================================================================================
CALIFORNIA TAX-FREE FUNDS
SEMIANNUAL REPORT
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August 31,1996
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Report Highlights
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* During the last six months, the bond market gave back the gains of the
prior six months as the economy grew stronger and expectations of further
easing by the Federal Reserve evaporated.
* California's economy outpaced national averages in employment and retail
sales, and its fiscal outlook strengthened.
* The Money Fund performed in line with its peer group average for the 6- and
12-month periods. Reflecting the tough market, the Bond Fund's 6-month
return was small, but the fund surpassed its peer average for both periods.
* The Money Fund sought to take advantage of rising rates consistent with
price stability; the Bond Fund focused on reducing exposure to rising rates
and adding to general obligation holdings.
* The Fed may tighten monetary policy in the next few months. We expect to
manage these portfolios with a cautious outlook on municipal bond prices,
focusing on improving income when we can.
<PAGE>
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Fellow Shareholders
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The last six months saw the fixed income markets give back the gains
realized during the prior six months, as the economy strengthened and market
expectations of further easing by the Federal Reserve evaporated. Although the
municipal market declined less than the taxable market after the issue of tax
reform faded, six-month returns on tax-free bond funds were virtually flat.
MARKET ENVIRONMENT
The economy regained strength in 1996 after slowing in 1995, with only a
modest pickup in inflation. Stronger growth alone was enough to reverse
expectations of any further Federal Reserve easing after two interest rate cuts
in the second half of 1995 and one earlier this year. While the Fed has not yet
tightened in 1996, it adopted a bias toward tightening in July. Market rates
rose in anticipation of tighter monetary policy.
Most of the adjustment in interest rates occurred in the first quarter of
1996. The 30-year Treasury bond, which reached the 6% level at the end of 1995,
backed up to 6.75% in the first quarter and has since traded within a range of
approximately 6.75% to 7.25%.
In the municipal market, rates rose roughly 50 basis points (100 basis
points equal one percent) from the lowest point reached in early 1996, but
nowhere near the high levels of late 1994. Long-term, high-grade general
obligation bonds yielded 5.75% on August 31, 1996, versus 5.45% six months ago
and 5.85% a year ago. Intermediate-term bonds also moved 50 basis points higher
in the first quarter. Very short-term rates (less than 90 days) moved lower over
the past year, while one-year rates ended the last 12 months unchanged at 3.9%
but 65 basis points higher than six months ago. The net result over the past six
months was a higher and flatter yield curve. Yields on California municipals
generally followed national trends.
[California Yield Indexes showing the T. Rowe Price California Bond Index
and Money Index from 8/31/95 through 8/31/96]
All was not doom and gloom in the municipal bond market over the past six
months. The fading of tax reform concerns caused the municipal market to
outperform taxable markets by a wide margin. As rates approached and then
exceeded 6%, strong retail demand for municipals provided support for the
market. During the summer of 1995, long-term municipal yields equaled 90% or
more of comparable taxable yields; this year yields moved down to 81% of taxable
alternatives, allowing the municipal market to regain the ground it lost.
California's economy continued to expand at a healthy pace. In the first
half of 1996, growth in employment and retail sales exceeded the national rate.
Although new construction is up 15% from last year, it is below the level
anticipated given the overall economic momentum within the state. California's
housing picture remains mixed, with a strong resale market but sluggish home
building.
<PAGE>
==============================
California's budget outlook
. . . is stronger than it has
been in years . . .
- ------------------------------
Reflecting the improved economy, California's budget outlook for the 1997
fiscal year is stronger than it has been in years, and Standard & Poor's
upgraded the state's general obligation bonds from A to A+ in July. This upgrade
also boosted the ratings of bonds issued by the California Public Works Board.
Fiscal stress continued at the local level, however. Large urban counties,
such as Los Angeles, have been affected by heavy social service burdens and
limited revenue raising flexibility. Orange County has significantly reduced its
services and personnel but continues to face fiscal constraints even though it
emerged from bankruptcy (caused by large losses on its pooled investment funds)
in June.
California Tax-Free Money Fund
Yields on California short-term, tax-exempt issues averaged 5 to 25 basis
points less than on comparable national issues during the past year, with the
biggest differences occurring in one- and seven-day securities. The short-term
yield curve steepened noticeably: for the past six months, yields on one-year
maturities averaged 40 basis points more than yields on overnight maturities
whereas in the preceding six months they had averaged four basis points less.
Demand for California municipals was solid, and assets of California
tax-free funds increased 12% over year-ago levels. During the past few months,
the short-term market digested a sizable dose of financings, including offerings
from the state and a number of major counties and cities. Because these
securities do not mature until next year, money funds were limited in the amount
they could purchase and still meet regulatory maturity requirements. Therefore,
to achieve average matu-rity targets, funds had to depend heavily on the very
short end of the curve, which, as mentioned, had the lowest absolute and
relative yields.
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Performance Comparison
Periods Ended 8/31/96 6 Months 12 Months
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California Tax-Free Money Fund 1.42% 2.97%
Lipper California Tax-Exempt
Money Market Funds Average 1.42 2.99
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<PAGE>
Due to the steepening yield curve, growing demand for California short-term
securities, and attractive yields in the one-year area, we closed the period
with a weighted average maturity of 55 days, slightly longer than the peer group
average of 52 days. In retrospect, we should have been less cautious during the
April through July period, when we allowed the fund's maturity to shorten versus
that of the peer group average. Your fund's performance was generally in line
with the peer group average for both the 6- and 12-month periods.
California Tax-Free Bond Fund
Long-term California municipal bonds performed better than bonds from other
states over the past year as the state's credit quality strengthened and the
market continued to rebound from the Orange County bankruptcy. This occurred
despite a 30% increase in issuance through August.
