During the six months under review, we made only minor changes to the investment
strategy we detailed in previous fund reports. For quite some time we have
sought to purchase noncallable bonds when they were available in the market, and
we have also emphasized bonds in the 15- to 20-year maturity range. In our view,
these two strategies balance each other. Noncallable bonds add value to the fund
in two ways: they help maintain the fund's income level by eliminating the risk
of being paid off before maturity, and they help returns by providing better
price performance when interest rates fall. Because of their shorter maturities,
15- to 20-year bonds are less volatile than 30-year bonds and, therefore, temper
the risk of a portfolio heavily weighted toward noncallable bonds.
As the fund's new fiscal year got under way last March, we felt that worldwide
economic instability would result in lower interest rates. To take greater
advantage of this trend, we extended the fund's duration from 7.5 years at the
outset to a little over 8.0 years, closing the period at 7.7 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.) Notwithstanding some short-lived choppiness, rates have declined over
the past three years to today's historic lows and could go lower still. We will
monitor market trends closely as we assess the viability of our duration
position.
Because of the strength of Georgia's economy . . . higher-yielding georgia
municipal securities are hard to find.
Because of the strength of Georgia's economy and the concomitant strength of
issuers around the state, higher-yielding Georgia municipal securities are hard
to find. To enhance the fund's income in a declining rate environment, we have
added several corporate municipal bonds, which are tax-exempt securities issued
by corporations. Even though these bonds are issued infrequently and enjoy
robust demand, they generally yield more than bonds of more typical municipal
issuers. In the past six months, we added to an existing position in Delta
Airlines and initiated positions in Procter & Gamble, Georgia-Pacific, and Fort
James Corporation-large, well-known companies that are all investment-grade.
These purchases are reflected in the industrial and pollution control revenue
category in the Sector Diversification table following this letter. We will
diligently monitor these companies for any changes in current credit trends.
OUTLOOK
Federal Reserve Chairman Alan Greenspan recently implied that the Fed's next
move could well be a lowering of key short-term rates in the face of turmoil
overseas. Just weeks before, it was widely thought that the Fed was leaning
toward a possible interest rate hike because of concerns about tight labor
markets and wage pressures.
We believe the rate of domestic economic growth will slow through the remainder
of the year. Exports may fall further because of weak international markets and
the strong dollar, and growth in consumer spending could decline in the
aftermath of the stock market correction. Commodity prices have also been under
pressure, further restraining inflation. In this environment, the trend toward
lower overall interest rates should remain intact. Georgia's economy should
follow national trends but, in our view, will remain stronger by most measures.
We expect municipal securities to remain undervalued compared with Treasuries
until demand catches up with heavy supply. However, investors should eventually
recognize the attractive yields available in the municipal market compared with
taxable yields, and rising demand would benefit municipal bond investors over
the long term.
Respectfully submitted,
Hugh D. McGuirk
Chairman of the Investment Advisory Committee
September 21, 1998
T. Rowe Price Georgia Tax-Free Bond Fund
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Portfolio Highlights
KEY STATISTICS
2/28/98 8/31/98
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Price Per Share $ 10.92 $ 11.04
Dividends Per Share
For 6 months 0.25 0.25
For 12 months 0.51 0.51
Dividend Yield *
For 6 months 4.79% 4.66%
For 12 months 4.90 4.78
30-Day Standardized Yield 4.04 4.19
Weighted Average Maturity (years) 15.2 15.9
Weighted Average Effective Duration (years) 7.5 7.7
Weighted Average Quality ** AA- AA-
* 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.