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Performance Comparison
Periods Ended 8/31/96 6 Months 12 Months
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California Tax-Free Bond Fund 0.66% 6.30%
Lipper California Municipal
Debt Funds Average 0.05 5.67
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Reflecting the difficult bond environment, your fund's six-month return was
positive though small, as income more than offset the price decline. Performance
for the 12-month period was solid. We are pleased to report that returns for
both periods exceeded the fund's peer group average, as shown in the table.
Our strategy over the past six months had two aims: to manage interest rate
risk by keeping our duration at or below the neutral range, and to try to take
advantage of the state's improving credit quality. Between February and May, we
kept the duration of the fund at or below 7.5 years, which we define as the low
end of the neutral range. Over the summer, we moved into the 7.5-to 8-year area
as interest rates settled into a trading range, and we sought to put money to
work whenever interest rates spiked and prices fell. By the end of August, the
fund's 7.9-year duration was similar to year-ago levels but longer than six
months ago.
We increased our exposure to general obligation debt and dedicated tax
revenue bonds to benefit from the state's improving tax base. This was less
successful than we hoped because of the high percentage of California bonds that
carry bond insurance, which mutes positive price action from an improving
underlying credit.
<PAGE>
==============================
We . . . feel no inclination
to become more aggressive.
- ------------------------------
The portfolio had a modest "barbell" structure at the end of August, with
12% of total assets in maturities of five years or less and 87% in those of 10
years or longer. We think this structure will perform well if the yield curve
continues to flatten. In line with this strategy, we took advantage of
attractive one-year note yields in August to put some cash to work there. As
always, we continued to look for the best combination of discount, current
coupon, and premium priced bonds to fit our interest rate outlook.
We ended the period in a neutral posture and feel no inclination to become
more aggressive. The relative outperformance of municipal bonds versus the
taxable markets over the past few months and an expected upturn in supply in the
third quarter are reasons enough to be patient.
Outlook
The last six months have seen a major change in the outlook for the
economy, causing a shift in the shape and level of the municipal yield curve.
The risk of an overheating economy has grown, and the Fed will likely nudge
rates higher to cool things down in coming months. The current expansion is now
over five years old, roughly twice the length of an average expansion prior to
1982. However, old age is not a cause for an expansion to end. There is no
reason why the current expansion could not continue if interest rates are high
enough to restrain inflation, yet low enough to keep unemployment at bay.
Little has changed from a year ago in terms of interest rate levels, but much
has changed about market psychology. A year ago, this market was consumed with
worries about the impact of tax reform proposals on municipal bonds, and it was
convinced the economy was slowing down. Today, tax reform is on the back burner,
and the economy has picked up steam.
As mentioned, we believe the Fed is likely
to raise short-term rates, which is at least partly factored in by the market.
Municipal securities have performed well this year in relation to their taxable
counterparts, resulting in lower yield relationships (as a percent of taxable
yields) that will be difficult to improve upon. An expected pickup in supply
again after a quiet summer may also put some pressure on the municipal market.
For these reasons, we expect to continue managing the fund with a cautious
perspective on interest rates, trying to add performance value through credit
research and by taking advantage of trading ranges of California debt.
Respectfully submitted,
[Signature]
Patrice L. Berchtenbreiter
Chairman of the Investment Advisory Committee
California Tax-Free Money Fund
[Signature]
Mary J. Miller
Chairman of the Investment Advisory Committee
California Tax-Free Bond Fund September 20, 1996
<PAGE>
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Keeping Taxes To A Minimum
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As the saying goes, it's not what you earn but what you keep that counts.
The ability to provide tax-exempt income is the chief appeal of municipal bond
funds, and investors in higher tax brackets often find these funds advantageous.
Some funds invest in securities that offer the triple benefit of being free from
federal, state, and local taxes.
Investors should remember, however, that the total return on most municipal
bond funds may not be entirely tax-free. To avoid federal income taxes,
municipal funds must distribute all of their capital gains to shareholders each
year. These distributions are fully taxable. On infrequent occasions, municipal
funds may also purchase securities whose income is taxable, if permitted by the
prospectus.
Therefore, to judge accurately how well a fund minimizes taxes, investors
should focus not just on income but on the gain or loss from the sale of
securities, since both components make up total return. A fund's overall tax
efficiency -- the percentage of its return that actually winds up in
shareholders' pockets -- is calculated by dividing its after-tax total return by
its pretax total return. For example, an optimum tax efficiency of 100% would
indicate that these two returns were equal -- the shareholders paid no taxes. In
reality, most municipal funds fall somewhat below this level due primarily to
taxable capital gain distributions.
At T. Rowe Price, our main goal in managing municipal bond portfolios is to
provide competitive total return performance. At the same time, we strive to
minimize capital gain distributions and other factors that would saddle our
shareholders with taxes. "We don't allow tax considerations to drive our
portfolio management, but we remain sensitive to taxes in our overall approach
to management," says Mary J. Miller, Director of T. Rowe Price's Municipal Bond
Department. Inevitably, there are times when market conditions necessitate the
sale of a security despite the tax consequences. However, we are generally able
to offset capital gains with losses incurred on the sale of other securities.
Under Internal Revenue Service rules, losses can be carried for up to eight
years to offset gains. "Our goal is to minimize capital gains by offsetting them
with losses, so there would be no taxable event to the shareholder," says Ms.
Miller.
<PAGE>
==============================
WE REMAIN SENSITIVE TO TAXES
IN OUR OVERALL APPROACH . . .
- ------------------------------
While not intentionally pursuing losses, T. Rowe Price aims to take
advantage of them when they occur. For instance, when municipal bond prices have
reached a cyclical low, we may sell some securities that are trading below our
purchase price and reinvest the proceeds in higher-yielding securities. That
strategy enhances the fund's income and also provides a tax loss that can be
employed anytime in the following eight years to offset capital gains.
According to Morningstar,* the California Tax-Free Bond Fund's average tax
efficiency rating for the five-year period ended August 31, 1996, was 97.9%.
(Ratings are not calculated for municipal money funds, which are assumed to be
100% tax efficient.) While our foremost goal is to provide competitive total
returns, we will continue to do our best to limit the amount of money you have
to surrender to the IRS.
================================================================================
*Although data are gathered from reliable sources, completeness
and accuracy cannot be guaranteed.
================================================================================
<PAGE>
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Portfolio Highlights
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Key statistics
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2/29/96 8/31/96
California Tax-Free Money Fund
- --------------------------------------------------------------------------------
Price Per Share $ 1.00 $ 1.00
Dividends Per Share
For 6 months 0.015 0.014
For 12 months 0.032 0.029
Dividend Yield (7-Day Compound) * 2.70% 2.87%
Weighted Average Maturity (days) 48 55
Weighted Average Quality ** First Tier First Tier
California Tax-Free Bond Fund
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Price Per Share $ 10.45 $ 10.24
Dividends Per Share
For 6 months 0.28 0.27
For 12 months 0.55 0.55
Dividend Yield *
For 6 months 5.37% 5.30%
For 12 months 5.52 5.41
Weighted Average Maturity (years) 18.0 18.0
Weighted Average Effective Duration (years) 7.5 7.9
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.
** All securities purchased in the money fund are rated in the two highest
categories (tiers) as established by national rating agencies or, if
unrated, are deemed of comparable quality by T. Rowe Price.
*** Based on T. Rowe Price research. Note: The Money Fund seeks to maintain a
stable share price of $1.00, but this is not guaranteed. An investment in
the fund is neither insured nor guaranteed by the U.S. government.
- --------------------------------------------------------------------------------
<PAGE>
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Portfolio Highlights
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Sector Diversification
- --------------------------------------------------------------------------------
Percent of Percent of
Net Assets Net Assets
2/29/96 8/31/96
California Tax-Free Money Fund
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Hospital Revenue 21 16%
General Obligation-Local 7 12
Lease Revenue 9 10
Water and Sewer Revenue 13 10
Prerefunded Bonds 13 9
Nuclear Revenue 7 7
Dedicated Tax Revenue 8 6
Electric Revenue 1 6
Educational Revenue 6 5
Industrial and Pollution Control Revenue - 4
Pooled Loan Revenue 4 4
General Obligation-State 4 4
Air and Sea Transportation Revenue 5 4
Other Assets Less Liabilities 2 3
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Total 100% 100%
California Tax-Free Bond Fund
- --------------------------------------------------------------------------------
Dedicated Tax Revenue 13 16%
Water and Sewer Revenue 11 10
Lease Revenue 14 9
Air and Sea Transportation Revenue 10 9
General Obligation-Local 7 9
Housing Finance Revenue 10 8
Prerefunded Bonds 7 7
Nuclear Revenue 8 7
General Obligation-State 3 6
Hospital Revenue 6 5
Educational Revenue 3 4
Escrowed to Maturity 2 2
All Other 5 7
Other Assets Less Liabilities 1 1
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Total 100% 100%
================================================================================
<PAGE>
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Performance Comparison
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These charts show the value of a hypothetical $10,000 investment in each
fund over the past 10 fiscal year periods or since inception (for funds lacking
10-year records). The result is compared with a broad-based average or index.
The index return does not reflect expenses, which have been deducted from the
fund's return.
[California Tax-Free Money Fund SEC graph shown here]
[California Tax-Free Bond Fund SEC graph shown here]
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Average Annual Compound Total Return
- --------------------------------------------------------------------------------
This table shows how each fund would have performed each year if its actual
(or cumulative) returns for the periods shown had been earned at a constant
rate.
================================================================================
Since Inception
Periods Ended 8/31/96 1 Year 3 Years 5 Years Inception Date
- --------------------------------------------------------------------------------
California Tax-Free Money Fund 2.97% 2.72% 2.63% 3.57% 9/15/86
California Tax-Free Bond Fund 6.30 4.21 7.37 6.53 9/15/86
- --------------------------------------------------------------------------------
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>
================================================================================
T. Rowe Price California Tax-Free Money Fund
================================================================================
<TABLE>
Unaudited For a share outstanding throughout each period
====================================================================================================================================
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6 Months Year
Ended Ended
8/31/96 2/29/96 2/28/95 2/28/94 2/28/93 2/29/92
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
Beginning of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Investment activities
Net investment income 0.014* 0.032* 0.025* 0.019* 0.023* 0.035*
Distributions
Net investment income (0.014) (0.032) (0.025) (0.019) (0.023) (0.035)
NET ASSET VALUE
End of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Ratios/Supplemental Data
Total return 1.42%* 3.24%* 2.55%* 1.92%* 2.31%* 3.55%*
Ratio of expenses to
average net assets 0.55%*+ 0.55%* 0.55%* 0.55%* 0.55%* 0.55%*
Ratio of net investment
income to average
net assets 2.77%*+ 3.20%* 2.51%* 1.90%* 2.29%* 3.50%*
Net assets, end of period
(in thousands) $ 74,498 $ 72,739 $ 76,289 $ 74,016 $ 66,617 $ 70,302
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
* Excludes expenses in excess of a 0.55% voluntary expense limitation in effect 11/7/90 through 2/28/97.
+ Annualized.