T. Rowe Price Georgia Tax-Free Bond Fund
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Portfolio Highlights
SECTOR DIVERSIFICATION
Percent of Percent of
Net Assets Net Assets
2/28/98 8/31/98
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Water and Sewer Revenue 13% 14%
Prerefunded Bonds 12 12
General Obligation - Local 14 11
Nuclear Revenue 13 11
Industrial and Pollution Control Revenue 5 9
Housing Finance Revenue 9 8
Hospital Revenue 7 7
General Obligation - State 8 6
Dedicated Tax Revenue 9 6
Escrowed to Maturity 5 6
Air and Sea Transportation Revenue 2 2
Life Care/Nursing Home Revenue 2 2
Educational Revenue 1 2
Miscellaneous Revenue 2 2
All Other 1 1
Other Assets Less Liabilities -3 1
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Total 100% 100%
T. Rowe Price Georgia Tax-Free Bond Fund
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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
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As of 8/31/98
Lehman Georgia Georgia
Municipal Municipal Debt Tax-Free
Bond Average Funds Average Bond Fund
3/31/93 10,000 10,000 10,000
8/93 10,556 10,645 10,712
8/94 10,571 10,532 10,627
8/95 11,508 11,312 11,482
8/96 12,111 11,895 12,219
8/97 13,230 12,966 13,320
8/98 14,375 14,026 14,519
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 8/31/98 1 Year 3 Years 5 Years Inception Date
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Georgia Tax-Free
Bond Fund 9.00% 8.14% 6.27% 7.12% 3/31/93
Investment return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
T. Rowe Price Georgia Tax-Free Bond Fund
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Unaudited
For a share outstanding throughout each period
Financial Highlights
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6 Months Year 3/31/93
Ended Ended Through
8/31/98 2/28/98 2/28/97 2/29/96 2/28/95 2/28/94
NET ASSET VALUE
Beginning of period $ 10.92 $ 10.44 $ 10.44 $ 9.93 $ 10.37 $ 10.00
Investment activities
Net investment
income 0.25* 0.51* 0.52* 0.52* 0.51* 0.43*
Net realized and
unrealized gain
(loss) 0.12 0.48 -- 0.51 (0.39) 0.41
Total from
investment
activities 0.37 0.99 0.52 1.03 0.12 0.84
Distributions
Net investment
income (0.25) (0.51) (0.52) (0.52) (0.51) (0.43)
Net realized
gain -- -- -- -- (0.05) (0.04)
Total distributions (0.25) (0.51) (0.52) (0.52) (0.56) (0.47)
NET ASSET VALUE
End of period $11.04 $10.92 $10.44 $10.44 $ 9.93 $10.37
-------------------------------------------------------
Ratios/Supplemental Data
Total return(C) 3.46%* 9.70%* 5.15%* 10.62%* 1.42%* 8.45%*
Ratio of
expenses to
average
anet assets 0.65%*! 0.65%* 0.65%* 0.65%* 0.65%* 0.65%*!
Ratio of net investment
income to average
net assets 4.61%*! 4.79%* 5.01%* 5.09%* 5.26%* 4.48%*!
Portfolio
turnover rate 11.6% 49.0% 71.1% 71.5% 170.2% 154.8%!
Net assets,
end of period
(in thousands) $55,207 $49,455 $38,726 $32,500 $23,338 $22,614
(C) Total return reflects the rate that an investor would have earned on an
investment in the fund during each period, assuming reinvestment of all
distributions.
* Excludes expenses in excess of a 0.65% voluntary expense limitation in
effect through 2/28/99. ! Annualized.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Georgia Tax-Free Bond Fund
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Unaudited August 31, 1998
Statement of Net Assets
Par Value
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In thousands
GEORGIA 90.8%
Albany Dougherty Payroll Dev. Auth.,
Solid Waste Disposal
Proctor & Gamble Paper Products
5.30%, 5/15/26 * $ 500 $ 506
Athens-Clarke Residential
Care Fac. for the Elderly Auth.
Wesley Woods of Athens, 6.375%, 10/1/27 600 618
Atlanta
Airport Fac.
Zero Coupon, 1/1/10 * 1,285 720
6.50%, 1/1/13 (FGIC Insured) * 500 534
Atlanta Special Purpose Fac.
Delta Airlines, 7.90%, 12/1/18 * 415 439
Baldwin County Hosp. Auth.
Oconee Regional
Med. Center, 5.15%, 12/1/09 620 641
Brunswick and Glynn County Dev.,
Georgia-Pacific
5.55%, 3/1/26 * 1,000 1,013
Burke County Dev. Auth., PCR
Georgia Power
VRDN (Currently 3.30%) 560 560
5.75%, 9/1/23 (MBIA Insured) 500 511
Oglethorpe Power
7.80%, 1/1/08 (MBIA Insured)
(Prerefunded 1/1/03!) 560 660
Cartersville Dev. Auth., PCR,
Anheuser Busch, 6.75%, 2/1/12 * 1,000 1,095
Chatham County School Dist., GO
5.00%, 8/1/10 1,000 1,042
6.25%, 8/1/16 (Prerefunded 8/1/03!) 625 700
6.75%, 8/1/18 (MBIA Insured)
(Prerefunded 8/1/03!) 750 857
Cherokee County Water and Sewage Auth.
5.20%, 8/1/25 500 514
5.50%, 8/1/23 (MBIA Insured) 1,000 1,092
Cobb-Marietta Coliseum
and Exhibition Hall Auth.
5.50%, 10/1/18 (MBIA Insured) 500 541
Coffee County Hosp. Auth.,
Coffee Regional Medical Center
6.25%, 12/1/06 500 520
Coweta County Residential Care Fac.
for the Elderly Auth.
Wesley Woods of Newnan-Peachtree City
8.25%, 10/1/26 $ 500 $ 584
Dalton Dev. Auth.,
Hamilton Health Care
5.25%, 8/15/10 (MBIA Insured) 520 551
DeKalb County Dev. Auth.,
Emory Univ., 6.00%, 10/1/14 550 605
Effingham County Dev. Auth.,
Fort James, 5.625%, 7/1/18 * 500 505
Fulco Hosp. Auth.