====================================================================================================================================
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
T. Rowe Price California Tax-Free Bond Fund
================================================================================
<TABLE>
Unaudited For a share outstanding throughout each period
====================================================================================================================================
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6 Months Year
Ended Ended
8/31/96 2/29/96 2/28/95 2/28/94 2/28/93 2/29/92
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
Beginning of period $ 10.45 $ 10.00 $ 10.43 $ 10.65 $ 9.85 $ 9.51
Investment activities
Net investment income 0.27 0.55 0.55* 0.56* 0.57* 0.59*
Net realized and
unrealized gain (loss) (0.21) 0.45 (0.41) 0.01 0.80 0.34
Total from
investment activities 0.06 1.00 0.14 0.57 1.37 0.93
Distributions
Net investment income (0.27) (0.55) (0.55) (0.56) (0.57) (0.59)
Net realized gain -- -- (0.02) (0.23) -- --
Total distributions (0.27) (0.55) (0.57) (0.79) (0.57) (0.59)
NET ASSET VALUE
End of period $ 10.24 $ 10.45 $ 10.00 $ 10.43 $ 10.65 $ 9.85
Ratios/Supplemental Data
Total return 0.66% 10.28% 1.60%* 5.37%* 14.41%* 10.05%*
Ratio of expenses to
average net assets 0.63%+ 0.63% 0.60%* 0.60%* 0.60%* 0.60%*
Ratio of net investment
income to average
net assets 5.28%+ 5.40% 5.60%* 5.19%* 5.69%* 6.07%*
Portfolio turnover rate 60.8%+ 61.9% 78.0% 73.4% 57.5% 80.3%
Net assets, end of period
(in thousands) $ 148,087 $ 146,194 $ 131,953 $ 151,936 $ 143,973 $ 108,494
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
* Excludes expenses in excess of a 0.60% voluntary expense limitation in effect through 2/28/95. + Annualized.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
T. Rowe Price California Tax-Free Money Fund
================================================================================
Unaudited August 31, 1996
Statement of Net Assets
Par Value
In thousands
- --------------------------------------------------------------------------------
CALIFORNIA 97.4%
California, GO, RAN
VRDN (Currently 3.25%) ................................... $1,500 $1,500
4.50%, 6/30/97 ........................................... 1,400 1,406
California Dept. of Water Resources, 4.00%, 12/1/96 ...... 100 100
California EFA
California Institute Of Technology
VRDN (Currently 3.20%) ................................... 2,000 2,000
Stanford University, VRDN (Currently 3.20%) .............. 2,000 2,000
California HFFA
Catholic Healthcare West, VRDN (Currently 3.25%)
(MBIA Insured) ........................................... 2,000 2,000
Kaiser Permanente, VRDN (Currently 3.15%) ................ 500 500
Pooled Loan Program, VRDN (Currently 3.35%)
(FGIC Insured) ........................................... 3,000 3,000
Santa Barbara Cottage Hosp ...............................
VRDN (Currently 3.15%) ................................... 3,400 3,400
California Pollution Control Fin. Auth., PCR
Pacific Gas and Electric
VRDN (Currently 3.35%) * ................................. 3,500 3,500
Shell Oil, VRDN (Currently 3.80%) * ...................... 1,300 1,300
California Statewide CDA
Chevron Inc., 3.80%, 9/3/96 * ............................ 1,900 1,900
Kaiser Permanente, VRDN (Currently 3.15%) ................ 3,000 3,000
St. Joseph Health Systems
VRDN (Currently 3.15%) ................................... 2,600 2,600
VRDN (Currently 3.65%) ................................... 300 300
East Bay Municipal Utility Dist., Waste Water Systems
TECP, 3.45%, 9/9/96 ...................................... 800 800
Irvine Public Fac. and Infrastructure Auth ...............
VRDN (Currently 3.30%) ................................... 3,400 3,400
Kern County Union High School Dist., Golden Empire Schools
VRDN (Currently 3.40%) ................................... 1,100 1,100
Long Beach
GO, TRAN, 4.50%, 9/19/96 ................................. 1,000 1,000
Harbor Revenue
4.50%, 5/15/97 ........................................... 500 502
TECP, 3.60 - 3.65%, 9/17 - 10/7/96 * ..... $2,000 $2,000
<PAGE>
Los Angeles County
GO, TRAN, 4.50%, 6/30/97 ..................... 2,000 2,009
Pension Obligation, GO, VRDN (Currently 3.20%)
(AMBAC Insured) ............................. 1,100 1,100
Los Angeles Dept. Water and Power, TECP
3.45 - 3.55%, 9/13 - 11/15/96 ............... 1,500 1,500
Los Angeles Waste Water Systems, TECP
3.45 - 3.50%, 9/13 - 11/14/96 ............... 2,500 2,500
Metropolitan Water Dist. of Southern California
VRDN (Currently 3.20%)
(AMBAC Insured) ............................. 1,400 1,400
TECP, 3.40 - 3.55%, 10/4 - 11/8/96 ........... 1,600 1,600
MSR Public Power Agency, San Juan, VRDN (Currently 3.30%)
(AMBAC Insured) ............................. 1,000 1,000
Newport Beach, Hoag Memorial Hosp. Presbyterian
VRDN (Currently 3.70%) ...................... 200 200
Oakland
COP, VRDN (Currently 3.75%) .................. 1,700 1,700
GO, TRAN, 4.75%, 6/30/97 ..................... 1,000 1,007
Riverside County
COP, VRDN (Currently 3.50%) .................. 710 710
TRAN, 3.20%, 9/4/96 .......................... 2,900 2,900
Sacramento Municipal Utility Dist ............................
Electric, 6.625%, 2/1/17 (FGIC Insured)
(Prerefunded 2/1/97+) ....................... 1,665 1,721
San Bernardino County Transportation Auth ....................
VRDN (Currently 3.35%) ...................... 1,700 1,700
San Diego, GO, TAN, 4.50%, 7/2/97 ............................ 1,000 1,006
San Diego County Water Auth ..................................
7.30%, 5/1/09 (Prerefunded 5/1/97+) .................. 2,000 2,087
San Francisco City and County, GO, TRAN, 4.75%, 9/19/96 ...... 500 500
San Jose, Convention Center, COP
7.875%, 9/1/10 (Prerefunded 9/1/96+) ........ 3,000 3,060
San Jose/Santa Carla Water Fin. Auth .........................
VRDN (Currently 3.20%) ...................... 1,000 1,000
San Luis Obispo County, GO, TRAN, 4.50%, 7/8/97 .............. 1,000 1,005
San Mateo County, GO, TRAN, 4.50%, 7/1/97 .................... 1,000 1,004
Santa Clara/El Camino Hosp. Dist., Valley Medical Center
VRDN (Currently 3.30%) ...................... $ 500 $ 500
Southern California Public Power Auth
VRDN (Currently 3.20%)
(AMBAC Insured) ............................. 3,500 3,500
Hydroelectric-Hoover Uprating Project
8.125%, 10/1/17
(Prerefunded 10/1/96+) ...................... 30 31
Stanislaus County, GO, TRAN, 4.50%, 7/1/97 ................... 500 503
Total California (Cost $ 72,551) 72,551
<PAGE>
Total Investments in Securities
97.4% of Net Assets (Cost $ 72,551) $ 72,551
Other Assets Less Liabilities ............................ 1,947
NET ASSETS ............................................... $ 74,498
Net Assets Consist of:
Accumulated net investment income - net of distributions . $ 4
Accumulated net realized gain/loss - net of distributions (110)
Paid-in-capital applicable to 74,608,012 shares of no par
value shares of beneficial interest outstanding; unlimited
number of shares authorized .............................. 74,604
NET ASSETS ............................................... $ 74,498
NET ASSET VALUE PER SHARE ................................ $ 1.00
* Interest subject to alternative minimum tax
+ Used in determining portfolio maturity
AMBAC AMBAC Indemnity Corp.
CDA Community Development Administration
COP Certificates of Participation
EFA Educational Facility Authority
FGIC Financial Guaranty Insurance Company
GO General Obligation
HFFA Health Facility Financing Authority
MBIA Municipal Bond Investors Assurance Corp.
PCR Pollution Control Revenue
RAN Revenue Anticipation Note
TAN Tax Anticipation Note
TECP Tax-Exempt Commercial Paper
TRAN Tax Revenue Anticipation Note
VRDN Variable Rate Demand Note
================================================================================
T. Rowe Price California Tax-Free Bond Fund
================================================================================
Unaudited August 31, 1996
Statement of Net Assets
Par Value
In thousands
- --------------------------------------------------------------------------------
CALIFORNIA 98.6%
Alameda County, COP, 6.00%, 9/1/21 (MBIA Insured) ....... $1,000 $1,000
Brea Public Fin. Auth., Tax Allocation Redev ............
6.75%, 8/1/22 (MBIA Insured) ............ 1,435 1,557
California
GO, 6.40%, 2/1/20 * ..................... 2,200 2,227
GO, 5.90%, 3/1/25 (AMBAC Insured) ....... 2,500 2,486
GO, 6.125%, 10/1/11 (FGIC Insured) ...... 1,000 1,068
GO, RAN, 4.50%, 6/30/97 ................. 2,900 2,916
<PAGE>
California Dept. of Water Resources
Central Valley
7.00%, 12/1/11 .......................... 1,730 1,989
7.00%, 12/1/12 .......................... 1,000 1,146
California EFA
Pooled College and Univ .........................
5.60%, 12/1/14 .......................... 1,000 957
5.60%, 12/1/20 .......................... 1,000 936
St. Mary's College of California
7.50%, 10/1/20
(Prerefunded 10/1/00+) .................. 2,000 2,256
California HFA, Catholic Healthcare West
5.75%, 7/1/15 (AMBAC Insured) ........... 1,050 1,029
California HFFA, St. Joseph's Health System
VRDN (Currently 3.65%) .................. 270 270
California Housing Fin. Agency
6.15%, 8/1/16 * ......................... 1,000 995
6.70%, 8/1/15 ........................... 1,100 1,131
6.70%, 8/1/25 * ......................... 985 1,010
6.85%, 8/1/17 ........................... 3,115 3,243
7.20%, 8/1/09 ........................... 305 319
7.25%, 8/1/10 ........................... 230 235
7.25%, 8/1/17 ........................... 1,000 1,063
7.625%, 8/1/09 .......................... 860 875
7.875%, 8/1/19 .......................... 440 459
8.00%, 8/1/19 ........................... 215 226
8.10%, 8/1/07 ........................... 300 313
8.20%, 8/1/17 ........................... 1,425 1,484
California Pollution Control Fin. Auth., PCR
Pacific Gas and Electric
5.85%, 12/1/23 (MBIA Insured) * ......... $2,000 $1,926
Shell Oil, VRDN (Currently 3.70%) ............... 700 700
Southern California Edison
6.85%, 12/1/08 (AMBAC Insured) .......... 1,000 1,070
California Public Works Board
Dept. of Corrections, 6.875%, 11/1/14 ........... 1,000 1,091
Univ. of California
5.50%, 6/1/14 ........................... 2,000 1,913
6.40%, 12/1/16 (AMBAC Insured) .......... 1,000 1,059
California Statewide CDA, Sutter Health, COP
5.50%, 8/15/23 (MBIA Insured) ........... 2,000 1,867
Castaic Lake Water Agency
Water System Improvement, COP
7.00%, 8/1/12 (MBIA Insured) ............ 1,000 1,143
7.00%, 8/1/13 (MBIA Insured) ............ 1,700 1,942
Castaic Union School Dist., GO
Zero Coupon, 5/1/18 (FGIC Insured) ...... 6,675 1,831
<PAGE>
Central Coast Water Auth., State Water Project Regional Fac ..
6.60%, 10/1/22 (AMBAC Insured) ............... 1,000 1,079
Contra Costa Water Dist ......................................
5.00%, 10/1/20 (FGIC Insured) ................ 1,500 1,320
7.625%, 10/1/08
(Prerefunded 10/1/98+) ....................... 500 544
Corona Redev. Agency, Tax Allocation
6.25%, 9/1/13 (FGIC Insured) ................. 1,000 1,046
Coronado CDA
Tax Allocation
5.50%, 9/1/22 (FSA Insured) .................. 2,500 2,377
5.70%, 9/1/12 (FSA Insured) .................. 1,000 988
East Bay Municipal Utility Dist., Water System, 6.00%, 6/1/12 2,000 2,006
Emeryville Public Fin. Auth., Housing Increment Loan
6.20%, 9/1/25 ................................ 1,000 983
Foothill / Eastern Transportation Corridor Agency
California Toll Road, Zero Coupon, 1/1/17 ............ 4,000 1,021
Fresno, Sewer, 6.00%, 9/1/10 (MBIA Insured) .................. 1,000 1,052
Fresno Joint Powers Fin. Auth, 5.75%, 9/2/98 ................. $ 500 $ 505
Inglewood Redev. Agency, Century Redev., 6.125%, 7/1/23 ...... 2,800 2,677
Inland Empire Solid Waste Fin. Auth ..........................