Catholic Health East
5.25%, 11/15/11 (MBIA Insured) 500 532
5.25%, 11/15/13 (MBIA Insured) 1,555 1,638
Fulton County Dev. Auth., PCR,
Special Fac.
Delta Airlines
5.45%, 5/1/23 * 500 500
6.95%, 11/1/12 500 550
Fulton County Housing Auth.,
Single Family
6.55%, 3/1/18 (GNMA Guaranteed) * 165 177
Fulton County School Dist., GO,
6.375%, 5/1/17 830 991
Fulton County Water and Sewage
4.75%, 1/1/28 (FGIC Insured) 1,500 1,439
6.25%, 1/1/09 (FGIC Insured) 1,000 1,156
6.375%, 1/1/14 (FGIC Insured) 20 24
6.375%, 1/1/14 (FGIC Insured)
(Escrowed to Maturity) 580 688
Gainesville Water and Sewage,
6.00%, 11/15/12 (FGIC Insured) 1,000 1,147
Georgia, GO
6.30%, 3/1/09 425 498
6.50%, 4/1/09 450 535
Georgia Housing and Fin. Auth.
Home Ownership Program, 6.60%, 6/1/25 * 250 268
Single Family Mortgage
6.05%, 12/1/16 * 500 531
6.125%, 12/1/15 420 449
6.25%, 12/1/28 * 500 537
6.50%, 12/1/17 (FHA Guaranteed) * 1,000 1,071
6.60%, 12/1/23 (FHA Guaranteed) * 555 596
6.65%, 12/1/20 * 480 517
Georgia Municipal Gas Auth.,
Southern Storage Gas
6.00%, 7/1/04 $ 500 $ 547
Gwinnett County Water and
Sewer Auth., 5.25%, 8/1/18 600 617
Hall County School Dist.
6.30%, 12/1/07 (AMBAC Insured)
(Prerefunded 12/1/04!) 1,000 1,142
Henry County School Dist., GO,
6.00%, 8/1/14 (MBIA Insured) 330 365
Jackson County School Dist., GO,
6.00%, 7/1/14 (MBIA Insured) 1,000 1,105
Metropolitan Atlanta Rapid Transit Auth.
Sales Tax
5.50%, 7/1/17 (MBIA Insured) 1,000 1,055
6.90%, 7/1/20 (MBIA Insured)
(Prerefunded 7/1/04!) 1,300 1,516
7.00%, 7/1/11 (Escrowed to Maturity) 1,335 1,656
7.00%, 7/1/11 (MBIA Insured)
(Escrowed to Maturity) 635 788
Milledgeville, Water and Sewer,
6.00%, 12/1/21 (FSA Insured) 500 579
Monroe County Dev. Auth., PCR
Georgia Power, VRDN (Currently 3.85%) 200 200
Gulf Power, VRDN (Currently 3.85%) 100 100
Municipal Electric Auth. of Georgia
Zero Coupon, 1/1/09 1,000 576
5.70%, 1/1/19 (MBIA Insured) 300 332
6.25%, 1/1/24 (AMBAC Insured) 1,000 1,335
6.50%, 1/1/12 625 725
6.60%, 1/1/18 1,025 1,214
Paulding County, Water and Sewer
6.00%, 12/1/13 (MBIA Insured) 1,000 1,150
Paulding County School Dist., GO,
6.00%, 2/1/13 (MBIA Insured) 1,000 1,144
Peach County School Dist., GO
6.40%, 2/1/19 (MBIA Insured)
(Prerefunded 2/1/05!) 500 574
6.50%, 2/1/07 (MBIA Insured) 300 348
Private Colleges and Universities Auth.
Emory Univ., 5.25%, 11/1/13 500 528
Putnam County Dev. Auth., PCR
Georgia Power Plant Branch Project
VRDN (Currently 3.25%) 200 200
VRDN (Currently 3.85%) 300 300
Rockdale County Dev. Auth.,
Solid Waste Disposal
Visy Paper, 7.40%, 1/1/16 * $ 480 $ 520
Rockdale County School Dist., GO,
6.50%, 1/1/09 1,000 1,140
Savannah Economic Dev. Auth.,
Union Camp, 6.15%, 3/1/17 500 571
Smyrna Downtown Dev. Auth.
6.70%, 2/1/20 (MBIA Insured)
(Prerefunded 2/1/05!) 1,000 1,164
Total Georgia (Cost $46,559) 50,143
PUERTO RICO 8.5%
Puerto Rico Commonwealth,
Public Improvement, 4.50%, 7/1/23 1,000 923
Puerto Rico Highway and Transportation Auth.