San Bernardino County Landfills
6.25%, 8/1/11 (FSA Insured) * ................ 1,000 1,028
Kern County Union High School Dist., GO
7.00%, 8/1/10 (MBIA Insured) ................. 1,000 1,154
Long Beach, Harbor Revenue, 7.25%, 5/15/19 * ................. 2,500 2,644
Los Angeles, Wastewater System, 7.10%, 6/1/18 ................ 1,000 1,070
Los Angeles County
Civic Center Heating and Refrigerating Plant, COP
8.00%, 6/1/10 (Prerefunded 6/1/98+) .......... 500 541
Marina del Rey, COP, 6.50%, 7/1/08 ................... 1,000 1,005
Los Angeles County Metropolitan Transportation Auth ..........
Sales Tax, 7.40%, 7/1/15 ............................. 515 559
Los Angeles Harbor Dept ......................................
6.50%, 8/1/25 ................................ 1,000 1,052
6.625%, 8/1/19 * ............................. 2,500 2,621
7.60%, 10/1/18
(Escrowed to Maturity) ....................... 3,000 3,617
Los Angeles Municipal Improvement Corp. ......................
Central Library, 6.35%, 6/1/20 ....................... 1,500 1,521
Midpeninsula Regional Open Space Dist ........................
Fin. Auth., 5.90%, 9/1/14 (AMBAC Insured) ............ 1,250 1,255
Modesto Irrigation Dist ......................................
Geysers, 6.00%, 10/1/15 (MBIA Insured) ............... 1,500 1,521
Mojave Water Agency, Morongo Basin
5.75%, 9/1/15 (FGIC Insured) ................. 3,000 2,959
Mt. Diablo Hosp. Dist ........................................
8.00%, 12/1/11 (AMBAC Insured)
(Prerefunded 12/1/00+) ....................... 1,250 1,434
<PAGE>
Newport Beach, Hoag Memorial Hosp. Presbyterian
VRDN (Currently 3.70%) ....................... 450 450
Oakland, GO, 7.60%, 8/1/21 (FGIC Insured) .................... 3,500 3,760
Orange County
COP, 7.625%, 6/1/19
(Prerefunded 6/1/99+) ........................ 1,750 1,925
Recovery
6.00%, 6/1/08 (MBIA Insured) ............... $1,000 $1,053
6.00%, 6/1/10 (MBIA Insured) ............... 1,550 1,610
COP, 6.00%, 7/1/26 (MBIA Insured) .................. 1,000 996
Orange County Local Transportation Auth., Sales Tax
6.00%, 2/15/09 (AMBAC Insured) ............. 750 783
Orchard School Dist., GO, 6.50%, 8/1/19 (FGIC Insured) ..... 1,000 1,066
Pittsburg PFA, Wastewater, 5.375%, 6/1/22 (FGIC Insured) ... 1,000 932
Placentia PFA, Special Tax, 6.60%, 9/1/15 .................. 1,000 958
Port of Oakland, 7.25%, 11/1/16 (BIGI Insured) ............. 1,600 1,662
Redding Joint Powers Fin. Auth., Electrical Systems
5.25%, 6/1/15 (MBIA Insured) ............... 1,000 936
Riverside County, Desert Justice Fac., COP
6.00%, 12/1/12 (MBIA Insured) .............. 1,000 1,020
Sacramento City Fin. Auth., Lease, 5.00%, 11/1/14 .......... 2,000 1,845
Sacramento County
GO, TRAN, 4.50%, 9/30/97 ................... 2,000 2,012
Public Fac., Coroner Crime Laboratory, COP
6.375%, 10/1/14 (AMBAC Insured) ............ 1,000 1,055
San Bernardino County, West Valley Detention Center
7.70%, 11/1/18
(Prerefunded 11/1/98+) ..................... 500 546
San Diego, IDR, San Diego Gas and Electric
6.40%, 9/1/18 (MBIA Insured) ............... 1,175 1,234
San Francisco, Public Utility Commission, 8.00%, 11/1/11 ... 1,000 1,062
San Francisco City and County
Airport
6.50%, 5/1/18 (AMBAC Insured) * ............ 4,000 4,177
6.30%, 5/1/25 (FGIC Insured) * ............. 1,000 1,025
San Joaquin Hills Transportation Corridor Agency
Toll Road, Zero Coupon, 1/1/00 ..................... 1,500 1,244
Santa Clara County Fin. Auth., VMC Fac .....................
7.75%, 11/15/11 (AMBAC Insured) ............ 1,000 1,224
Santa Clara Redev. Agency, Bayshore North
7.00%, 7/1/10 (AMBAC Insured) .............. 3,000 3,444
Santa Margarita/Dana Point Auth ............................
7.25%, 8/1/10 (MBIA Insured) ............... 1,000 1,172
South Orange County PFA, 7.00%, 9/1/07 (MBIA Insured) ...... 2,000 2,304
Southern California Public Power Auth
Multiple Projects
6.75%, 7/1/10 .............................. $ 2,100 $ 2,322
6.75%, 7/1/12 .............................. 1,700 1,882
Palo Verde, 5.00%, 7/1/15 (AMBAC Insured) .......... 2,000 1,791
<PAGE>
Torrance, Little Company of Mary Hosp., 6.875%, 7/1/15 .. 1,305 1,370
Tri City Hosp. Dist .....................................
7.50%, 2/1/17 (MBIA Insured)
(Prerefunded 2/1/02+) ................... 2,000 2,301
Tulare County, Capital Improvement
6.00%, 2/15/16 (MBIA Insured) ........... 1,000 1,000
Univ. of California
Multiple Purpose
5.00%, 9/1/14 (AMBAC Insured) ........... 3,000 2,712
5.00%, 9/1/23 (AMBAC Insured) ........... 4,000 3,488
Parking System
7.75%, 11/1/16
(Prerefunded 11/1/96+) .................. 250 257
Upland, San Antonio Community Hosp., COP, 5.75%, 1/1/07 . 1,000 1,005
Valley Health Systems, 6.50%, 5/15/25 ................... 750 717
Vista CDA
5.25%, 9/1/15 (MBIA Insured) ............ 1,000 936
5.50%, 9/1/23 (MBIA Insured) ............ 1,510 1,425
Total California (Cost .................................. $140,102) 146,012
PUERTO RICO 0.8%
Puerto Rico Electric Power Auth .........................
7.00%, 7/1/21 (Pre-refunded 7/1/01+) .... 1,000 1,119
Total Puerto Rico (Cost ................................. $ 1,009) 1,119
Total Investments in Securities
99.4% of Net Assets (Cost $141,111) $147,131
Futures Contracts
In thousands
Contract Unrealized
Expiration Value Gain (Loss)
Long, 6 Municipal Bond Index
contracts, $10,000 of
Municipal bonds pledged as
initial margin 9/96 $(682,000) $ 9
Net payments (receipts) of
variation margin to date (7)
Variation margin receivable
(payable) on open futures contracts ............................. 2
Other Assets Less Liabilities ................................... 954
NET ASSETS ...................................................... $ 148,087
Net Assets Consist of:
Accumulated net investment income - net of distributions ........ $ 5
Accumulated net realized gain/loss - net of distributions ....... (1,696)
Net unrealized gain (loss) ...................................... 6,029
Paid-in-capital applicable to 14,460,978 shares of no par
value shares of beneficial interest outstanding; unlimited
number of shares authorized ..................................... 143,749
NET ASSETS ...................................................... $ 148,087
NET ASSET VALUE PER SHARE ....................................... $ 10.24
<PAGE>
* Interest subject to alternative minimum tax
+ Used in determining portfolio maturity
AMBAC AMBAC Indemnity Corp.
BIGI Bond Investors Guaranty Insurance
CDA Community Development Administration
COP Certificates of Participation
EFA Educational Facility Authority
FGIC Financial Guaranty Insurance Company
FSA Financial Security Assurance Corp.
GO General Obligation
HFA Health Facility Authority
HFFA Health Facility Financing Authority
IDR Industrial Development Revenue
MBIA Municipal Bond Investors Assurance Corp.
PCR Pollution Control Revenue
PFA Public Facility Authority
RAN Revenue Anticipation Note
TRAN Tax Revenue Anticipation Note
VRDN Variable Rate Demand Note
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
Money Fund Bond Fund
6 Months 6 Months
Ended Ended
8/31/96 8/31/96
- --------------------------------------------------------------------------------
Investment Income
Interest income ....................................... $1,244 $ 4,336
Expenses
Investment management ......................... 95 317
Custody and accounting ........................ 50 61
Shareholder servicing ......................... 44 58
Legal and audit ............................... 6 7
Prospectus and shareholder reports ............ 4 5
Trustees ...................................... 3 3
Registration .................................. 2 2
Miscellaneous ................................. 2 4
Total expenses ................................ 206 457
Net investment income ................................. 1,038 3,879
Realized and Unrealized Gain(Loss)
Net realized gain (loss)
Securities .................................... 8 (539)
Futures ....................................... -- 43
Net realized gain (loss) ...................... 8 (496)
Change in net unrealized gain or loss
Securities .................................... -- (2,481)
Futures ....................................... -- 33
Change in net unrealized gain or loss ......... -- (2,448)
Net realized and unrealized gain (loss) ............... 8 (2,944)
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS ................................ $ 1,046 $ 935
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
====================================================================================================================================
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
In thousands
<S> <C> <C> <C> <C>
Money Fund Bond Fund
6 Months Year 6 Months Year
Ended Ended Ended Ended
8/31/96 2/29/96 8/31/96 2/29/96
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
Operations
Net investment income ...................... $ 1,038 $ 2,303 $ 3,879 $ 7,498
Net realized gain (loss) ................... 8 25 (496) 2,386
Change in net unrealized
gain or loss ............................... -- 25 (2,448) 3,713
Increase (decrease) in
net assets from operations ................. 1,046 2,353 935 13,597
Distributions to shareholders
Net investment income ...................... (1,038) (2,303) (3,879) (7,498)
Capital share transactions *
Shares sold ................................ 37,816 58,518 14,810 25,056
Distributions reinvested ................... 973 2,098 2,716 5,185
Shares redeemed ............................ (37,038) (64,216) (12,689) (22,099)
Increase (decrease) in
net assets from capital
share transactions ......................... 1,751 (3,600) 4,837 8,142
Net Assets
Increase (decrease)
during period ...................................... 1,759 (3,550) 1,893 14,241
Beginning of period ................................ 72,739 76,289 146,194 131,953
End of period ...................................... $ 74,498 $ 72,739 $ 148,087 $ 146,194
*Share information
Shares sold ................................ 37,816 58,518 1,447 2,445
Distributions reinvested ................... 973 2,098 266 506
Shares redeeemed ........................... (37,038) (64,216) (1,243) (2,159)
Increase (decrease)
in shares outstanding ...................... 1,751 (3,600) 470 792
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 1 - Significant Accounting Policies
- --------------------------------------------------------------------------------
T. Rowe Price California Tax-Free Income Trust (the trust) is registered
under the Investment Company Act of 1940. The California Tax-Free Money Fund
(the Money Fund) and the California Tax-Free Bond Fund (the Bond Fund),
diversified, open-end management investment companies, are two of the portfolios
established by the trust and commenced operations on September 15, 1986.