6.625%, 7/1/12 (FSA Insured) 1,000 1,101
Puerto Rico Infrastructure Fin. Auth.
5.25%, 7/1/10 (AMBAC Insured) 1,000 1,074
Puerto Rico Municipal Fin. Agency, GO
5.50%, 7/1/21 (FSA Insured) 1,000 1,058
Puerto Rico Public Building Auth.,
GO, Gov't. Fac.
5.25%, 7/1/21 500 504
Total Puerto Rico (Cost $4,432) 4,660
Total Investments in Securities
99.3% of Net Assets (Cost $50,991) $ 54,803
Other Assets Less Liabilities 404
NET ASSETS $ 55,207
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Net Assets Consist of:
Accumulated net investment income -
net of distributions $ 1
Accumulated net realized gain/loss -
net of distributions (603)
Net unrealized gain (loss) 3,812
Paid-in-capital applicable to 4,998,911
no par value shares of beneficial
interest outstanding; unlimited number
of shares authorized 51,997
NET ASSETS $ 55,207
----------
NET ASSET VALUE PER SHARE $ 11.04
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* 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
VRDN Variable Rate Demand Note
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Georgia Tax-Free Bond Fund
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Unaudited
Statement of Operations
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In thousands
6 Months
Ended
8/31/98
Investment Income
Interest income $ 1,371
Expenses
Investment management 66
Custody and accounting 50
Shareholder servicing 33
Prospectus and shareholder reports 7
Legal and audit 6
Registration 4
Trustees 2
Miscellaneous 1
Total expenses 169
Net investment income 1,202
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 79
Futures (8)
Net realized gain (loss) 71
Change in net unrealized gain or loss on securities 560
Net realized and unrealized gain (loss) 631
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 1,833
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The accompanying notes are an integral part of these financial statements.
T. Rowe Price Georgia Tax-Free Bond Fund
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Unaudited
Statement of Changes in Net Assets
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In thousands
6 Months Year
Ended Ended
8/31/98 2/28/98
Increase (Decrease) in Net Assets
Operations
Net investment income $ 1,202 $ 2,093
Net realized gain (loss) 71 323
Change in net unrealized
gain or loss 560 1,669
Increase (decrease) in
net assets from operations 1,833 4,085
Distributions to shareholders
Net investment income (1,202) (2,093)
Capital share transactions*
Shares sold 10,857 15,932
Distributions reinvested 934 1,573
Shares redeemed (6,670) (8,768)
Increase (decrease) in
net assets from capital
share transactions 5,121 8,737
Net Assets
Increase (decrease) during period 5,752 10,729
Beginning of period 49,455 38,726
End of period $ 55,207 $ 49,455
---------------------------------
*Share information
Shares sold 996 1,494
Distributions reinvested 86 148
Shares redeemed (613) (821)
Increase (decrease) in
shares outstanding 469 821
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Georgia Tax-Free Bond Fund
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Unaudited August 31, 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 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. 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. 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 $10,227,000 and $5,803,000, respectively, for the
six months ended August 31, 1998.
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 $610,000, all of which expires in 2003. The
fund intends to retain gains realized in future periods that may be offset
by available capital loss carryforwards.
At August 31, 1998, the aggregate cost of investments for federal income
tax and financial reporting purposes was $50,991,000, and net unrealized
gain aggregated $3,812,000, all of which was related to appreciated
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 $15,000 was payable at August 31, 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 August 31, 1998, and for the six months 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, $44,000 of management fees were not accrued by
the fund for the six months ended August 31, 1998, and $78,000 remains
unaccrued from a prior period. Additionally, $216,000 of unaccrued
management fees related to a previous expense limitation are subject to
reimbursement through February 28, 1999.
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
$61,000 for the six months ended August 31, 1998, of which $11,000 was
payable at period-end.
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(registered trademark) and
the T. Rowe Price Web site on the Internet. Address: www.troweprice.com
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 all your accounts with T. Rowe Price.
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, Diversifying
Overseas: A Guide to International Investing, Personal Strategy Planner,
Retirees Financial Guide, and Retirement Planning Kit.
*A division of T. Rowe Price Investment Services, Inc. Member NASD/SIPC.
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
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 Bond!
International Bond
MONEY MARKET FUNDS!!
Taxable
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
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 named Equity Index.
** Formerly the closed-end New Age Media Fund. Converted to open-end status
on 7/28/97.
*** Closed to new investors.
! Formerly named Global Government Bond.
!! Neither the funds nor their share prices are insured or guaranteed by the
U.S. government.
Please call for a prospectus. Read it carefully before investing.
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.
For yield, price, last transaction,
current balance, or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access(registered trademark):
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 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
Invest With Confidence(registered trademark)
T. Rowe Price Investment Services, Inc., Distributor. F92-051 8/31/98