Valuation
Debt securities are generally traded in the over-the-counter market. Except
for securities held by the Money Fund, 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. Securities held by the Money Fund
are valued at amortized cost. Financial futures contracts are valued at closing
settlement prices.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair value
as determined in good faith by or under the supervision of the officers of each
fund, as authorized by the Board of Trustees.
Premiums and Discounts
Premiums and original issue discounts on municipal securities are amortized
for both financial reporting and tax purposes. Market discounts are recognized
upon disposition of the security as gain or loss for financial reporting
purposes and as ordinary income for tax purposes.
Other
Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses are
reported on the identified cost basis. Distributions to shareholders are
recorded by the fund on the ex-dividend date. Income and capital gain
distributions are determined in accordance with federal income tax regulations
and may differ from those determined in accordance with generally accepted
accounting principles. Payments ("variation margin") made or received by each
fund to settle the daily fluctuations in the value of futures contracts are
recorded as unrealized gain or loss until the contracts are closed. Unrealized
gains and losses on futures contracts are included in Change in net unrealized
gain or loss in the accompanying financial statements.
<PAGE>
Note 2 - Investment Transactions
- --------------------------------------------------------------------------------
Consistent with its investment objectives, the Bond Fund engages in the
following practices to manage exposure to certain risks or enhance performance.
The investment objective, policies, program, and risk factors of the fund are
described more fully in the fund's prospectus and Statement of Additional
Information.
Futures Contracts
At August 31, 1996, the Bond Fund was a party to futures contracts, which
provide for the future sale by one party and purchase by another of a specified
amount of a specific financial instrument at an agreed upon price, date, time,
and place. Risks arise from possible illiquidity of the futures market and from
movements in security values.
Other
Purchases and sales of portfolio securities for the Bond Fund, other than
short-term securities, aggregated $49,820,000 and $41,782,000, respectively, for
the six months ended August 31, 1996.
Note 3 - Federal Income Taxes
- --------------------------------------------------------------------------------
No provision for federal income taxes is required since each fund intends
to continue to qualify as a regulated investment company and distribute all of
its income. The Money Fund has unused realized capital loss carryforwards for
federal income tax purposes of $118,000, of which $19,000 expires in 1997,
$26,000 in 1998, and $73,000 in 2004 . The Bond Fund has unused realized capital
loss carryforwards for federal income tax purposes of $1,084,000, which expires
in 2003. Each fund intends to retain gains realized in future periods that may
be offset by available capital loss carryforwards.
At August 31, 1996, the aggregate costs of investments for the Money and
Bond Funds for federal income tax and financial reporting purposes were
$72,551,000 and $141,111,000, respectively. For the Money Fund, amortized cost
is equivalent to value; and for the Bond Fund, net unrealized gain aggregated
$6,020,000, of which $6,185,000 related to appreciated investments and $165,000
to depreciated investments.
<PAGE>
Note 4 - Related Party Transactions
- --------------------------------------------------------------------------------
The investment management agreement between each fund and T. Rowe Price
Associates, Inc. (the manager) provides for an annual investment management fee,
of which $15,000 and $55,000 were payable at August 31, 1996, by the Money and
Bond Funds, respectively. The fee is computed daily and paid monthly, and
consists of an individual fund fee equal to 0.10% of average daily net assets
and a group fee. The group fee is based on the combined assets of certain mutual
funds sponsored by the manager or Rowe Price-Fleming International, Inc. (the
group). The group fee rate ranges from 0.48% for the first $1 billion of assets
to 0.305% for assets in excess of $50 billion. At August 31, 1996, and for the
six months then ended, the effective annual group fee rate was 0.33%. Each fund
pays a pro-rata share of the group fee based on the ratio of its net assets to
those of the group.
Under the terms of the investment management agreement, the manager is
required to bear any expenses through February 28, 1997, for the Money and Bond
Funds which would cause each fund's ratio of expenses to average net assets to
exceed 0.55% and 0.65%, respectively. Pursuant to this agreement, $66,000 of
management fees were not accrued by the Money Fund for the six months ended
August 31, 1996, and $141,000 remains unaccrued from the prior period. Pursuant
to a prior agreement, $404,000 and $256,000 of management fees remain unaccrued
for the Money and Bond Funds, respectively, as a result of each fundis ratio of
expenses to average net assets exceeding 0.55% and 0.60%, respectively, in prior
periods. Subject to shareholder approval, each fund may reimburse the manager
for these expenses, provided that average net assets have grown or expenses have
declined sufficiently to allow reimbursement without causing each fund's ratio
of expenses to average net assets to exceed 0.55% and 0.65%, respectively, for
the current limitation period and 0.55% and 0.60%, respectively, for the prior
periods.
In addition, each fund has entered into agreements with the manager and a
wholly owned subsidiary of the manager, pursuant to which each fund receives
certain other services. The manager computes the daily share price and maintains
the financial records of each fund. T. Rowe Price Services, Inc., is each fund's
transfer and dividend disbursing agent and provides shareholder and
administrative services to the funds. The Money and Bond Funds incurred expenses
pursuant to these related party agreements totaling approximately $68,000 and
$82,000, respectively, for the six months ended August 31, 1996, of which
$13,000 and $15,000, respectively, were payable at period-end.
<PAGE>
For yield, price, last transaction,
and current balance, 24 hours,
7 days a week, call:
1-800-638-2587 toll free
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
625-6500 Baltimore area
Investor Centers:
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
T. Rowe Price
100 East Pratt Street
Baltimore, Maryland 21202
http://www.troweprice.com
This report is authorized for distribution only to shareholders
and to others who have received a copy of the prospectus of the
T. Rowe Price California Tax-Free Funds.
T. Rowe Price Investment Services, Inc., Distributor
RPRTCAC 8/31/96
